Payment of rent is a tenant’s principal obligation under a lease and failure to make payment deprives the landlord of their whole objective in letting out their premises. For whatever reason a tenant falls into arrears, it is vital to the landlord to recover them as quickly as possible. This blog sets out as a quick reminder the options open to a landlord of commercial premises when doing so.
7-Day Demand Letter
A landlord’s first step is often to issue a legal letter demanding payment in full of all arrears within 7 days under threat of further action if the tenant fails to do so. It isn’t mandatory for a landlord to do this, and they may prefer to go straight to the options we outline below. However, in a situation where the tenant is not usually in arrears, or the arrears have arisen in error and can be swiftly repaid, the other options we’ve noted below may sour the parties’ commercial relationship. In these circumstances a demand letter like this can ensure that further action is only taken if genuinely necessary.
Registered Lease?
If the tenant fails to make payment of the arrears, a Landlord has a number of options open to it to recover the monies due. It is first essential to check whether the Lease was registered in the Books of Council and Session and, if so, to obtain an Extract Copy of it. Where this is not the case, the Landlord can serve a statutory demand requiring payment within 21 days. If the tenant fails to do so, the landlord can then look to liquidate or sequestrate the tenant and claim for the arrears in the insolvency. However, a tenant can avoid this by disputing the sums due within the 21 days. In those circumstances, the landlord will have to raise a court action against the tenant for payment. Where the landlord does have an Extract Copy of the Lease it has a greater number of options as we set out below.
Charge for Payment
This is served by Messenger at Arms/Sheriff Officers (the Scottish equivalent of Bailiffs) on the tenant and requires payment of the arrears within 14 days of the date of service. Where they fail to do so, the landlord can again look to raise proceedings in Court to liquidate or sequestrate the tenant and claim for the arrears in the insolvency. Alternatively, they can look to carry out what is called an attachment of the tenant’s assets.
Attaching moveable property
This involves a Messenger at Arms/Sheriff Officers attending the premises to identify and value – or arrange the valuation of – certain of the tenant’s assets. They make a report of the attachment for the Court and thereafter may remove and sell the items in satisfaction of the arrears. In exceptional circumstances, this can even be done against the tenant’s assets that they hold within their home.
Attaching money
A money attachment is served by Sheriff Officers and looks to seize physical forms of money such as cash, cheques, postal orders, or banker’s drafts found on the tenant’s premises in satisfaction of the arrears. As with a goods attachment, this step can only be taken after a Charge for Payment has expired without payment. The Sheriff Officers will attend the premises, identify any qualifying monetary assets, and complete a formal schedule of money attachment. It’s important to note that money attachment cannot be carried out on Sundays, public holidays, or outside the hours of 8am to 8pm unless prior authority is obtained from the Court.
Arrestment
This must also be served by sheriff officers, although it differs from attachment in that it is served on parties other than the tenant and does not require a Charge for Payment to have been served first. Rather than targeting the tenant’s physical assets, an arrestment catches the debts owed to the tenant. The most common arrestment is on the bank which holds the tenant’s money. The effect of the arrestment is to prohibit the third party who has received it from transferring whatever it owes to the tenant. Instead, they become obliged to release them to the Landlord.
Termination (Irritancy)
Ultimately, non-payment of rent is a ground for a landlord to terminate the lease. We’ve considered issues around termination in a series of separate blogs: Breaking down a lease: Irritancy ; Terminating a commercial lease for non-payment of rent ; and Terminating a lease for non-monetary reasons: top tips.
Further resources
For more information, watch our webinar on Recovering Arrears under a Commercial Lease in Scotland and England, where we discuss the most effective routes to recovering arrears under a commercial lease—and how the process differs north and south of the border.
If you are a landlord looking for advice on recovering rent arrears, or any other matter, please get in touch with our real estate litigation team, or your usual Brodies contact.
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