A landlord can take several approaches to deal with a tenant’s failure to pay rent. These approaches are designed to rectify the breach by enabling the landlord to either recover arrears or re-take possession of their premises.
Forfeiture – Most commercial leases provide a right for a landlord to re-enter the property, terminate the lease and recover possession of the premises in the event of a breach of a tenant covenant (including non-payment of rent). This remedy known as “forfeiture” may be attractive to a landlord who has a tenant with a history of rental arrears. Furthermore, this is an attractive measure if the current market conditions are strong and the landlord believes they can find another tenant easily, possibly at a higher rent and with good financial standing. Forfeiture is not without its risks as a tenant can apply to Court for “relief from forfeiture” if they can show that arrears have been settled. Assuming those arrears have been settled, the Court may award the tenant relief allowing them to retake occupation (but this will be difficult if the landlord has already relet the property) or they could award the tenant damages. As the law surrounding forfeiture is technical, a commercial landlord should seek legal advice before exercising this option.
Withdrawal of rent deposit – If a landlord has secured a rent deposit from the tenant at the time the lease was granted, the landlord may be able to withdraw from the deposit to cover any rental arrears, subject to the terms of the rent deposit deed. This option maybe appropriate where the failure to pay rent is an isolated incident.
Pursue a guarantor or former tenant – If there is a guarantor under the lease, there may be a provision that obliges the guarantor to step into the shoes of the tenant and to pay the rental arrears. Equally, if a former tenant has guaranteed the rental obligations of the current tenant, the landlord will be able to pursue the former tenant for any sums due. Again, the availability of this remedy will depend on what is provided for in the lease.
Issue court proceedings – A commercial landlord can take their tenant to court to recover rent arrears. As this process can be lengthy and costly, a landlord can look to serve a statutory demand requiring payment. A statutory demand is served on a tenant and if payment is not made within 21 days, a landlord may use this to support a winding up petition. There are limitations to this course of action, however, this may prompt a tenant to make payment or to seek a payment plan. It is important to note that if an agreement is entered into, it will likely compromise the landlord’s ability to pursue any other remedies, provided the tenant complies with the terms of the agreement.
Commercial Rent Arrears Recovery (CRAR) – This method of recovering rent allows a landlord to instruct an enforcement agent who would take control of a tenant’s goods and sell them on in order to recover the debt. The procedure is complex and various notices need to be served on the tenant throughout various stages of the process.
To conclude, there are several remedies available to a landlord when a commercial tenant fails to pay rent. The best course of action will depend on each individual circumstances. Before deciding on how to proceed, landlords should think about what they want to achieve, including whether they want to maintain the landlord/tenant relationship, as well as the costs and consequences of the various options.
