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Non Payment of Rents: A Guide for Landlords and Managing Agents

Commercial landlords need to act swiftly to ensure they are not at the back of the queue to be paid

Commercial landlords need to act quickly to make sure they are not at the back of the queue to be paid

While the financial climate is much healthier than it has been in the previous five years, landlords and managing agents of commercial properties I speak to still tell me they have problems with their commercial tenants failing to pay the rents and services charges. So, what can you do when payment has not materialised by the quarter date?

1. Act quickly and initiate a dialogue with the tenant to establish why payment has not been made. Is there a genuine reason? Are they in financial difficulties, or just biding further time to pay their other creditors to your detriment?

2. If despite your chasing, payment does not materialise, decide whether you wish to pursue payment of the outstanding monies, or whether you wish to obtain an alternative tenant and look to forfeit the lease.

3. If you decide you wish the tenant to remain in situ and want to chase for payment of the outstanding rent/service charges, consider which of the methods below you wish to pursue:

(i) County Court Proceedings

The first step is to send a Letter Before Action, compliant with the Pre-Action Protocol on Pre-Action, whereby a demand is made for the outstanding rent/service charges. In addition you may wish to seek recovery of interest at the rate stipulated by the Lease, or if that is silent, in accordance with the County Court Act 1984 at the rate of 8% per annum, or if the tenant is a Limited company, in accordance with the Late Payment of Commercial Debts (Interest) Act 1998, at a rate of 8% above base, per annum. A deadline will be set for the tenant to respond with payment.

If payment does not materialise by the deadline, you can commence County Court proceedings against the tenant with the intention of obtaining Judgment against them. If Judgment is obtained, and payment is not forthcoming following that Judgment, you can then explore the methods of enforcement available to you.

(ii) Insolvency proceedings
To demand payment of the outstanding rent/service charges via insolvency proceedings, a Statutory Demand should first be prepared and served upon the defaulting tenant, with service being effected personally upon the tenant by a process server. Following service, the tenant has 18 days to respond, and seek to have the Statutory Demand set aside. If they do nothing, after 21 days, you will be able to instigate insolvency proceedings. For an individual this would be the presentation of a bankruptcy petition, with a view to them being declared bankrupt. For a Limited company, the presentation of a Winding Up Petition, with the intention of obtaining a Court Order for the Company to be wound up. If the tenant needs to keep trading / wishes to avoid being declared bankrupt, frequently the threat of such action can result in payment being made.

4. As well as considering the above options, you should also determine whether you have one or more personal guarantees, and consider whether you wish to pursue them for payment, using either route (i) or (ii) as set out above. It may be the case that the tenant has fallen upon hard times, but the guarantor remains financially healthy, in which case you may be more likely to obtain payment from the guarantor than the tenant.

Need more information?

If you would like further information on the above, or have a specific situation you wish to discuss, please contact Gemma Newing who runs Sherrards Solicitors’ commercial debt recovery team.

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