My commercial tenant has fallen into arrears – what can I do?

There are a number of options available to a commercial Landlord when their tenant falls into arrears, the most effective of which include the following:

• Commercial Rent Arrears Recovery (CRAR)
• Forfeiture
• Service of a Statutory Demand

Commercial Rent Arrears Recovery

The Commercial Rent Arrears Recovery process, or “CRAR”, entitles a commercial Landlord to seize possessions belonging to their Tenant in order to satisfy any rent arrears owed.

This option is available providing over 7 days of rent is owed and a formal 7 day notice has been served upon the Tenant. Further notices will also need to be served as and when the process progresses, such as if re-entry is required.

Whilst the threat of possessions being seized could be a quick and effective in flushing out payment from the tenant, pursuing this option does prevent a Landlord pursuing their rights of forfeiture and in some circumstances, receipt of the Landlord’s notice could give rise to the Tenant removing possessions from the premises within the 7 day period to avoid seizure. Thought should therefore be given to the risks and implications of pursuing this option before any notices are served.

Forfeiture

If a commercial Tenant has breached the covenants contained within the Lease, the Landlord has the right to peaceably re-enter the property. This right is known as forfeiture.

The provisions for forfeiture will usually be outlined within the terms of the Lease and if these have been satisfied, the Landlord should be entitled to regain possession of the property by entering and changing the locks peaceably. The word ‘peaceably’ is of paramount importance when exercising your right of forfeiture and you should ensure that nobody is occupying the property at that time. To reduce the risk of this occurring, many Landlords choose to re-enter the property outside of usual working hours.

Landlords can be prevented from exercising their right to forfeit the Lease by waiving their rights to do so in a number of ways, such as accepting rent or chasing the tenant for rental payments. Care should therefore be given to avoid this prior to forfeiture and often it is prudent to obtain legal advice before proceeding down this route.

Statutory Demands

A Statutory Demand is a formal and final demand for payment that can be served upon a Tenant, providing them with a three week period within which the debt is to be paid.

If the Tenant fails to settle the sums owed within that three month period, they could be deemed as unable to pay their debts and as a result, a Bankruptcy Petition or Winding-Up Petition can be presented in Court.  

The minimum debt amount that must be owed before a Statutory Demand can be served is £750 for a company debtor and £5000 for an individual debtor.

Because the implications of not satisfying the demand are so severe, the threat of bankruptcy or winding-up proceedings can prompt debtors to pay or offer a payment plan. Further, there is no Court fee payable upon service of the demand and they can be prepared relatively quickly. This is often therefore a quick and effective way of obtaining payment from a commercial Tenant if they have the means to pay.

Summary

The most appropriate means of recovering commercial rent arrears will depend upon your individual circumstances and the terms of the Lease. If you are a commercial Landlord and seek further advice and assistance in recovering sums owed to you contact our Dispute Resolution Department today.

If you are a commercial Landlord seeking advice in relation to a tenant who has fallen into arrears, contact our Dispute Resolution team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk.