In Short
- Paying rent on time is a core obligation under a commercial lease and is usually non-negotiable.
- Missing rent can trigger serious landlord remedies, including forfeiture, CRAR, court action, or claims against guarantors.
- Acting early and engaging with your landlord can help prevent escalation and protect your premises.
Tips for Businesses
If cash flow issues affect your ability to pay rent, act immediately. Review your lease, speak to your landlord early, and propose a realistic repayment plan. Record any agreement in writing and seek legal advice before signing. Delaying action increases the risk of enforcement, loss of premises, and serious financial consequences.
Rent is one of the most significant financial commitments for many businesses. When cash flow becomes tight, making your rent payments on time can become difficult (especially in challenging economic times). Failing to pay rent under a commercial lease can have serious consequences, and commercial tenants should understand the potential implications and risks associated with doing so. This article explores why paying rent is so important, what actions a landlord may take against you if you cannot pay your rent and some practical steps you can take to manage risk.
This cheatsheet includes practical tips to understand key clauses and avoid disputes in leasing agreements.
The Importance of Paying Rent
A commercial lease is a binding legal contract between you and your landlord. One of its most fundamental terms is your duty to pay rent on time and in full. This is typically an absolute obligation – meaning you must continue to pay rent unless your lease clearly states otherwise.
Failing to pay rent will typically constitute a breach of the lease. That breach can give your landlord several legal remedies – ranging from agreeing on a payment plan to repossessing the property.
What Could Happen if You Fail to Pay
If you fail to pay rent, a landlord may use a range of legal remedies to recover the arrears or even end the lease. The option they choose will usually depend on whether the landlord wants to maintain the relationship with your business or regain possession of the property. Their actions can also depend on financial and economic circumstances at the time.
The landlord may charge you interest and late payment fees for missing payments, where your lease permits this. Some more serious consequences of failing to pay could include the following:
Your Landlord Could Seek to End the Lease Through Forfeiture
A serious remedy which your landlord may exercise is forfeiture. Most commercial leases will allow the landlord to terminate the lease if rent remains unpaid for a set period. They can either change the locks without going to court (known as peaceable re-entry) if your lease allows it and they follow the correct procedure, or issue court proceedings for possession. Once forfeiture takes place, your right to occupy the property ends immediately. However, you may be able to apply to the court for relief from forfeiture if you act quickly and pay the arrears, interest and costs.
Your Landlord Could Seek to Use Your Rent Deposit
If you paid a rent deposit at the start of your lease, your landlord may draw from it to cover unpaid rent or other sums due. This is often a straightforward way to resolve short-term arrears.
Your Landlord Could Seek Payment from a Guarantor
If your lease has a guarantor, the landlord may seek payment from them instead. This option can put pressure on a tenant to resolve arrears quickly – particularly where a guarantor is involved.
Your Landlord May Recover Rent Through CRAR
Commercial Rent Arrears Recovery (CRAR) allows landlords to recover unpaid rent by instructing enforcement agents to seize and sell business goods. The process only applies to principal rent, VAT, and interest (excluding service charges and insurance), and landlords must provide written notice before taking action. Although CRAR does not end the lease, it can be disruptive and damage business operations. You should act immediately if you receive a CRAR notice to avoid further enforcement.
Your Landlord May Go to Court or Start Insolvency Action
If rent remains unpaid, a landlord may issue a court claim to recover arrears or serve a statutory demand for payment. If the arrears are not settled or disputed in time, this can lead to winding-up proceedings against a company or bankruptcy proceedings against an individual tenant. Even the threat of insolvency action can prompt payment, and formal proceedings can seriously affect your business continuity and credit position.
For these reasons and the various risks that can arise, it is essential to stay on top of your rent obligations.
Continue reading this article below the formPractical Steps to Mitigate Risk
If you are struggling to pay rent, your business should act quickly to assess its options. Importantly, you should contact your landlord promptly to explain your situation and seek to agree on a realistic payment plan. Many landlords may be open to temporary concessions if you communicate honestly. If your financial difficulties, which impact your ability to pay, are only temporary, your landlord may agree to a payment plan. For example, they may allow you to pay arrears in instalments while you continue to pay your current rent as usual. A well-structured and robust plan can help you keep your lease and provide valuable breathing space – provided you can realistically comply with the terms.
Before negotiating any such plan with your landlord, carefully review your lease to understand your rent obligations, interest clauses and notice requirements. If you can agree on a plan, remember to record it in writing and seek legal advice on its contents before signing.
Taking Legal Advice
If you have fallen into arrears or your landlord begins enforcement action, your business should seek legal advice straight away. A leasing solicitor can review your lease, assess your options and help deal directly and negotiate with your landlord on your behalf. They can also help you negotiate a repayment plan, respond to enforcement action and protect your position if proceedings have already begun. Acting quickly and seeking specialist advice early can make a significant difference between resolving the issue and losing your business premises.
Key Takeaways
Paying rent under a commercial lease is a key obligation. You must pay it in full and on time – unless your lease explicitly states otherwise. Failing to do so can trigger a range of landlord remedies – including forfeiture, drawing on your rent deposit, or enforcement action. You may be able to avoid escalation by acting promptly, engaging with your landlord and seeking urgent legal advice.
If you need help understanding your lease obligations or dealing with problem issues, LegalVision provides ongoing legal support for all businesses through our fixed-fee legal membership. Our experienced lawyers help businesses across industries manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
If you pay rent late or fall into rent arrears, you are breaching the terms of your commercial lease. This can lead to your landlord charging interest, taking enforcement action, or even ending the lease if the arrears continue.
If you are late with rent payments, your business must act quickly. Contact your landlord to explain the reason for the delay and propose a plan to catch up. Many landlords prefer to agree on a short-term repayment arrangement rather than take formal action.
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