Some commercial property landlords need help to recover both historic and new debts (both rent and services charges), but there are key differences as to how you approach the recovery of each.
For rent arrears only, along with the VAT and interest on it, landlords can use the Commercial Rent Arrears Recovery (CRAR). This is a statutory process governed by Part 3 of the Tribunals, Courts and Enforcement Act 2007 and The Taking control of Goods Regulations 2013. It can only be used for commercial premises and not mixed-use units, unless the residential use is completely separate. The landlord must have a written lease which is continuing and not forfeited or surrendered, rent account statements and written details of any arrears and correspondence with the tenant.
Landlords must follow the procedure outlined by CRAR to the letter, so it is a powerful tool but only if used correctly. Rent has to be at least seven days overdue before CRAR can be used. The exact amount of rent must be calculated along with interest and VAT. Landlords must instruct a certified enforcement agent to serve a “Notice of Enforcement” on the tenant. The notice must give tenants at least seven clear days’ warning before goods can be seized (excluding Sundays and bank holidays).
If payment of the rent arrears isn’t made in full during the notice period, the enforcement agent can enter the premises and seize goods to the value of the arrears. These seized goods can be sold to settle the debt plus costs. Tenants can settle the arrears up to the point of goods being sold. The landlord is paid from the proceeds of the sale, and any surplus is returned to the tenant.
The upside to CRAR is that it is a fairly fast process and landlords don’t need a court order. There are other downsides to consider that it is only for rent only. If the tenant business becomes insolvent or moves out, then you can be left out of pocket as there won’t be anything to seize. Tenants can sue the landlord for damages in certain circumstances if they or the enforcement agent break the rules.
There are some commercial landlords still chasing payments from businesses that just refuse to pay, especially for service charges. There are differences in approach with disputed vs undisputed debts and different tactics you can use.
Forfeiture of the lease is the most powerful way landlords can secure payment. The act of forfeiture brings the lease to an end, subject to a successful application by the Tenant for relief – meaning they agree to pay all of the arrears and costs to keep and preserve the lease.
Provided the Landlord has not waived their right to forfeit by recognising the continued existence of the lease once the right to forfeit has arisen, the lease can be forfeit by peaceable re-entry or Court proceedings.
There are many pros and cons of forfeiture and landlords should especially consider whether they will be able to let the property to a new tenant, so they are advised to take legal advice before making the decision.
For more historic debts and service charges, repairs and maintenance (and yes there are still landlords out of pocket from the Covid Pandemic) as well as businesses that just refuse to pay in full, then the landlord could issue a Court claim for a debt seeking money judgment. This process is slower and can be expensive, especially if the tenant tries to defend the claim. It is not uncommon for it to take 12-24 months from issuing the letter seeking payment of the debt to issuing proceedings, obtaining a court judgment and then taking enforcement action.
A further option is a statutory demand which gives the tenant 21 days to pay the outstanding amount, otherwise insolvency proceedings can be started against them via bankruptcy if the tenant is an individual or a winding-up order if they are a company. For a company, the debt must exceed £5,000 and for an individual it must be £750.
Where there is a dispute, the landlord may be advised not to issue a statutory demand because it might be set-aside by the tenant settling out the dispute. Where this happens, the landlord might be ordered to pay costs incurred by the tenant.
Further options for the landlord could be to withdraw the outstanding funds from the rent deposit, but this means there will be less money to cover future liabilities if the tenant failed to top up the deposit.
For commercial landlords who required the tenant to provide a guarantor then the final option would be to issue Court proceedings for a Money Judgment and Statutory Demand against them and the tenant. Again, the landlord is advised to take legal advice first as it is likely strict criteria in the lease will have to be met.
For many landlords prevention is the best approach, so carrying out their due diligence first on the tenant, having a professionally written lease and a clear understanding of the procedures that need to be followed should ensure an event-free tenancy.
