With recession comes failure. Default by tenants on commercial leases are increasing and this note highlights the basic remedies available to a landlord to recover rent or take back possession of their property.
Distraint/Commercial Rent Arrears Recovery
The right to levy distress is being abolished shortly. It will be replaced by a more limited procedure called commercial rent arrears recovery.
Distraint is still however a useful remedy as the Landlord’s right to levy distress for rent allows landlords to recover arrears of rent without going to court (unless the tenant is insolvent).
Distress allows a landlord to seize goods from premises that it has leased and sell them to raise money to cover arrears of rent due to it in respect of those premises. A landlord does not have to give its tenant notice that it intends to exercise distress. Distress is available to recover arrears of any payments in the lease which are reserved as rent, generally this covers rent, service charges and insurance.
Distress may be carried out either by the landlord in person or by an authorised bailiff, acting as agent for the landlord.
It is likely that the lease will contain a provision for the forfeiture of the lease in the event of the default or insolvency of a tenant.
This is a tricky area – a landlord must, think carefully before exercising this right, as it may also lose the right to recover the rent from another party (such as a guarantor).
Sometimes the action or conduct of the of the landlord can amount to an intention to forfeit or accept a surrender of the lease even when the landlord does not want to do this. Professional advice should always be sought before taking any action against the tenant.
Where the current tenant is an assignee, it is likely that an ‘authorised guarantee agreement’ was provided by the former tenant. This guarantees the payment of the rent by the former tenant. However in order to recover arrears from the former tenant a section 17 notice must be served within six months of the date when the arrears fell due.
If arrears are recovered, the former tenant can require an overriding lease to be granted to it, effectively becoming the landlord’s tenant once again.
If the lease is an “old lease” i.e. pre-dating 1 January 1995, then the chances of recovery are better as the landlord, subject again to serving a section 17 notice, may pursue the original tenant, any subsequent former tenants (who provided direct covenants in licences to assign) and their respective guarantors. An overriding lease may again have to be granted if recovery is made.
Any rent deposits should be considered carefully to see if the landlord has immediate recourse to the deposit.
Where a guarantee has been provided on the grant of the lease or in a licence to assign.
If there are subtenants, notices can be served forcing them to pay rent directly to the landlord. This includes for example a residential tenant of a flat above a shop that has been let on an Assured Shorthold Tenancy.
As with any legal matter you should seek professional advice on your specific circumstances before taking any action.
For further help call Merwyn Emmanuel now on 01708 757575