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SPONSORED: Help, my commercial tenant is not paying the rent

SPONSORED: Help, my commercial tenant is not paying the rent

It will not come as any surprise that many commercial tenants, particularly those in the retail, leisure and hospitality industry, are struggling to pay their rents. If you are a landlord of such premises it will be a bitter pill to swallow: you understand the reasons why, but equally a lease represents a contract under which the tenant needs to fulfil their obligations. 

The first step should always be to notify the tenant of the arrears and discuss whether they have a plan to settle those. At Gardner Leader we would always recommend opening the lines of communication with the tenant as early as possible and trying to establish whether payment will be forthcoming or an alternative arrangement can be made.

You should also consider taking professional advice. You need to ensure that you preserve your rights and do not inadvertently lose a right to forfeit (or terminate) the lease if you waive your entitlement to receive the rent going forward.

In the past year we have subsequently been instructed to deal with concessions involving rent free periods, deferrals and the variation of lease terms. This has often led to the strengthening of ties between a landlord and tenant when discussions have been carried out in good faith.

The Government has now confirmed the ban on commercial evictions will be extended until 30th June 2021, exactly one year longer than first anticipated. If you are a landlord of commercial premises and discussions with a tenant have left you with no choice but to consider enforcement action, then you ought to know the key remaining options available to you.

Pursuing a guarantor

If the tenant provided a guarantor then you may be entitled to require that guarantor to step in and pay the rent instead. Hopefully you would have already determined the financial ability of the guarantor to pay the rent.

Pursuing a former tenant

If the lease has been transferred to the current tenant then you may have an entitlement to serve notice on the former tenant, requiring them to pay instead. This would usually apply equally to a guarantor of the former tenant. Such notice would need to be served within six months of the arrears falling due, so you should diarise the relevant deadline and ensure the notices are served correctly in a timely manner.

Rent Deposits

If you hold a rent deposit from your tenant, then you will usually be permitted to draw down funds to satisfy the rent arrears. The tenant will usually be required to top up the deposit to the original level, so you retain that as security going forward as well.

It is a swift process that can be dealt with confidentially between the two parties and without damaging the tenant’s credit history. Understandably, however, the tenant might not be financially able to top up the deposit, and you may then be left with reduced security.

If you are considering this as an option then you should check the terms of deposit before taking action and, if possible, look at other options such as pursing a former tenant or guarantor first.

Insolvency

If your tenant is an individual (rather than a company), then you may still be able to serve a statutory declaration and threaten bankruptcy. This can often be a relatively inexpensive option which is highly effective, but risks causing irreversible damage to the landlord/tenant relationship.

If the individual tenant is made bankrupt then you should know that landlords are considered unsecured creditors. A payment to the landlord is not guaranteed and will be dependent on the individual tenant’s general financial position at that time.

Court proceedings

There is still the option to issue debt proceedings in respect of the arrears. Again, it risks damaging the landlord/tenant relationship beyond repair.

A landlord should also be aware it can be an expensive and cumbersome process with no guarantee of success. A court order also does not necessarily guarantee payment as it may need to be enforced against the tenant, with some of the enforcement measures now restricted by the Coronavirus Act 2020.

So the key messages are to seek to enter into discussions with your tenant as soon as possible and, if that does not bring about the desired result, then to seek further advice from a solicitor

Tim Blackman is an Associate Solicitor at Gardner Leader LLP based in the Maidenhead office and specialises exclusively in commercial property. This article is for general guidance purposes only and does not constitute legal advice.

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