Commercial tenant stopped paying rent? A landlord’s options for recovery and possession

When a commercial tenant stops paying rent, it is tempting to act immediately. In many cases, quick action is important, but the right step will depend on the terms of the lease, the tenant’s financial position, whether you want the tenant out or the arrears paid, and whether there are guarantors, former tenants or rent deposits available.

This article explains the main options available to commercial landlords where rent is unpaid, including forfeiture, Commercial Rent Arrears Recovery, claims against third parties, rent deposits, debt claims and insolvency issues. The law in this area is technical, so landlords should take advice before taking any enforcement step.

Check the lease first

The starting point is always the lease and any related documents, such as a rent deposit deed, authorised guarantee agreement or licence to assign. The lease should be checked for the rent payment dates, the definition of rent, interest provisions, any grace period, the forfeiture clause, notice requirements and whether the landlord can recover legal and enforcement costs from the tenant.

It is also important to confirm who is liable. The current tenant may not be the only party worth considering. There may be a guarantor, a former tenant, a former guarantor, a rent deposit or a sub-tenant. Each route has its own procedure and risks.

How quickly can I forfeit the lease?

If the lease contains a right of re-entry for non-payment of rent, the landlord may be able to forfeit once the rent has been unpaid for the period stated in the lease. For rent arrears, a section 146 notice is usually not required, but the exact wording of the lease must be checked carefully.

Forfeiture can usually be carried out in one of two ways: by peaceable re-entry or by issuing court proceedings for possession. Peaceable re-entry normally involves entering the premises when it is safe and lawful to do so and changing the locks. Court proceedings may be safer where there is any risk of confrontation, residential occupation, uncertainty about the right to forfeit, or where the landlord wants the protection of a court order.

A tenant may apply for relief from forfeiture. If relief is granted, the lease can be reinstated, usually on terms that the arrears, interest and costs are paid. Forfeiture should therefore be considered not only as a way to recover possession, but also as a step that may prompt payment.

The waiver trap

Once the right to forfeit has arisen, the landlord must be careful not to do anything that recognises the lease as continuing. Demanding or accepting rent, negotiating payment terms without protection, or taking certain enforcement steps can waive the right to forfeit for the existing breach. If there is any possibility that you may want to forfeit, take advice before contacting the tenant or accepting money.

What is CRAR and when can I use it?

Commercial Rent Arrears Recovery, usually called CRAR, allows a commercial landlord to instruct a certificated enforcement agent to take control of a tenant’s goods and sell them to recover rent arrears. It is available only for commercial premises and only for principal rent, plus VAT and interest where applicable. It does not cover service charge, insurance rent, rates, dilapidations or other sums unless they genuinely fall within the statutory definition of rent.

There must usually be at least seven days’ net unpaid rent both when the enforcement notice is given and when goods are taken control of. The landlord must give the tenant at least seven clear days’ notice before enforcement, and the process must be carried out by an authorised enforcement agent. CRAR is not a do-it-yourself remedy.

CRAR can be a useful option where the tenant is trading from the premises and has valuable goods on site. It may be less effective where the goods are leased, subject to finance, owned by third parties, low value, essential to another business, or already removed. Using CRAR may also affect the landlord’s ability to forfeit, so it should be considered as part of a wider strategy.

Can I go after the guarantor, former tenant or rent deposit?

Often, the most commercial route is to look beyond the current tenant. If there is a personal or corporate guarantor, the guarantee should be reviewed to confirm what sums are covered, whether any demand or notice is required, and whether the guarantor remains liable following any variations, concessions or assignments.

Where the lease has been assigned, a former tenant or former guarantor may still be liable under an authorised guarantee agreement or under the rules that apply to older leases. In many cases, strict notice requirements apply before arrears can be recovered from former tenants or guarantors, so timing is important.

A rent deposit can provide a quicker source of recovery, but the rent deposit deed must be followed. The landlord should check when it can draw down, what notice must be given, whether the tenant must top the deposit back up, and whether drawing on the deposit has any effect on other remedies.

County court claim or statutory demand

If the aim is to recover the arrears rather than take back the premises, the landlord may bring a debt claim in the county court. This can be appropriate where there is a genuine prospect of recovery and where a judgment would assist enforcement. However, court proceedings take time and involve costs, so it is sensible to consider whether the tenant has the means to pay before issuing.

A statutory demand may be considered where the debt is undisputed and the objective is to put pressure on a solvent tenant to pay. This is a serious step and should not be used where there is a genuine dispute about the debt. If the tenant is a company and does not pay, secure or compound the debt, the landlord may be able to rely on the demand when considering winding-up proceedings. For an individual, different bankruptcy thresholds and procedures apply.

Will forfeiting cost me more than it recovers?

Forfeiture is not always the best commercial answer. Before taking back the property, consider the likely void period, business rates liability, insurance, security, repairs, reletting costs, agents’ fees, any dilapidations issues and the strength of the local market. A difficult tenant may be costly, but an empty unit can also be expensive.

If the premises can be re-let quickly, forfeiture may limit further losses. If the market is slow, a payment plan, rent deposit drawdown, CRAR, guarantor demand or debt claim may produce a better financial result. The answer depends on the figures as much as the law.

What happens if the tenant goes into administration or becomes insolvent?

Insolvency changes the position significantly. If a tenant enters administration, there is usually a moratorium that prevents landlords from taking certain enforcement action, including forfeiture or legal proceedings, without the administrator’s consent or the court’s permission. Administrators may continue to trade from the premises while they assess whether the business can be sold or rescued.

Rent that falls due while administrators use the premises for the benefit of the administration may be treated differently from historic arrears, but the position is fact-sensitive. If the tenant is in liquidation, company voluntary arrangement, restructuring plan or another insolvency process, the landlord’s options and priorities may be restricted. Early advice is important, particularly before changing locks, serving notices or taking steps against goods.

A short decision guide for landlords

• If you want the premises back: check the forfeiture clause, avoid waiver, assess relief from forfeiture risk and decide whether peaceable re-entry or court proceedings are safer.
• If you want payment and the tenant is trading: consider CRAR, a formal demand, a payment agreement or a debt claim.
• If the tenant has limited assets: review guarantors, former tenants, former guarantors, rent deposits and any security documents.
• If the tenant is insolvent or close to insolvency: pause before taking enforcement action and check whether a moratorium or insolvency process restricts your options.
• If you are unsure: take advice before demanding rent, accepting payment, serving notices or changing locks.

How Fraser Dawbarns can help

Fraser Dawbarns advises commercial landlords on rent arrears, forfeiture, CRAR, guarantor claims, rent deposits, lease disputes and insolvency-related issues. We can review your lease, explain your options in plain English, help you avoid waiver, prepare notices and demands, liaise with enforcement agents where appropriate, and act in court proceedings where necessary.

If your commercial tenant has stopped paying rent, speak to David Moulton in our property dispute resolution team. We will help you choose the route that best protects your position, whether that means recovering arrears, preserving the landlord and tenant relationship, or bringing the lease to an end.

How To Contact Us:

To contact a member of our team, you can fill in our online enquiry form, email info@fraserdawbarns.com, or call your nearest office below. If you’d like to speak to a member of our team at one of our offices across Norfolk and Cambridgeshire, visit our offices page.

Wisbech: 01945 461456

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This article aims to supply general information, but it is not intended to constitute advice. Every effort is made to ensure that the law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek advice specific to your own circumstances. Fraser Dawbarns LLP is always happy to provide such advice.