My tenant can’t pay: What are my rights? by James Leyland

 

The vast majority of the terms of your relationship with your tenant are set out in the lease or tenancy agreement (assuming it has been properly documented).

Usually, the lease of tenancy agreement will permit the landlord to take various steps:-

Forfeiture of the lease

Forfeiture of the lease is where there are arrears of rent, or the tenant is insolvent, the landlord may be entitled to forfeit the tenancy and take possession of the property. This would allow the landlord to re-let the property.

There are, however, complications with this:-

• The lease must contain a forfeiture clause;
• The length of time for which arrears have existed, before the lease can be forfeited, will often vary from lease to lease. It is important to check the time period in your Tenancy Agreement before attempting to forfeit the lease;
• At the date of publication of this article, S82 of the Coronavirus Act 2020 (the ‘2020 Act’) places a moratorium on the exercise of forfeiture for rent arrears during the ‘Relevant Period’. The Relevant Period is currently defined as 26 March 2020 to 30 June 2020. However it is capable of being extended. Forfeiture as a remedy, will still be available after the end of the Relevant Period, and throughout the Relevant Period, for other breaches, such as a failure to repair etc…
• The definition of Rent in the 2020 Act is for all sums due under the lease. IE it will include insurance payments, service charges, and any other payments that the tenant is liable to make to the landlord under the terms of the lease.
• If you have successfully forfeited the Tenancy Agreement it is still possible for a tenant to apply to the court for relief from forfeiture, i.e. to reinstate the lease. They would need to pay all arrears of rent and any associated legal costs of the landlord.  However, this can cause problems where a landlord has been able to re-let the property quickly and then finds itself with two tenants.
• If your tenant is a company, and is insolvent, it will likely either enter into receivership and be wound up, or it will enter into administration. If the tenant is in administration, the company will continue to trade under the stewardship of the appointed administrator. The idea is that this will achieve a better result for the company’s creditors rather than simply just winding the company up.
• During the administration process, the company may need to trade from the leased premises. Because a well drafted lease would normally allow a landlord to forfeit the lease of an insolvent tenant, there is a statutory moratorium on forfeiture of a lease of a tenant in administration, i.e. to protect the tenant’s continued ability to trade from the property.
• While the company is in administration, the administrator will be responsible for  the contractual rent up until the point at which the administrator decides that there is no need any longer for the lease. At that point the administrator will normally “disclaim” the lease and provide the landlord with vacant possession.

 

Commercial Rent Arrears Recovery

Commercial Rent Arrears Recovery, or CRAR is the the process which replaces the old remedy of distraint. Distraint allowed a landlord to recover arrears of rent by seizing and selling the chattels of the tenant that were on/in the property.

The CRAR process is quite technical and deserving of an article itself.  This article will follow shortly from the Commercial Property Team of Thomson & Bancks.  If you require any information or have any questions in the meantime, however, please do get in touch.

 

It is important to remember that the forfeiture and CRAR procedures are normally considered to be mutually exclusive.  Adopting the forfeiture procedure is an indication by the landlord that it considers the Tenancy Agreement to be at an end.  Adoption of the CRAR procedure, however, is normally considered an indication by the landlord of an intention that the lease should continue. IE the landlord is seeking to recover the ongoing rental liabilities.  Adoption of the CRAR procedure, therefore, normally acts as a waiver of the right to forfeit the lease.

 

 

Acting on a Guarantor or Rent Deposit

Acting on a Guarantor or Rent Deposit assumes that your tenant provided a guarantor or rent deposit. If the original tenant assigned the lease to the present tenant then it may be possible to pursue the original or previous tenant under an Authorised Guarantee Agreement. Alternatively, a company tenant may have offered a personal guarantee by one of the directors or shareholders. On the other hand, if your tenant has provided a rent deposit then you should consider making a deduction from the sum held. Careful consideration of the rent deposit deed (or other document) should be carried out first.

The above options are not exhaustive and should only be exercised after careful consideration of the surrounding facts and legal issues.

If you require assistance with any of the issues discussed in this article, please contact John Stagg, James Leyland, or Rebecca Tiffin at Thomson & Bancks Solicitors on:

Pershore 01386 562000
Tewkesbury 01684 299633
Cheltenham 01242 235250
Stratford-upon-Avon 01789 295544

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James Leyland

James is a Solicitor, specialising in commercial and agricultural property law, undertaking a wide range of work, including sales and purchases of commercial and agricultural properties as well as Landlord and Tenant Act 1954, Agricultural Holdings Act and farm business tenancies. James has experience of negotiating complex land transaction documents including option and promotion agreements, easements, and overage / uplift deeds.

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