In the United Kingdom, when commercial landlords are faced with a situation where rent is unpaid, they have several options available to them. They can:
A statutory demand is a written notice demanding payment of the unpaid rent. In order for this remedy to be used the landlord must be owed at least £750.
If the arrears are not paid within three weeks after the demand is served, the debtor (tenant) is deemed insolvent and a bankruptcy petition may be issued. Since a landlord is considered an unsecured creditor, this step would need to be considered very carefully.
Landlords also have the option of pursuing the matter of unpaid rent in court. This may not be the best choice for landlords who are owed money, though. A tenant who is in default on rental payments may not have any assets against which a judgment could be enforced, even if one was obtained. The landlord should make enquiries first to find out whether the tenant has any assets that could be used to satisfy a judgment first.
The tenant’s obligations under the lease may be subject to a guarantee by a third party. If the tenant goes into default, the landlord may be able to pursue the guarantor for payment of the rent.
Choosing this option means terminating the lease. With this option, the future obligations of the landlord and tenant end. To exercise this option, the lease must contain language granting the landlord the right to enter the property when it is unoccupied to change the locks.
In this instance, the landlord has the legal right to enter the property to seize goods and hold them until the rent is paid. (In most cases, a professional bailiff will be hired to enter the premises). If the rent is not paid, the landlord can sell the goods and use the amount collected toward unpaid rent.
Distress is a legal remedy that is used almost exclusively by commercial landlords. It has been available since medieval times, and is subject to a number of requirements and rules. Before choosing to continue with this remedy, landlords should seek appropriate legal advice and not simply enter the premises and start seizing their tenants’ property.
The above remedy is likely to be abolished and replaced by a more modern alternative. It will be called the Commercial Rent Arrears Recovery (“CRAR” procedure). Under CRAR, a landlord will be required to serve notice on the tenant before seizing the tenant’s goods. Under the current rules, the landlord is not required to give any notice.
The required notice period may not be to the landlord’s advantage, since it gives the tenant time to dispose of goods which could be seized to pay the amount owing for rent.
CRAR will probably not take effect until at least 2014. In the meantime, distress is a legal remedy which is available to landlords.
Which method of recovery is best for commercial landlords? The best method will depend on the facts of the case and the wording of the lease. When a tenant fails to pay the rent as agreed, the landlord should seek legal advice to determine the appropriate action.
