Commercial rent arrears - back to basics?

FORFEITURE

The landlord

If the tenant has failed to pay rent or other sums due under the lease, the landlord may, if the lease permits, seek to forfeit the lease. The landlord can re-enter the property, change the locks, and terminate the lease with immediate effect.  Simple ‘re-entry’ cannot be used if any part of the property is residential, but the landlord may seek a court order to forfeit the lease in a mixed-use property.  There are strict rules in relation to ‘waiving’ the right to forfeit, so legal advice should be sought beforehand.

The tenant

If the landlord re-enters the property, the lease has been terminated so the tenant must apply to the court for relief from forfeiture.  Relief will often be granted if the tenant pays all the arrears as well as the landlord’s legal costs.  The tenant should check that forfeiture was lawful and in accordance with the lease.  If not, the tenant may be able to claim unlawful forfeiture and seek relief from the court.

ISSUE A DEBT CLAIM

The landlord

A lease is a contract.  Rent arrears are a debt under that contract, so the landlord can issue a money claim against the tenant for the outstanding rent.

The tenant

If court proceedings are issued, the tenant should consider any available counterclaim against the landlord – for example, if the property is in disrepair or if the landlord has breached any lease terms.  The tenant could seek to negotiate a settlement with the landlord with a view to recording a formal agreement approved by the court.

COMMERCIAL RENT ARREARS RECOVERY (CRAR)

The landlord

The landlord can instruct an enforcement agent to take control of tenant’s goods and sell them to recover all or some of the value of the rent arrears.  This method is effective if the landlord knows there are valuable goods at the property (which will obviously not always be the case) and will be quicker than recovering a debt via court proceedings.

The tenant

CRAR is a heavily procedural method of recovery, so the tenant should check that the landlord has complied with the necessary requirements.  The tenant may be able to apply for a delay of execution or to set aside the enforcement.

STATUTORY DEMAND

The landlord

Where the debt is not disputed (i.e., the tenant is unable to pay the rent and does not put forward an argument for non-payment), the landlord may consider serving a statutory demand on the tenant.  IF the demand is not met, the landlord can take steps to bankrupt or wind-up the tenant’s business.

The tenant

If the debt is disputed, the tenant can apply to set aside the demand.  If a bankruptcy/winding-up petition is presented at court, the tenant can still avoid the final order being made by settling the debt.

FINAL WORD: NEGOTIATIONS

Both landlords and tenants should be aware that negotiation to try to achieve a mutually acceptable compromise is a viable option.  Although a compromise may not always be possible, negotiation is often the best way to avoid legal costs and risks from the other alternatives.

Greenwoods can advise both landlords and tenants as to the best approach in each individual set of circumstances.  We can advise on not only the legal position but also the practical and commercial consequences of a particular action.

For further information, please contact Chi Collins, Amy Castleman or Irina Apekisheva at Greenwoods.