Navigating commercial rent arrears: A landlord’s guide
Managing commercial property involves fostering strong landlord-tenant relationships, with a focus on open communication to minimise the risk of unexpected rent arrears. A proactive, methodical approach to collecting all owed monies helps maintain a healthy business relationship.
Initial Steps: Communication and Consultation
When a tenant falls into arrears, the first step is to establish the reason behind the late payment. Often, there is a simple explanation, and the issue can be resolved quickly. However, a tenant may be facing financial difficulty, in which case a structured payment plan could be the most appropriate solution.
Another immediate option is to draw down the arrears from the tenant’s security deposit, a procedure governed by the rent deposit agreement. For example, if a tenant with a history of prompt payment unexpectedly owes two months of arrears and it is considered a one-off, using the deposit could be a quick way to recover the debt without damaging the long-term landlord and tenant relationship.
Legal Remedies for Persistent Non-Payment
If a tenant’s non-payment of rent is persistent, it is prudent to consider a legal procedure for recovering monies owed; indeed, there are three, primary legal remedies available to commercial landlords:
- Commercial Rent Arrears Recovery (CRAR): This statutory procedure allows landlords, through enforcement agents, to seize a tenant’s goods to the value of the rent arrears, without needing a court order. A key limitation is that CRAR cannot be used to recover debts from unpaid service charges or insurance premiums.
- Court Proceedings: Landlords can issue a money claim through the courts to recover arrears. This can be a lengthy and expensive process, making it most advisable when the landlord is certain the tenant has the financial means to satisfy a judgment.
- Lease Forfeiture: This involves terminating the lease and regaining possession of the property. This is only possible if the lease includes an express forfeiture clause. If a tenant is in breach for non-payment of rent, the landlord may be able to forfeit the lease without needing to serve a notice under section 146 of the Law of Property Act 1925. However, this action has drawbacks, including the immediate loss of rental income and new liabilities for costs such as business rates and agency fees for re-letting the unit. The unit could also remain vacant for a prolonged period, impacting cash flow and potentially the asset’s capital value.