In Short
- Clear lease terms matter: Set out rent obligations early and ensure the tenant understands their responsibilities.
- Talk before acting: Discuss late payments with the tenant before escalating the issue.
- Know your options: Recover arrears through deposits, guarantors, CRAR, or court, and consider lease termination if needed.
Tips for Businesses
To avoid rent issues, start with a solid lease and open communication. If your tenant falls behind, explore options like charging interest, using CRAR, or legal action. Always check your lease terms before acting, and seek legal advice to ensure you are complying with UK landlord obligations.
As a commercial landlord, one of your primary concerns is ensuring that tenants pay rent on time and in full. You have legal rights and lease terms that allow you to enforce this obligation. If tenants fail to meet their responsibilities, you may also have access to remedies. It is essential to understand when you can exercise these rights or utilise these remedies.
This article offers a landlord’s guide to dealing with rent arrears and late payments by tenants in the UK.
The Importance of Rent
As a landlord, you and your tenant have rights and responsibilities under a commercial lease. These rights and obligations are outlined in your lease agreement. One of the most essential duties for both you and your tenant is for the tenant to pay the agreed rent on the date specified in the lease. The tenant’s right to occupy the property is usually granted on the condition that they pay rent, and sometimes other amounts due under the lease..
Heads of Terms and Lease Provisions
During the initial negotiation stage, ensure that you agree on all rent payment terms and clearly outline them in the Heads of Terms (if applicable). For example, decide whether rent is payable monthly or quarterly, and agree on how the initial payment will be made. Also, consider any rent-free period or advance rent.
When drafting the lease, ensure that the tenant understands their obligations and that the rent structure accurately reflects the commercial agreement.
Continue reading this article below the formDiscuss Late Payments
While your tenant needs to pay rent on time, it is also crucial to maintain a good relationship with them. It is a good idea to discuss any issues that may cause delays in rent payments or lead to rent arrears. By understanding the cause, you may be able to devise a plan to resolve the situation.
Interest on Late Payments
If your commercial tenant pays rent late, you have the right to charge interest on the overdue payment. The lease will usually include provisions for charging interest in these situations. These provisions may specify a time period after which interest is due on late payments. Ensure that you are aware of your rights under the lease. Seeking legal advice can help you determine the amount of interest you can charge and confirm your right to do so.
Recover Missing Rent
If your commercial tenant is behind on rent, there are ways you can recover the arrears, including:
- drawing from the rent deposit according to the rent deposit deed provisions;
- pursuing the guarantor for the arrears;
- starting a debt recovery process; and
- undertaking the CRAR process.
We will explore each option below.
Rent Deposit
You may have the option to use the rent deposit your tenant provided at the start of the commercial lease to cover any unpaid rent. However, before doing so, consider the following:
- whether the lease agreement or rent deposit deed permits you to deduct rent for non-payment or late payment; and
- whether you prefer to reserve the deposit for other lease-related issues, such as future damages for dilapidations.
Guarantor
The primary purpose of a guarantee is to provide security for the tenant’s obligations under the lease, including financial obligations. If your tenant provided a guarantor when entering the commercial lease, you may be able to pursue the guarantor for any unpaid rent. Many lease guarantee provisions allow you to pursue the guarantor separately from the tenant. However, you should seek legal advice before pursuing a claim against the guarantor.
Debt Recovery
The law allows you to recover reasonable debt recovery costs incurred in your business activities, including those related to late rent or rent arrears.
Commercial Rent Arrears Recovery (CRAR)
CRAR is a procedure that enables you to recover rent owed by your tenant without the need for court action. It involves engaging enforcement agents to recover the rent or seize the tenant’s goods.
You can only use CRAR to recover rent if it is at least seven days overdue. Before enforcement agents take action, you must serve notice on your tenants, and you can also use CRAR for any sub-tenants. Seeking legal advice can help ensure you use this process correctly, as there are risks associated with doing it otherwise. For example, using CRAR waives your right to forfeit the lease, and it can only be used for rent arrears, not other lease payments.
Pursue Legal Action
If your commercial tenant is in rent arrears, you may need to consider legal action. There are several options available to you.
Statutory Demand
You may be able to serve a statutory demand on your tenant if the late payment meets specific criteria. For example, to issue a statutory demand against a company, the outstanding amount must exceed £750. Serving a statutory demand can pressure the tenant to pay, as failure to comply may lead to liquidation. This method is relatively inexpensive for recovering unpaid rent; however, the notice must be served correctly. Landlords should also consider other commercial factors.
Court Action
As a landlord, if all other methods to recover late or unpaid rent have been exhausted, you may decide to proceed with court action. Before proceeding, it is advisable to seek legal advice. It is vital to comply with any pre-action protocols, and your legal advisors can assist with drafting the necessary letters. Generally, court action should be a last resort due to the time and cost involved.
Terminate the Lease Agreement
If a commercial tenant is in rent arrears or frequently pays late, you may feel that the lease is no longer worth continuing and may wish to terminate it.
You can terminate the lease through forfeiture, which is an effective option when your tenant breaches their obligation to pay rent. This can be done either by peaceable re-entry or by serving a section 146 notice on your tenant.
Note that your tenant has the right to seek relief from forfeiture through the court. If your tenant agrees to pay the rent arrears, the court will usually grant relief. However, the tenant will typically also be required to pay your legal costs.
This cheatsheet includes practical tips to understand key clauses and avoid disputes in leasing agreements.
Key Takeaways
If you are a commercial landlord with a tenant who pays rent late or fails to pay, this constitutes a breach of the lease. In such cases, you can charge your tenant interest on the late payments. However, it is always advisable to discuss the reasons for the late payment or rent arrears to see if an agreement can be reached. If necessary, you may need to take one of the rent recovery actions available, such as CRAR. Alternatively, you may choose to take legal action through court proceedings. As a landlord, you can also terminate the lease for rent arrears, such as through forfeiture.
If you need help understanding rent arrears and rent payments in the UK, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to solicitors to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
If your tenant pays rent late or falls into rent arrears, they are breaching the terms of the commercial lease.
If your tenant is late with rent payments, you can, for example, charge interest. This is your legal right.
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