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What to Do if Your Commercial Tenant is in Rent Arrears

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Unfortunately, as a commercial landlord, you may face rent arrears from a commercial tenant. If you find yourself in this situation, there are options to recover the rent arrears your tenant owes you. Your commercial property is your asset and legal interest, so you want to ensure that you benefit from your investment rather than lose money. This article will explain what you can do if your commercial tenant is in rent arrears.

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Enter a Payment Agreement

If you wish to maintain an amicable relationship with your commercial tenant, and their rent arrears does not appear to be a serious long-term problem, consider arranging a payment agreement with your tenant. A payment agreement will set out instalments, which is the amount your tenant will pay you at set times. While in place, you are unlikely to be able to carry out alternative options to recover rent. 

A payment agreement should also state that if your commercial tenant defaults on the agreement, you will proceed with other alternatives to cover the missing rent.

Withdraw From the Rent Deposit

If your commercial tenant gives you a rent deposit, the terms of the Rent Deposit Deed should detail whether and how you can draw upon this for any rent arrears. Deducting amounts from the rent deposit can be a practical option where the missing rent amounts to one or two defaults rather than an accumulation of rent arrears. However, you must give your tenant notice if you wish to draw on the rent deposit. Your tenant will then have to replace any amount you withdraw from the deposit. 

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Recover Payment From Another Party

If you insist on a guarantor for your commercial tenant, as another party in a commercial lease, you can request they pay the rent arrears. However, you must check the lease agreement to review your rights and any rules about pursuing this. You likely also need to instigate court proceedings to require the guarantor to pay.

Also, if there are sub-tenants in the commercial lease, you can serve them a notice to pay you the rent they usually pay your tenant.

Forfeit the Lease

Forfeiture is a standard option available in most commercial leases when a tenant fails to pay their rent. Forfeiture, also known as re-entry, is where a landlord repossesses their property by terminating the lease. This option may be suitable where your commercial tenant is in rent arrears for a lengthy period. Ultimately, you evict your tenant. 

You can do this by peacefully entering the property and changing the locks, but you must ensure that no one is inside the premises when you do this. The commercial lease should state when and how you can exercise peaceable forfeiture. You can also ask a court to issue an order for re-entry. 

Notably, you lose the right to exercise other options you may have in the commercial lease when you choose forfeiture.

If you decide to opt for forfeiture, your commercial tenant has some legal rights concerning this. They may pay the outstanding amount and subsequently ask a court for relief from forfeiture. If the court grants this, your tenant can occupy the property again, meaning they take back possession. You should bear this in mind if you exercise forfeiture and re-let your property, as you could find you face a claim from the new tenant. Forfeiture is a complex process, so it is best practice to seek legal advice.

As a last resort, you can pursue legal options against your tenant to recover the rent arrears.

The Commercial Rent Arrears Recovery (CRAR) process allows you to engage an enforcement agency to seize your tenant’s property and sell items to pay for the rent debt. CRAR is a complex process with numerous notices you must serve your commercial tenant. Therefore, seeking legal assistance is recommended.  

Importantly, you no longer have the right to forfeiture if you proceed with CRAR.

Additionally, where your commercial tenant agrees on the amount of rent arrears, you may want to serve them with a statutory demand to pay them. If your tenant does not pay the stated amount within 21 days, you can start a winding-up or bankruptcy petition on them. This action may prompt your tenant to pay as the threat of bankruptcy is very serious for their business.

Finally, you might consider initiating court proceedings. This process begins with a County Court Judgement and then the enforcement of payment of the debt. Proceeding to court can be a lengthy and costly process, so you should consider this as a last resort. You may find that engaging a lawyer to write and issue a formal letter to your tenant requesting payment is sufficiently serious to prompt them to pay.

Key Takeaways

As a commercial landlord, several options are available if your tenant is in rent arrears. You might start by speaking with your tenant to understand their financial situation and enter a payment agreement with them. If that does not assist, you might notify them that you will withdraw from the rent deposit or recover payment from their guarantor or subtenant, if applicable. There are also legal avenues you can initiate, including the CRAR process or county court proceedings. 

If you need help recovering rent arrears from your commercial tenant, 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. Call us today on 0808 196 8584 or visit our membership page.

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