Commercial landlords’ remedies for unpaid rent

On the 22 February, David Eminton and Nicola Davies from the Paris Smith Property Litigation team gave a talk on what options are available to landlords to recover unpaid rent during the pandemic to Savills Hotel, Leisure and Trade teams. With some statistics reporting something in the region of £3 billion of rent arrears in the hospitality industry and the moratorium on forfeiture looking ever likely to be extended this month, landlords are becoming increasingly impatient and wanting to act. David and Nicola finished the talk by setting out some practical tips on what steps can be taken in anticipation of the forfeiture moratorium coming to an end. Chris Hollis from our Commercial Litigation team shared his helpful tips, in particular the pros/cons of applying for a judgment for the arrears at court with a view to hopefully securing a quick default judgment against the tenant.

Watch the talk here:

Remedies for unpaid rent

Many landlords are facing over four quarters of either unpaid rent or reduced rent from their tenants. In order to assist our commercial landlord clients during this challenging time we have prepared a table summarising the remedies available to take against tenants who are not paying their rent and some practical tips to help get through this difficult period. It is important to note that the first step for all landlords is to adopt the Government Code of Practice for Commercial Leases. Whilst the Code is voluntary it is a good guide of what the courts will be expecting the parties to have followed and adhered to during these unprecedented times.

Some of the options available to recover rent arrears are:

1. Forfeiture for other breach of lease terms – terminating lease and taking back possession provided the lease terms reserve such a right.
2. Debt Claim – obtaining a court judgment for the rent arrears.
3. Is the lease term about to expire – you could serve a s.25 notice – most commercial leases are protected by the landlord and tenant 1954 act which means tenants are entitled to a new lease. In certain circumstances a landlord can serve a hostile notice opposing renewal on one or more of the available statutory grounds such as the tenant being in breach of covenant, or the landlord wanting to redevelop or use the property for its own business.
4. Surrender – where you agree to bring lease to an end.
5. Statutory demand – this is a notice served on a tenant demanding debt is paid within 21 days failing which bankruptcy proceedings can be brought against an individual.
6. Rent deposits – landlords can deduct the deposit from the arrears if deed allows usually with requirement for tenant to top up the deposit.
7. Recovering rent from sub-tenant – when tenants have underlet property to a third party, landlords can seek for rent to be paid directly to them.
8. Enforcing against a guarantor – this is when a third party has guaranteed tenants terms, often done when an assignment of lease has taken place by former tenant or when landlord has required a third party backing when tenant is a new company with no assets. This applies to leases post 1996.
9. Recover against former tenant and or former guarantor – This applies to leases dated prior to 1 January 1996. It permits landlords to recover from any former tenant who has given a direct covenant to be liable for the remainder of the term, their respective guarantors or the original tenant.

Which option is right for you? Download a full summary of all the options available to recover unpaid rent from commercial tenants.

This article follows on from our blog in July 2020 setting out the implications of the Coronavirus Act on commercial leases. Both articles are based on the laws in England and Wales and not Scotland which has different options that we have not covered.

For specific advice to do with a particular matter please contact David Eminton or Nicola Davies in the Property Litigation team.