Covid-19: what are the best options for commercial landlords to recover rent arrears?

COVID-19: WHAT ARE THE OPTIONS FOR COMMERCIAL LANDLORDS TO RECOVER RENT ARREARS?

The ban on evicting commercial tenants has been extended to 25 March 2022. This is to ensure that landlords and tenants have time to come to an agreement regarding the payment of rent arrears. To reach an agreement, it is expected that some landlords will reduce the amount of rent owed to them by the tenant if they are in the financial position to do so.

But for many landlords it will not be financially viable to wait until March 2022 to start recovering many months of lost rent. Other landlords may know that their tenants can afford to pay their rent but are taking advantage of the current situation and choosing not to do so.

The options for recovering rent arrears are limited due to the ongoing pandemic but there are still some avenues open to landlords.

One possible recourse is to issue court proceedings. A county court judgment (CCJ) can be used to recover sums of up to £250,000. Once the CCJ has been issued, the tenant has 14 days to comply. Before issuing a CCJ you should think carefully about whether the tenant actually has the means to pay, otherwise it could be a time-consuming and costly process with no constructive outcome.

While a landlord cannot forfeit a lease for non-payment of rent until at least March 2022, it is still possible to forfeit the lease for another breach before this time.

Another option is commercial rent arrears recovery (CRAR), which allows landlords of commercial premises to seize a tenant’s goods to pay rent. Currently, the minimum amount of unpaid rent must be the equivalent of 554 days’ rent.

It may be possible to recover rent from a sub-tenant. If a landlord has a right to exercise CRAR against a tenant and there is a sub-lease in place, the superior landlord can serve a notice under s.81 of the Tribunal, Courts and Enforcement Act 2007 on the sub-tenant. This notice demands that rent is paid directly to the superior landlords until the amount of rent arrears from the immediate tenant have been repaid.

If the lease includes a rent deposit, a commercial landlord may be able to draw from it to pay the rent arrears. The tenant will then be required to top up the deposit within a certain time frame. Please note that this is a short-term solution and may be pointless if the tenant does will not have the means to make subsequent rent payments.

 If it is not possible for a landlord and tenant to come to an agreement regarding the payment of rent arrears which have built up during the pandemic, there are still some options available recover unpaid rent. Landlords should, however, consider the financial status of their tenant before pursuing any of the options outlined above.

For more information, please call us on 020 4571 8630 or email us at hello@birdilaw.com. Alternatively, please take a moment to complete our free enquiry form.

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