commercial lease<\/a> using the rent deposit is helpful, it does have its downfall. Namely, the rent deposit might not always be large enough to cover all the rent arrears. Additionally, once the rent deposit is gone, the landlord will not have money to draw on for any unpaid dilapidation claims at the end of the lease term.<\/p>\n\n\n\nLegal Considerations For Recovering Rent Arrears<\/h2>\n\n\n\n
Whether or not a commercial landlord can draw on the rent deposit will depend on various factors, and we explore some of these below.<\/p>\n\n\n\n
1. Rent Deposit Deed<\/h3>\n\n\n\n
A rent deposit deed is a legal document that states the rules about the rent deposit. The terms of a deposit deed will detail what the landlord can and cannot do with the rent deposit. If a commercial landlord can recover rent from the rent deposit, it should say so in the rent deed.<\/p>\n\n\n\n
Where a landlord wishes to recover rent arrears from the rent deposit, they must notify their commercial tenant of this. Once they have drawn on the rent deposit, their tenant must top it up to replace the amount the landlord takes.<\/p>\n\n\n\n
2. Forfeiture<\/h3>\n\n\n\n
Commercial landlords should be aware that if they choose to recover rent from the rent deposit, they could lose their right to forfeiture. A right to forfeiture is where a landlord terminates the lease for non-payment of rent. <\/p>\n\n\n\n
3. Insolvency<\/h3>\n\n\n\n
If a commercial tenant becomes insolvent, a landlord may be unable to draw from the rent deposit. The rent deposit deed may provide more information on this. Where the deed gives the landlord control of the deposit, the rent deposit becomes a \u2018financial collateral arrangement\u2019. In this instance, the landlord should be able to draw from the rent deposit. <\/p>\n\n\n\n
Where the rent deposit deed is not clear about insolvency, a landlord may draw from it anyway. They may do this where they know insolvency is imminent because once the tenant becomes insolvent, they may be unable to. <\/p>\n\n\n\n
4. Administration<\/h3>\n\n\n\n
Where a tenant falls into administration, and they owe rent arrears, these will be a priority debt to pay. This is because rent arrears rank higher than debts owed to unsecured creditors. However, if the landlord has been able to withdraw the rent arrears from the rent deposit, the administrator is not obligated to replace what the landlord has drawn on. <\/p>\n\n\n\n
Therefore, if a tenant goes into administration, a landlord should consider whether to draw from the deposit. Instead, they may wish to use this for another purpose, such as dilapidations. They may decide to do the latter and let the administrator cover those rent arrears instead. <\/p>\n\n\n
\n
![\"Front](\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2023\/05\/04050959\/LegalVision-Landlords-Cheatsheet-for-UK-Leasing-Terms.jpg\")
\n