When commercial tenants put rent on the backburner, it’s often a result of cash flow problems which can leave commercial landlords seriously out of pocket. There are stringent rules in place which accord powers to landlords in the event of a covenant breach, such as failure to pay rent. This can take the form of lease forfeiture and commercial rent arrears recovery, explains Keith Tully of Real Business Rescue, a company restructuring, liquidation and insolvency specialist.
Commercial rent arrears recovery
The recovery of commercial debts can be formally pursued through the commercial rent arrears recovery (CRAR) procedure which came into force in 2014, replacing Distress for Rent. The measure provides an avenue through which landlords can seize and sell the goods of commercial tenants to recover rent without the express permission of the courts.
For landlords to exercise their powers through commercial rent arrears recovery, the following conditions must be met:
- Must be a commercial lease which is documented in writing. If the same lease covers mixed-use or residential use – a judgment order must be obtained
- Must provide a written enforcement notice of 7 days which will be valid for 12 months
- CRAR covers rent, interest, and VAT only – a judgment order must be obtained to recover service charges and insurance
- Must be in arrears for 7 days and debt must amount to 7 days’ rent
- Must use a certified enforcement agent to recover goods
- Must still be in arrears before seizing goods
When seizing goods, the tenant will be able to enter a controlled goods agreement which is a repayment agreement made with an enforcement agent.
Commercial lease forfeiture
As an alternative to CRAR, Landlords can forfeit the lease which essentially means to terminate the lease agreement and take possession of the property if the terms are not adhered to – such as failing to pay rent.
During the coronavirus pandemic, a moratorium on lease forfeiture was in place which prevented landlords from repossessing property over unpaid rent. This measure was introduced to provide rent relief to commercial tenants during the moratorium period of March 2020 – March 2022.
Landlord powers during the Covid-19 pandemic
During the coronavirus pandemic, landlord powers to recover commercial rent were reined in to provide breathing room to businesses instructed to close following the rollout of lockdown restrictions. Eviction protection was provided to commercial tenants under the Commercial Rent (Coronavirus) Act 2022, preventing landlords from evicting commercial tenants over non-payment of rent.
New rules were established to ringfence Covid-19 commercial rent arrears and guide tenants and landlords to negotiate repayment plans according to the commercial rents code of practice which aligns with the Commercial Rent (Coronavirus) Act 2022.
A binding arbitration process was also introduced to resolve rent debt claims.
Commenting on the commercial rent arbitration process, Business Minister, Paul Scully, said:
“This new law will give commercial tenants and landlords the ability to draw a line under the uncertainty caused by the pandemic so they can plan ahead and return to normality.
“Landlords and tenants should keep working together to reach their own agreements where possible using our Code of Practice to help them, and we’ve made arbitration available as a last resort.
“Tenants who can repay their rent debts in full, should do so, and when they cannot, landlords should try to share the burden, so we can all move on.”
As rent relief for commercial tenants came to an end, most landlord powers were restored, including the right to wind up a company that owes rent.
When resolving property disputes and management issues or queries relating to Commercial Premises issues, it is essential that you seek early advice from a legal team that can react quickly and adapt to your changing needs. Our dedicated Property Litigation team provide commercial, pragmatic and strategic advice tailored to meet your needs and objectives.