Rent arrears are a common issue for commercial landlords, whether a tenant is persistently late, has several weeks of unpaid rent or is experiencing significant financial difficulties. Knowing how to react can be complex, where a landlord is unlikely to be able to evict a tenant following one late payment – but may need to take targeted action to avoid further defaults.
Leaving rental arrears to accumulate can be problematic, where it becomes less likely the tenant will ever be able to make good on the debt. It may also be difficult to evict a tenant where there is evidence to suggest the landlord has previously accepted late payments.
The Clearway team explains the standard timeframes beyond which a legally valid eviction is possible and the key points at which you can take more decisive action to protect your rental property income.
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How Long Should a Commercial Landlord Give a Tenant to Clear Overdue Rent?
As with all things related to a rental property, the starting point is to review the lease agreement. This document is important since it will set out the terms and conditions of the lease and stipulate when and how the landlord has the right to seek eviction or pursue forfeiture of the lease due to non-payment.
However, many landlords attempt to implement a repayment agreement initially, avoiding legal action or eviction unless there is reason to believe the arrears will be an ongoing issue.
The norm is to provide a tenant 21 days past the payment due date to bring their account back into order. Landlords may be able to add late payment penalties or other charges to the amount owed, again depending on the provisions set out in the lease contract.
Much depends on the reason provided for the arrears and whether you are assured that the late payment is a one-off and that the commercial tenant will be able to remit the full amount owed.
What Happens if a Commercial Tenant is Insolvent and Cannot Pay Rent?
In more serious scenarios, a business tenant may be unable to pay rent because they are facing administration or insolvency, with a huge spike in business closures over the last few years due to economic inactivity and slumps in certain sectors.
This circumstance means that a landlord can file a statutory demand, an initial correspondence that informs the tenant that they will take action to recoup the unpaid rent – it acts as a written demand for payment, often with a deadline for payment to be made before the matter escalates.
Normally, you can issue a statutory demand after 20 days, in line with the government regulations which prevent creditors from pursuing enforcement action to give a business breathing room to either organise a rescue, find a new financier or restructure their organisation.
Winding-up petitions are presented to the courts with evidence of unpaid debt where it is clear the business is unviable and insolvent.
Recovering Rental Arrears Through Commercial Rent Arrears Recovery (CRAR) Processes
Another solution for a landlord is to work with a qualified and certified enforcement agent who can begin CRAR proceedings. They can take ownership of the tenant’s assets, depending on the specifics, and sell them to reclaim rental arrears, often without necessitating a formal court process.
Landlords must ensure notice is served to the tenant at least seven days before they intend to take action. After this time, an enforcement agent has the right to enter the property, provided they can do so without breaking a door and complying with other codes of conduct.
This process becomes available when rent is seven days overdue or more, although it must be backed by a written lease and cannot apply to properties where a proportion of the premise is rented for residential purposes.
How to Evict a Commercial Tenant for Rental Arrears
In some cases, it is obvious a commercial tenant cannot or will not make good on rental arrears, in which case commercial eviction may be the best way forward. The larger the debt becomes, and the longer the situation continues, the less likely it is that you will be able to recoup the full amount owed.
Tenants in serious arrears may also fail to comply with other terms of their lease agreement, such as keeping the property in good condition and paying service charges. Provided the lease includes clauses that permit lease forfeiture, you are able to pursue this with evidence of non-payment to support the case.
If the tenant has a proven history of defaults, and you wish to remove them from the property to allow you to take on a new tenant, an eviction may be the only viable option.
Forfeiture of lease clauses must be present in the signed lease agreement for you to be able to re-enter the property peaceably. You should seek advice to ensure you are cautious about actions that can be perceived as waiving your right to forfeiture – these include continued payment demands or accepting partial payments.
Evictions by Commercial Lease Forfeiture
There are two potential ways forward, both of which can help you to regain possession of the rented premise and evict the non-paying tenant.
Peaceable re-entry, as mentioned above, means a certified enforcement agent enters the property, ensuring the tenant is not present at the time. They are legally allowed to change the locks, preventing the tenant from returning, but they cannot enter when there is a person on-site and must not use intimidating or aggressive tactics.
The bailiff or agent will ensure the correct notice is displayed prominently on the building, usually on the front door, verifying that the property has been peaceably re-entered and the tenant has been evicted.
Although tenants can apply to the courts for relief from the forfeiture process, they would need to pay all outstanding rent, plus the landlord’s legal costs, and will not be successful if the landlord has since entered into an agreement with a new tenant.
The alternative is to apply for a possession order through the courts. While this can take significantly longer, it may be advisable, if there is the potential for conflicts or legal counterclaims, to ensure the eviction is upheld by a court order.
Tenants have 14 days to respond to a court hearing summons, either submitting a defence or applying for forfeiture relief.