Landlord’s remedies for rent arrears

Commercial Rent Arrears Recovery (CRAR)

The CRAR process enables a landlord to instruct a bailiff to take over control of a tenant’s assets and sell them to effect recovery of an amount equal to value of the rent arrears. In order to exercise CRAR, there must be a minimum of seven days’ rent outstanding and it can only be used in relation to “rent proper”. Therefore, the process cannot be used to recover such things as unpaid service charges, even if such amounts are reserved as rent.

CRAR can be a useful enforcement tool if the tenant has assets of sufficient value to make it worthwhile. However, the fact that the legislation requires the tenant to be given seven days’ notice of potential enforcement action means that some tenants may take the opportunity to remove and hide assets in order to avoid seizure. Therefore, landlords should consider carefully the type of tenant business before using CRAR.

Statutory Demand

Serving a statutory demand is the first step along the road to making a tenant insolvent. Therefore, it is not a direct method of enforcement, but making the threat of bankruptcy or liquidation can often prompt payment to be made.

Money Claim

A court claim for a money judgment can be made, which can then be enforced in the usual ways.

Sub-tenants

If the property has been sub-let, it may be possible to limit the level of further arrears arising by serving notice on the subtenant under section 81 of the Tribunals, Courts and Enforcement Act 2007. Such a notice can be served when a tenant is in arrears and requires the sub-tenant to pay any future rent that falls due under the sublease directly to the head landlord to clear the arrears due under the head lease. This can be a very useful remedy if the tenant is collecting the sublease rent but failing to pass it on. Similar to CRAR, it is only rent proper that can be the subject of a valid notice under section 81.

Guarantors

If anyone has guaranteed the tenant covenants, a money claim can be brought against such a guarantor, as long as the appropriate notice of the rent arrears has been served on the guarantor within six months of the rent falling due.

Forfeiture

Bringing the lease to an end by way of forfeiture is very much a remedy of last resort, as it will result in the property being empty and the landlord assuming responsibility for business rates. However, if there is little to no chance of the tenant every being in a position to clear the arrears and pay the rent going forward, it sometimes gets to the point when a landlord needs to cut their losses.

As long as the right to forfeit has not been waived, a landlord can forfeit by peaceable re-entry or court proceedings. Due to the risk of waiver and being found liable for an unlawful eviction, it is vital to seek professional assistance if forfeiture is being considered.

If a lease is forfeited, the tenant, as well as any guarantors or mortgagees may have right to relief and relief is likely to be granted if the arrears and the landlord’s costs of the forfeiture are paid. This does add an element of uncertainty to the situation if the landlord is seeking to re-let the property quickly.

Rent Deposits

If rent is outstanding and the tenant has paid a deposit, it is most likely that a withdrawal can now be made. It is also likely that the tenant will also be required to top-up the deposit, so this should be checked and the appropriate demand for a top-up made.

Rent arrears remedies conclusion

The full suite of enforcement options is now available to landlords in relation to rent arrears. In view of the number of options available, an experienced property litigator will be able to provide invaluable advice as to the best way forward in any particular circumstances.

Contact our team of Property Litigators if you need legal advice on landlord’s remedies for rent arrears.