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Tips for Commercial Landlords now faced with rent arrears

Tips for Commercial Landlords now faced with rent arrears
Tips for Commercial Landlords now faced with rent arrears

When tenants find themselves unable to pay rent, landlords and affected parties must act fast. This article offers a range of solutions aimed at making the situation manageable for both sides.

Even if your tenants cannot pay rent due to financial hardship, there are still ways for you as a landlord to protect the rental income. You can choose from a waiver, suspension or deferment of rent – whichever works best for both parties!

COMMERCIAL RENT ARREARS RECOVERY (CRAR)

Opting to recover rent arrears by CRAR gives a landlord the ability to take control of the tenant’s goods at the premises and sell them to recover an equivalent value to the rent arrears. The CRAR process requires landlords to follow a prescribed process which involves serving various notices. If appropriate, this method can be extremely quick and cost effective. How successful CRAR is depends on whether the premises contain goods of sufficient value which belong to the tenant. Our Property Disputes Team can assist landlords who wish to undertake the CRAR process.

COURT PROCEEDINGS

If rent is unpaid, landlords may need to take action. To begin with they should send a letter of claim outlining the basis for their request and asking that payment be rendered; if this fails then court proceedings can accessibly start in order to recoup what’s due.

STATUTORY DEMAND

Statutory demands provide an effective way for landlords to collect rent arrears from tenants. The tenant has 21 days before the landlord can take further action, such as winding up proceedings or bankruptcy if the debt is £750 (company/LLP) or more (£5000 if individual). Landlords should be aware of this rule in order to protect their rights and finances.

Serving a statutory demand can be a cost effective method to prompt payment where the tenant can afford to pay. However, if the tenant cannot afford to pay, the threat of winding-up/bankruptcy proceedings will be futile. Further, if the rent arrears are the subject of a genuine dispute, the tenant can issue court proceedings in response and so the landlord could inadvertently get caught up in court proceedings. The tenant’s insolvency can also trigger forfeiture of the lease which may not be desirable. Landlords should seek specialist advice before serving any statutory demand to make sure this is appropriate in the circumstances and will achieve their objective.

PURSUE A FORMER TENANT OR GUARANTOR

Guarantors of a lease are responsible for covering any rental payments the landlord is unable to collect from tenants. If need be, landlords can take legal action and pursue guarantors in order to ensure they meet their obligations under the agreement.

If a tenant was transferred their lease from another, the landlord may have recourse to seek any rent arrears through legal action or demanding payment. Therefore, it is important for all parties involved in tenancy arrangements to be certain of obligations and commitments before signing off on an agreement.

RENT DEPOSITS

A rent deposit is a secure source of funds available to landlords. If available, landlords can draw down on the deposit to recover the rent arrears due under the lease. This option may be particularly useful if the arrears of rent are an isolated incident, as may be the case in current crisis. This is a quick and simple method of recovering the debt whilst preserving the landlord and tenant relationship. However, a draw down from a rent deposit could waive the right to forfeit. Landlords should consider their position carefully, and may wish to seek legal advice, before any decision is made.

FORFEITURE

When rent is not paid by a tenant, landlords have the right to terminate their lease agreement. However, if due caution isn’t taken this legal remedy could slip from reach through unknowing waiving of these rights. Landlords should thus take urgent steps and seek advice in order maintain control over such matters.

Even when it’s financially beneficial, landlords may not want to risk taking possession of an empty property now or in the coming months. That said, if a tenant has requested only a brief postponement on rent payments – there is hope that they will soon be able to catch up and thus forfeiture could still be avoided.

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