Rent Arrears Recovery from a Commercial Property Tenant (CRAR)
Most commercial property landlords will at some time, unfortunately, find themselves dealing with rent arrears. If you find that your tenant is either unwilling or unable to pay the rent, you may need to take legal advice on how to address the situation.
As tenants will occasionally struggle with their finances, rent arrears are a business risk that commercial landlords face. There are several options available to you if your tenant is in arrears. How you choose to handle the situation should be informed by giving consideration to the commercial, practical and legal implications.
Lupton Fawcett have been helping clients for over one hundred years, and our commercial landlord dispute solicitors are experts in their field. If you are facing issues with rent recovery, contact us for personalised advice and solutions, wherever you live in England, Wales & Northern Ireland.
Factors to consider in recovering rent arrears
If your tenant has accrued rent arrears, here are a number of different legal paths that you can take to recover them.
The first thing that you should do is attempt to open a dialogue with your tenant to see what has caused them to fall into arrears, and whether the problem can be resolved without further action. If this fails to resolve the issue, you will need to take legal advice.
However, before taking action it’s worth considering:
- Whether you want to keep your tenant, or if you think it is more prudent to recover your property?
- Whether your tenant has previously had a good track record in paying their rent on time?
- Whether any action that you might take against your tenant could compound their financial issues; if they become insolvent it could make it more difficult to recover your rent.
- Whether the amount of money owed in arrears justify the cost of the legal recovery?
Means of recovering rent arrears
If it becomes necessary to take action to recover rent arrears from your commercial tenant, there are a number of different approaches available to you.
If your tenant’s difficulty in paying the rent is likely to be a temporary issue, and you believe it would be more beneficial in the long run to preserve your relationship with your tenant, you may opt for a payment agreement. We can assist you with drawing up an agreement, allowing the tenant to repay the arrears in instalments, whilst also continuing to meet their current rental obligations. If this agreement is breached, you will have the option to forfeit the lease.
If a tenant breaches their tenancy agreement, a landlord has the right to terminate their tenancy. Taking this option will mean that you can recover your property, however it also means that with the tenancy ended, the tenant will not be liable for any future rent payments. Consideration should be given to whether this is the best course of action.
Commercial Rent Arrears Recovery (CRAR)
Until 2014, the laws on recovering unpaid rent were nearly 250 years old and unnecessarily complicated. The CRAR rules are simpler and allow a landlord to collect overdue rent without the need for a court order, if certain criteria are satisfied. A commercial landlord can use an authorised enforcement agent to seize a tenant’s goods and sell them at auction, to recover the value of the rent arrears. The threat of having property removed and sold often induces the tenant to pay the arrears, but in order to legally remove the tenant’s property, seven days’ notice must be given. This notice may give the tenant time to remove their property to prevent it from being taken, so this should be considered.
Using the CRAR procedure
In order to claim rent arrears by the CRAR procedure, you need to be aware:
- That CRAR can only be used to recover rent. Other outstanding bills or charges cannot be retrieved this way.
- That arrears must be at least seven days’ worth or more at the time the notice is served and at the time of enforcement
- Only a certified enforcement agent has the right to seize the tenant’s property – you cannot remove it yourself.
- That using CRAR to recover rent arrears means that you can no longer use forfeiture as a means of recovery
Once you have filled out a Warrant of Control form, your enforcement agent will be able to begin action to recover the arrears. They will initially issue a seven-day notice advising the tenant that they must pay the arrears or risk having their property seized in lieu of payment. If they fail to pay with the seven days, the agent can enter the property and take goods to the value of the rent arrears.
Drawing down from a rent deposit
It is standard practice for a deposit to be paid when a tenant takes out a lease on a commercial property, often the equivalent of three months’ rent. Where a tenant fails to pay their rent, it is possible to draw money from the deposit to cover the shortfall. You must notify your tenant if you intend to do this, and they are required to top it up again. This can be a short-term solution but may fall short if the tenant is in substantial financial difficulty and is unlikely to replenish the deposit.
Pursuing a tenant’s guarantor or sub-tenant
If a third party has agreed to act as a guarantor for the tenant, it may be possible to pursue them for the arrears if the tenant fails to pay. This may involve court proceedings, depending on the provisions in the lease.
If your tenant has sub-let the property, you may be entitled to recover the outstanding rent from the sub-tenant, and they may be required to pay the rent they owe to your tenant directly to you. To do this you must serve notice to the sub-tenant, setting out the amount that you are entitled to recover, and confirm that they must pay rent directly to you until the arrears are paid, or until the notice is withdrawn.
Serving a statutory demand
If, as a commercial landlord you are owed more than £750 by a tenant who is a company, you can serve a statutory demand in order to reclaim any rent arrears. The demand must be written, and must comply with certain requirements, but it gives the tenant 3 weeks to pay their arrears. If they fail to do so, you can then issue a petition requiring the company to dissolve, or for personal bankruptcy, if the tenant is an individual or sole trader owing more than £5000.
Court proceedings are always a last resort, as they can be costly and time consuming. However, if all other remedies have failed, and we feel that this is the only option available to you, we can assist you in taking your tenant to court.
Why choose Lupton Fawcett?
If you are a commercial landlord struggling to recover rent arrears owed to you by a tenant, speak to us today. We will look at your situation and advise you on the most efficient way to reclaim the outstanding rent, putting your interests first throughout. Our track record in this area of law speaks for itself, and commercial landlords throughout the UK rely on us for our expertise and practical support.
We provide a personalised service, with sector specialists and extensive resources to ensure we are giving you the best solutions to your problems.
Our Commercial Property Dispute Solicitors act regularly for landlords across the United Kingdom including Bradford, Birmingham, Hull, Leeds, Liverpool, London, Manchester, Sheffield, York and Nottingham.
As recognised Commercial Landlord Solicitors we can support your needs wherever you live in England, Wales & Northern Ireland.