When a tenant is late in the payment of its rents, some landlords will not go to the trouble of calculating and charging interest whilst the base rate is so low, as many consider it not worthwhile pursuing interest at 3-4% above base rate which is the standard default rate of interest in most commercial leases.

Statutory interest, which can be charged on business to business transactions is currently 8% plus the Bank of England base rate, enabling interest on commercial payments to be charged at a rate of 8.5%.

A tenant’s lawyer is highly unlikely to accept this, however, it is purely a commercial question of the bargaining power between the parties and whether the landlord is able to insist on statutory interest being paid.

There is an argument that this is fair as, if the tenant has failed to pay rents on time, it should pay a punitive rate of interest.

This is very uncommon in commercial leases at present, however, if the base rate remains at a low level, as the market improves and landlord negotiating power increases, will landlords seek to charge statutory interest as the default interest rate under a lease on the basis that the lease is a commercial contract between two businesses and as such this is reasonable? What are your thoughts?

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.