Ten Things to Know When Dealing With a Commercial Tenant

Here you can download our 10 Things To Know When Dealing With A Commercial Tenant In Financial Trouble booklet. An example of the useful information you can find in the booklet is featured below.

 

Introduction

In the current economic climate it comes as no surprise that many corporate tenants are struggling to keep up with rental payments. For most businesses the financial liabilities under a lease can be one of their biggest expenses alongside salary commitments, supplier arrangements and the general day to day running of a business.

As a landlord with a struggling tenant understanding which options are available to you, and which of these may be the most efficient and cost effective, can be tricky. Issues to be aware of include recent changes in legislation, the terms of your specific lease, the bargaining strength of the respective parties and the buoyancy of the rental market at present. At Francis Wilks & Jones, we have an experienced team of legal professionals who can help advise you in respect of your options. Set out below is an example of issues you may find helpful to consider if you are dealing with a tenant in financial distress:

1. Possession Or Payment?

It is important to decide what your aim for the property is. Are you simply looking to recover monies or do you want to remove the tenant completely? If you look to recover possession of the property you should bear in mind that there may be knock on financial implications to you such as the reduction in rental income or an obligation for you to pay business rates if you don’t have a new tenant lined up or if the rental market is flat.

2. Terms Of Occupation

In order to fully assess the options available to you it is helpful if you have documentary evidence of the terms on which the tenant is occupying your property. We often see situations where a lease has been drafted but not signed, or a party is occupying on an informal basis, or where a lease has been signed the signed copy cannot be located. Where possible we would suggest that any terms of occupation are located and then reviewed so we can help you understand better what your options are.

3. Distress vs CRAR

New statutory provisions under Part 3 of the Tribunals, Courts and Enforcement Act 2007 (TCEA 2007) means that a landlord is no longer be able to levy distress for rent arrears under the common law.

Traditionally, a landlord was able to recover arrears of rent by seizing assets without going to court or even providing notice that it intends to exercise distress (unless certain specific insolvency events applied in respect of the tenant company).

The new statutory provisions provide an alternative enforcement procedure for landlords who rent out commercial premises. This procedure is known as Commercial Rent Arrears Recovery (CRAR) and came into force on 6 April 2014. In order for CRAR to be exercised certain strict conditions must be satisfied, these include:

  • The landlord must be the person entitled to the immediate reversion of the lease;
  • The lease must be in writing;
  • The tenant must be a commercial tenant;
  • The amount of arrears must be certain or capable of being calculated with a degree of certainty and must be in respect of rent only;
  • The tenant must be in arrears of rent before notice of enforcement is given; and
  • The landlord as an individual cannot itself exercise CRAR and must give written authorisation to an enforcement agent in the form prescribed.

A key change from the traditional method of distrain is that there is now a requirement to give 7 clear days’ written notice before any action. Many landlords feel that these changes make it more difficult for landlords seeking to recover rent arrears. The provisions of CRAR and the changes brought about as a result of it can be complex and there can be severe implications if the process is not followed correctly. It is suggested that landlord’s seeking to take possession of a tenant’s goods in lieu of unpaid rent take professional advice to ensure they act properly.

4. Financial Troubles Or Formal Insolvency?

It is important to quickly identify the extent of your tenant’s financial problems and whether they have entered into any form of formal insolvency or not. If a tenant has already initiated an insolvency process this can have an adverse impact on the options available to you, for example, if your tenant is in administration then it is protected by a legal moratorium which will mean that you will not be able to forfeit the lease without express permission from the administrators and or the Court. We have booklets available which explain the differences between different insolvency processes and we can help you understand how any particular insolvency process may affect your rights.

IN ORDER TO FIND OUT MORE ABOUT THIS SUBJECT AND THE ANSWERS TO THE QUESTIONS LISTED BELOW, DOWNLOAD OUR HANDY TIPS BOOKLET HERE.

ALTERNATIVELY, CONTACT THE TEAM ON 020 7841 0390

5. Rent Deposit

6. Forfeiture

7. Surrender

8. Possession Proceedings

9. County Court Proceedings

10. Recovery From Other Sources

Should you require any further assistance at all with these matters, then please contact one of our corporate specialists on 020 7841 0390 and we will be happy to discuss this with you.