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As a landlord in the UK, you have options available to recover costs if your tenant breaches a commercial lease. There are various ways to recover costs for a breach, such as through a Section 146 Notice or forfeiture proceedings through court proceedings. This article will summarise the main costs you can recover from your tenant due to a breach of your lease agreement.
Tenant Breaches
A tenant may breach your commercial lease in several ways, which tend to be either ‘continuing breaches’ or ‘one and for all’ breaches. Some examples of continuing breaches are:
- not having property insurance on the commercial premises;
- not repairing the property;
- using the property in a way that has not been agreed upon; and
- sharing the property with unauthorised people, without permission.
Examples of once and for all breaches include:
- not repairing the property by a specific date;
- making alterations your tenants should not have done;
- assigning the property without permission; and
- subletting without permission.
A Section 146 Notice will prompt your tenants to remedy the breach. They can do so by paying reparations or carrying out their lease obligation. Following this, you can take legal action if our tenant fails to remedy the breach within the time frame. This is known as the right to forfeiture. Once a court has determined forfeiture, you can serve your tenants with notice.
Rent Breach
Failing to pay rent slightly differs from other kinds of breaches to a commercial lease. You can proceed with forfeiture through the court or peaceable re-entry into your commercial property. You can do the latter as long as they are not on the property at the time and they do not reside in it.
What Costs Can a Landlord Recover?
There are specific costs you can recover when a lease dispute arises.
Forfeiture
When you serve your tenants with a Section 146 Notice, you may require them to pay reparations for the breach, which is one way to recover costs.
Also, your lease agreement may have a costs recovery clause that details your right to recover costs that arise when you serve the notice. In this circumstance, you may be able to recover these costs. If you take the process of forfeiture through the court for rent arrears, even if the tenant pays these during the process, you can generally recover your costs from them for the application cost.
Commercial Rent Arrears Recovery (CRAR)
If the breach relates to a failure to pay rent, you may be able to recover your costs through Commercial Rent Arrears Recovery (CRAR). This process is where you take items left in the property to make up for the rent the tenant owes you. Before undergoing this process, ensure that you:
- give your tenant notice that you intend to use CRAR;
- only sell goods for the sum of rent, VAT and interest;
- only use CRAR if the commercial property is only for commercial purposes;
- take legal advice about this process.
Debt Proceedings
In some cases of a breach of lease, getting a summary judgement on a claim might be an option. This is when:
- it is unlikely your tenant can defend the claim; and
- the claim will likely miss the trial stage.
If the issue proceeds to court, you may recover a proportion of your costs from your tenant if they lose and are in a position to pay. If it does not, there is no summary judgement. Likewise, the court is likely to order your tenant to pay money to the court as security for you for future rent payments.
Cost Recovery From Other Means
You may also be able to recover costs where your tenant breaches the lease through other people, such as any guarantors and subtenants. You may also recover rent arrears from any rent deposit your tenants paid. However, many rules surround this option. It is best practice to engage a legal professional before undertaking cost recovery from guarantors or subtenants to ensure you are within your rights.
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Key Takeaways
Where your tenant breaches your commercial lease, there are various costs you may be able to recover. For example, you may apply to the court for a summary judgement through debt proceedings, and your tenant will likely have to pay you a proportion of your costs. They may also have to pay money to the court as security for future rent. Additionally, you may be able to recover costs for the breach by asking your tenant to pay reparations through a Section 146 Notice.
If you need help understanding what costs you can recover if a tenant breaches your commercial lease, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
When a tenant breaches your commercial lease agreement, you may be able to recover some costs. For example, if you serve them a Section 146 Notice, they may have to pay reparations for the breach. In addition, if the dispute escalates to court, they may have to cover the costs of your application.
CRAR is a method of recovering costs for the breach of a commercial lease or failure to pay rent. It works by selling the goods your tenant has left in the commercial property.
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