Last week’s blog post covered the problems commercial landlords experience when dealing with insolvent tenants, which is an increasingly common scenario for landlords to face these days. This week we look at some typical concerns from Landlords:
“Can I terminate the lease if my tenant is in difficulty?”
Yes, either by Court Order or (in most commercial leases) by peaceably re-entering the premises. There are of course rules and procedures to follow, but provided the tenant hasn’t paid the rent within around 3 weeks (typically) from the date it falls due, it can be as simple as going in and changing the locks.
“Are there any pitfalls to look out for before I try to forfeit the lease?”
Yes, many! In particular, make sure you don’t lose your right to forfeit by doing something which indicates that you want the lease to continue. The most obvious example would be to continue to accept less than the full amount of the rent arrears from the tenant.
“My tenant can’t keep up with the rent payments, but I don’t want to forfeit the lease just yet – what else can I do?”
Basically, you (or a bailiff) can enter the premises and seize goods belonging to the tenant as a result of the tenant’s failure to pay rent. This is known as ‘distress’ and applies only to commercial leases, not residential. It’s an old-fashioned remedy which, if used correctly, can apply huge pressure on a tenant without warning and without compromise. Be careful, however, when trying to use this remedy, as there are strict rules and restrictions to comply with. Get it wrong and you could be on the receiving end of a damages claim!
“My tenant has asked for more time to pay the rent – should I seize their goods until they pay?”
That’s certainly an option. You are entitled to use distress as soon as the tenant is in arrears. Unfortunately (for landlords) this remedy will soon be abolished and replaced by the Commercial Rent Arrears Recovery Scheme (CRARS). No date has been set for CRARS yet, but it is expected later this year. CRARS will be similar to distress in many ways, but with more procedural hoops to jump through, making it far less appealing to landlords. The most important change is that notice will need to be given before entering the premises, meaning the element of surprise will be lost and tenants may relocate their goods!
“What if the tenant doesn’t let me in – can I still use distress?”
No. You can’t enter the premises by force in order apply distress. The initial entry must be peaceable. (Kicking down doors and seizing goods is best left to Hollywood!)
“What if my tenant becomes insolvent – where would that leave me?”
Well, that depends on what you mean by ‘insolvent’. If they’re in Administration, then as a landlord you’re in a difficult position. Your best remedies (forfeiture or distress) will no longer be available to you. Whether the Administrators have to pay ongoing rent will depend on their use of the premises. If they’re in Liquidation (either voluntary or compulsory) you can take back the premises but you would rank as an unsecured creditor in respect of any rents owed to you.
Please feel free to post any other questions you may have!