Arrears of rent or any other sums that fall due can cause financial hardship for a landlord. There are a number of options for commercial landlords wishing to recover rent arrears.
Detailed below is an outline of the options open to a commercial landlord should the need arise.
How to recover rent arrears
Forfeiture, otherwise known as re-entry, gives the landlord a right to determine the tenancy where a tenant is in breach of the tenancy.
A commercial landlord will need to consider if getting the property back is the best option, or whether or not the landlord simply wants the breach of the tenancy rectifying, for example, rent paying up to date.
If the landlord does want to its property back, then it is imperative that the correct procedure is followed. If it is not, then the landlord may find the tenant being granted relief from forfeiture.
Rent deposit draw down
A landlord may be able to draw down from the deposit that is held for to recover rent arrears for their commercial property. A point to note however, is that drawing down on the deposit waives a landlords right to forfeit the tenancy.
Pursue a guarantor or former tenant
In the case of pursuing a former tenant or former guarantor for a fixed charge, a landlord must serve a Section 17 Notice within 6 months of the charge falling due. A landlord can only pursue the last 6 months’ worth of rent arrears. If there are more than 6 months worth of outstanding arrears then a Section 17 Notice cannot be used for those arrears.
The Section 17 Notice must be in the prescribed form.
A landlord is entitled to issue court proceedings or commence insolvency proceedings against a tenant when seeking to recover rent arrears.
Whilst there is certain criteria that must be met in relation to insolvency proceedings, this can be hard hitting method. This can force a tenant to face up to its obligations swiftly or run the risk of being made bankrupt (in the case of an individual) or wound up (in the case of a company).
In relation to court proceedings, these can prove costly and be protracted.
Commercial Rent Arrears Recovery (CRAR)
On 6 April 2014, the Commercial Rent Arrears Recovery came into force therefore abolishing the common law remedy of distress.
CRAR applies to all written tenancies of commercial premises. It does not apply to a licence fee.
Please note, by exercising CRAR you agree to waive your right to forfeit the tenancy. Therefore, if your aim as a commercial landlord is to ultimately recover your property when looking to recover rent arrears, then CRAR should not be used.
A further point to note is that CRAR cannot be used to recover any arrears in respect of rates, council tax, insurance, service/maintenance charges or repairs. Again, if these sums are to be claimed then a different course of action will be required.
Negotiate a payment plan or early release from the tenancy
It is open to the parties to agree a way forward suitable to the both. A repayment plan can be agreed or, where the landlord is aware its property is in demand, an early release from the tenancy can be agreed.
However, it is sensible for the landlord and tenant to take legal advice to make sure any agreement is enforceable should either party renege on the agreement.
We advise both national and regional clients on commercial property issues ranging from landlords seeking to recover rent arrears to forfeiture.
For specialist advice tailored to your commercial needs, contact Mark Fagan on 0113 320 500 or e-mail him at email@example.com