The government has taken significant steps to protect businesses during the Covid-19 pandemic, but some of these restrictions have caused significant difficulty for landlords looking to recover outstanding commercial rent. It is very difficult to navigate, but it is important for landlord’s to understand that they do have options. In this article, we run through some of the things you might be able to do to help you recover money due to you.
In England and Wales, landlords still have the right to recover rent and any other sums which may be due to them from commercial leases. Even though coronavirus guidance, legislation and directions have restricted recovery options, you still have the right in law to recover money owed – it is how you might go about this recovery that has changed. The ways in which you can recover outstanding rent owed to you will depend on the specific circumstances, but may include options such as recovering money from former tenants, recovering from a guarantor, recovering directly from payments from sub-tenants or debt recovery proceedings.
You may still be able to recover rent arrears due under a lease with a former tenant. You may also be able to recover these arrears from any guarantor on that lease. Where the lease was granted on or after 1 January 1996 – you can recover arrears from the former tenant where the tenant gave an Authorised Guarantee Agreement (AGA).
In order to recover the debt from a former tenant or their guarantor you must first serve a formal ‘section 17 notice’ within six months of a fixed charge falling due. The changes introduced in response to the Covid-19 pandemic do not prevent a section 17 notice being served on a former tenant.
If your tenant has rent arrears and fails to enter into a suitable repayment arrangement, you may be able to recover the rent from any guarantor on the lease. It is essential that you check the wording of the guarantee, so that you follow the correct procedure. Commercial leases can be complicated, so we would always advise seeing the assistance of a specialist commercial property lawyer.
It is possible to recover rent directly from any sub-tenants. Where businesses have failed during the pandemic, it has not been uncommon for them to sub-let their commercial premises. If a tenant has sublet their premises and their rent is in arrears, the superior landlord may serve the sub-tenant with a notice under section 81 of the Tribunal, Courts and Enforcement Act 2007 which will require them to pay rent directly to the superior landlord.
If you have required your commercial tenant to pay a rent deposit, you may be able to recover any rent arrears from the deposit you hold. The coronavirus restrictions have no impact on recovering rent arrears from a rent deposit, however the government code of practice advises being “realistic and reasonable” regarding any requirement to top-up a rent deposit.
There are several factors which may impact whether you can draw on a rent deposit, but most importantly it will come down to what the lease or the document which covers the deposit says and also how the deposit is held. Difficulties can arise where the tenant has become insolvent and as a result, there may be restrictions on your ability to draw on the deposit.
It is also possible to begin formal proceedings to recover the money owed to you. Landlords may issue a claim under Part 7 or Part 8 of the Civil Procedure Rules to recover rent arrears. You can bring your claim in the county courts or in the High Court.
Commercial leases can be complicated, particularly during these times of great uncertainty. While your tenant may be struggling to pay rent, we understand that this has an impact on your business and your finances too. For a full analysis of your options, get in touch with our team today.
When commercial property disputes arise they need to be tackled swiftly to stop them getting out of hand and to keep the time and cost of dealing with them as low as possible. We can help. For more information on our services, please contact us on 0330 107 0107 or email business@imd.co.uk.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
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