Where a tenant fails to pay its rent and is in arrears, there a number of remedies available to the landlord to recover payment. The remedy the landlord opts for will be dependent on what the landlord wants to ultimately achieve. A couple of points a landlord should consider prior to taking any action are:
- Does the landlord want the property back or does it want to maintain the landlord and tenant relationship?
- How solvent the tenant is and whether the remedy pursued will push the tenant into insolvency (which could potentially affect the landlord’s recovery of the arrears).
The action a landlord can take other than forfeiture (to take the property back) is as follows:
- Letter of demand
Sometimes, a letter of demand alone will have the desired effect in encouraging the tenant to pay the arrears. The letter will not only demand the arrears but warn the tenant of further action that will be taken should they not pay what is owed.
- Statutory demand & insolvency proceedings
Where there is no dispute as to the amount of debt and it exceeds £750.00, the landlord can serve a statutory demand on the tenant. The service of a statutory demand is a pre-requisite to commencing winding up/bankruptcy proceedings and is a means of exerting pressure on the tenant to pay the debt (as the demand has to be satisfied within 21 days). The threat of winding up/bankruptcy proceedings is often sufficient to elicit payment and/or a payment proposal plan as it shows the tenant that you are serious about initiating legal proceedings to recover the debt. One point to bear in mind is that forcing a solvent individual or company into insolvency (which may have survived if given time to repay the arrears) may reduce the landlord’s chances of recovering the debt in full.
- Draw down on rent deposit
The landlord may be able to draw down from a rent deposit to recover the rent arrears or other sums due under the lease. Bear in mind, though, that a draw down of the rent deposit will waive the landlord’s right to forfeiture. Where a landlord wants to take the property back it must forfeit the lease and then draw down.
- Pursue guarantor or former tenant
The landlord may be able to recover the rent arrears and other sums due under the lease from any guarantors or former tenants. Where a notice is served it’s important to note that the landlord can only recover the last six months’ worth of arrears, although successive notices can be served.
- Court proceedings
A landlord can issue court proceedings against the tenant to recover the rent or other sums due under the lease. If the arrears are less than £10,000 this course of action is not advised as the costs incurred by the landlord in pursuing this course of action will not be recoverable from the tenant. This option can therefore be expensive and protracted (as it could take months for a court hearing). Where proceedings are issued and the landlord is successful in obtaining judgment this can be enforced in various ways including obtaining a charging order over any property owned by the tenant.
- Commercial Rent Arrears Recovery (CRAR)
Commercial Rent Arrears Recovery (CRAR) is a method of enforcement for recovering rent arrears relating to commercial property. It came into force on 6 April 2014, and abolished common law rights to distress. One of the key changes introduced is that CRAR can only be used to recover rent, vat and interest. No other sums such as service charges, rates and insurance irrespective of whether they are described as rent can be recovered using this procedure.
- Payment plan/agreement
Where the tenant needs time to pay the arrears, the landlord may want to consider entering into a payment agreement with the tenant, requiring the tenant to pay the arrears in instalments.
In the first instance we would advise that the landlord sends a letter of demand. If this does not elicit payment, other options can be explored.
 Section 17, Landlord and Tenants (Covenants) Act 1995