It’s a situation that the current economic
climate will only make more common – you have a business tenant who
has stopped paying their rent, but what can you do?
Copyright 2006 - 2010 Taylors Solicitors
If the UK recession that some are predicting arrives this
will of course make already tough business conditions here in
Lancashire even tougher. With less money to go round landlords and
tenants of business premises are amongst the first groups who will
be drawn into conflict.
You may own a large property portfolio or just the freehold of one
building. Alternatively, you may be a tenant who has sub-let a part
or the whole of the property and although you are paying the rent to
the landlord, your sub-tenant is not paying you.
As landlord you should be aware (and as tenant you should be wary!)
of the following remedies:
Landlords can for the time being still exercise their ancient common
law right of “distress” to remove and sell goods to the value of the
arrears (although this is set to change under a new Act of
Parliament). The arrears must be of rent (or sums expressly reserved
as rent such as insurance premiums and service charge) and
unquestionably due. A certified bailiff should always be used to act
as the landlord’s agent but they must attend in daylight hours and
no force can be used.
An alternative remedy is that of forfeiture. Using this method the
landlord can get back possession of the property by terminating the
lease. The Lease must contain an express clause which allows the
landlord to re-enter and terminate the lease. Often the lease terms
will provide that the landlord may forfeit if the tenant is in
arrears of 21 days or more. The landlord may simply re-enter the
premises and change the locks (but this is only advisable where
there is unlikely to be physical conflict e.g. if the property is
empty. Alternatively, the landlord may issue court proceedings
seeking an order for possession. Until the claim is determined the
tenant may remain in possession. Tenants can in certain
circumstances apply to the court for relief from forfeiture and if
the tenant pays the landlord’s costs and the rent arrears before the
final hearing, the proceedings will be frozen or “stayed”.
Landlords and tenants should note that there are complex rules
whereby a landlord may inadvertently “waive” the right to forfeit
after the right has arisen. For example, if rent is payable
quarterly in advance and the tenant fails to pay the rent due on 24
June if the landlord demands rent after the 21 days allowed in the
lease has expired, even if this is due to a clerical error by the
landlord’s agent, the landlord will have lost its right to forfeit
for that particular breach.
Any sub-lease is automatically brought to an end if the superior
lease is forfeited, but a sub-lessee may also apply to the court for
relief from forfeiture.
The tenant may have provided guarantors in which case a landlord
should consider whether to call on them for the arrears. In leases
that were granted before 1 January 1996, if the current tenant is an
assignee of that lease, the landlord may recover from the original
tenant (or its guarantor) for arrears up to 6 months old.
If the arrears are over £750 (and again there is no question of them
being in dispute) the landlord may serve a Statutory Demand. If the
sum demanded is not then paid within 21 days of receipt the landlord
may commence insolvency proceedings against the tenant.
However, for landlords and tenants alike one of the best ways to
deal with the situation where a tenant is genuinely in difficulty is
to keep the lines of communication open and if the lease is not
viable, to agree that the relationship be brought to an end by
mutual consent. Although it is possible to do this by the tenant
simply handing back the keys, it is usually better to set out the
terms in a formal Deed of Surrender so that there is no doubt about
both parties’ liabilities when the lease is finally brought to an
Also, as with any dispute the most valuable (and least costly!)
legal advice is usually that which is obtained just before or just
after the dispute has arisen.