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Commercial rent arrears

An extreme course of action reported in the news recently of a commercial property landlord filmed smashing the glass of their premises’ windows for the alleged non-payment of rent by the tenant.

What are the options for a frustrated landlord if a tenant can’t or won’t pay?

There are still restrictions in place on the forfeiture of commercial tenancies for the non-payment of rent and other sums due under the lease which apply from 26 March 2020 – 25 March 2022.  Any proceedings which had already started before 26 March 2020 for possession cannot take place until after 25 March 2022.

Other options are to:

•  Take part in an alternative dispute resolution process.

•  Issue a claim in the courts following the Commercial Rent Arrears Recovery Procedure (CRAR).

•  Use security such as any guarantor or drawn from the rent deposit.

•  Do nothing as the situation may change.

•  Bring insolvency proceedings

•  After 25 March 2022 forfeit the lease.

It is important to consider how using one of these options might impact on your other rights as the landlord.  For example, if you use CRAR then you effectively waive the right to forfeiture in the future.  Also as the landlord is required to give the tenant seven days’ notice of potential enforcement action, the tenant might choose to hide or dispose of any assets to avoid them being seized.

You may also lose your right to forfeit the lease if you subsequently accept rent payments (if the forfeiture was due to non-payment of rent).

If the tenant becomes insolvent then the landlord may wish to instigate the proceedings if they haven’t yet begun but if they have, they will have to work with the administrator, liquidator, or receiver.  Depending on the extent of the tenant’s losses, the full and even partial recovery of arrears might be unlikely.

Administration, Receivership and Liquidation all have different consequences for the landlord so it is important to understand your position early on and what action may be available to you and when.

Whatever the situation with your tenants, don’t let rent arrears build up, take advice early on to understand your options and to help mitigate any potential losses in the future.

How is your commercial property held?

Have you ever considered and reviewed how your Will (assuming you have an up to date Will) might interact with the way you own commercial property, especially if you own a share of a partnership commercial premises, such as a doctor or dentist surgery?
If the property is owned by a number of partners in the business in joint names as ‘tenants in common’, each of the partners owns a specific share of the property.  However, if you want family members to benefit from your share after your death then unless there is an agreement in place, you and the other partners may not have the right to give away a partnership asset in accordance with your wishes.

To avoid any conflict between your  Will and your partnership property interests, you should collectively take legal advice.  It might be worth considering entering into a property trust deed. The deed will set out the rights and obligations of each property-owning partner, including how to deal with the share of the deceased partner.

It would be prudent to discuss your plans with your beneficiaries to help avoid a dispute between them and the surviving property-owning partners.

Here at Gullands our Commercial and Private Client teams do work together to advise on all aspects of commercial and residential property ownership and providing for your loved ones in the future.