Landlords' Rights When Tenants Don't Pay
- AuthorClaire Cooper
Claire Cooper, an Associate Solicitor in the Commercial Property team at Talbots Law says “Landlords don’t like empty units and a tenant who doesn’t pay the rent is never desirable, but businesses can face challenging times which can leave landlords in unchartered waters. The laws affecting landlords’ rights differ according to circumstances and landlords’ options can sometimes be very limited”.
It’s common practice for all commercial leases to contain a forfeiture provision that allows a Landlord to peaceably re-enter property and end a lease in the event of non-payment of rent by a tenant, typically where that rent is unpaid for 14 or 21 days.
However, landlords will often be persuaded by tenants that their inability to pay is a short term issue, due to a cash flow crisis, and that the arrears will be made good. In many cases, this will be true and an agreement can be reached to bring the arrears up-to-date over a period of time, but landlords do need to be cautious as their rights are often restricted if a tenant subsequently enters into a form of insolvency. In administration, for example, a landlord’s right to forfeit is no longer available without a court order or the consent of the insolvency practitioner appointed as the administrator of the tenant.
In addition, landlords will find themselves regarded as an unsecured creditor in the tenant’s insolvent estate, which can mean little or no return to a landlord for those rent arrears and especially no recovery in respect of dilapidations claims. It is wise, therefore, for a landlord to ensure that arrears do not reach an unacceptable level and that they take advice at an early stage as to what options are available. It is also important that landlords seek to mitigate any potential losses by taking adequate security at the start of the lease by way of a personal guarantee or rent deposit, which can assist in offsetting any loss incurred at a later date.
Finally, a landlord should be cautious in agreeing early surrender with a tenant or his agent, as early termination will lead to immediate liability for business rates, utility charges and standing charges, all unwanted costs for a landlord whilst a property is re-marketed and stands empty. Talbots Law recommend that landlords seek advice and agree matters on a without prejudice basis, as far as possible, in order to preserve the landlord’s position for as long as possible.
Talbots Law’s Commercial Property Team are always on hand to discuss this and any other commercial property matter - for more information or assistance call us now on 0800 118 1500.