5 Top Tips for recovering Commercial Rent Arrears

1. Debt recovery proceedings

Landlords must first issue a money claim in the Courts. If successful, a landlord may take steps to enforce the Court judgment, such as seeking a charging order over a tenant's property.

Where early determination of a claim is not possible, debt recovery proceedings can be drawn out and expensive. This can be exacerbated if enforcement measures are necessary to obtain payment. Tenants may also seek to draw out the process, as there is limited impetus on them to pay whilst proceedings are ongoing.

2. Insolvency/Bankruptcy process

For undisputed claims above the relevant thresholds, landlords can apply to the Court to place tenants into insolvency which has serious repercussions for tenants.

For individuals, a statutory demand allowing 21 days to make payment must first be served. Failure to pay a statutory demand is evidence of an inability to pay and a winding up petition may be presented.

A statutory demand is not required in the case of businesses, but is often utilised as a prompt for payment or a precursor to a winding up petition.

3. Forfeiture

In the case of non-payment of rent, the landlord may peaceably re-enter to take back the premises and change the locks. For anything else, statutory notice must first be given and in the event of non-compliance, forfeiture proceedings issued at court.

A tenant may seek relief from forfeiture which, if granted, will mean the lease will continue as if never terminated. Relief is likely to be granted where the tenant pays the rent arrears and landlord's costs of the forfeiture. Unless a tenant applies and is granted relief, the lease will have come to an end.

4. Commercial Rent Arrears Recovery ("CRAR")

The CRAR process permits landlords to instruct enforcement agents who may take control of tenant goods, sell them and account to the landlord for sale proceeds against rent arrears. The CRAR process can only be used against principal rent.

5. Alternatives to enforcement

A landlord could instead seek to negotiate a payment plan or re-gearing of the lease, draw down on any rent deposit held or, look to a guarantor or former tenant.

If you are a commercial landlord or tenant seeking to deal with lease arrears or, you require advice about these issues and how they may impact you or your business, please do not hesitate to get in touch with our Real Estate Disputes team or your usual Brodies contact.