08 Dec Commercial Landlords – What Should You Do If Your Tenant Isn’t Paying Rent?
Landlords, what are your options when a tenant is in rent arrears?
One of the most stressful challenges for a commercial landlord is dealing with a tenant who has stopped paying rent. Unpaid invoices directly impact your cash flow and profitability, and you need to know exactly where you stand.
There are several options available to you to resolve commercial rent arrears effectively.
Open communication and payment agreements
The first step you may wish to consider is a direct conversation. A formal payment agreement can outline how the tenant will clear their arrears in instalments while continuing to pay ongoing rent.
Any agreement should be carefully drafted to ensure there is no room for confusion. It is also vital that you do not inadvertently waive your right to take further action (like forfeiture) by accepting a part-payment without the correct legal protections in place.
Check your lease – avoiding the waiver trap
Before taking any action, check your lease. Most commercial leases allow the landlord to forfeit (end) the lease if rent is unpaid for a specific period, typically 14 or 21 days.
Important note – If you intend to forfeit the lease, you must not do anything that treats the lease as continuing after the breach has occurred. This includes demanding or accepting rent. If you accept any payment, you may “waive” your right to forfeit, meaning you might have to wait for the next rental period to take action.
Forfeiting the lease
If the relationship has broken down and you want the property back, forfeiture is the primary option.
- Peaceable re-entry – If the premises are purely commercial (not mixed-use with residential elements), you may be able to enter peaceably—usually by employing a certificated bailiff to change the locks early in the morning. This avoids the need for court proceedings but must be done strictly in accordance with the law to avoid criminal offences.
- Court proceedings – If peaceable re-entry is not appropriate (for example, if there is a risk of violence or residential occupants), you must apply to the court for a possession order.
Be aware that a tenant can apply to the court for “relief from forfeiture” to have their lease reinstated, usually on the condition that they pay all arrears and your legal costs.
Commercial Rent Arrears Recovery (CRAR)
CRAR is a statutory procedure that allows you to recover rent without going to court. It replaces the old law of “distress”.
- Rent only – CRAR can only be used to recover “principal rent”, VAT, and interest. It cannot be used for service charges or insurance, even if the lease defines them as rent.
- Commercial use only – It applies only to purely commercial premises; mixed-use properties are excluded.
- Notice period – You must provide the tenant with at least 7 clear days’ notice of enforcement before an enforcement agent can enter to seize goods.
- Minimum arrears – You can only use this method if at least 7 days’ rent is legally due.
Statutory demands and winding up
If the debt is undisputed and you want to apply maximum pressure, you can serve a Statutory Demand.
- The process – If the tenant does not pay or secure the debt within 21 days of receiving the demand, you may be able to present a petition to wind up their company (if they owe £750 or more).
- The impact – The threat of winding up is severe, as it can freeze the tenant’s bank accounts and effectively stop them from trading. It is often a very effective tool for forcing payment from a tenant who has the money but is choosing not to pay.
Obtaining a County Court Judgment (CCJ)
You can issue a standard civil claim to recover the arrears as a debt. If successful, you will obtain a County Court Judgment (CCJ), which can be enforced in various ways, such as sending High Court Enforcement Officers (HCEOs) to seize assets or obtaining a Third-Party Debt Order to freeze funds in the tenant’s bank account.
Recovering arrears from guarantors
If your lease has a guarantor, you may be able to claim the unpaid rent from them.
Act quickly – Under Section 17 of the Landlord and Tenant (Covenants) Act 1995, you must serve a notice on the guarantor (or a former tenant who is still liable) within six months of the date the payment became due. If you miss this deadline, you may lose your right to recover that specific chunk of arrears.
Recovery from subtenants
If your tenant has sublet the property, you can use a Section 81 Notice under the Tribunals, Courts and Enforcement Act 2007.
This notice legally requires the subtenant to pay their rent directly to you—the superior landlord—instead of to your immediate tenant, until the arrears are cleared. This stops the immediate tenant from pocketing the rent while failing to pay you.
Draw down on rent deposit
If you hold a rent deposit, you may be able to withdraw funds to cover the arrears. Check your Rent Deposit Deed carefully; it will usually require the tenant to “top up” the deposit within a set time after you have made a withdrawal.
Drawing down on the deposit might be considered a waiver of your right to forfeit the lease for those specific arrears. Always take advice before touching the deposit money.
We are here to help
Actions to claim rent arrears can be complex, and a misstep, such as waiving your right to forfeit can be costly. To ensure you take the best route for your property, speak with one of our commercial litigation solicitors.
Email info@hrjforemanlaws.co.uk or call Hitchin 01462 458711 or Welwyn Garden City 01707 887 700.
For more information
The top 5 questions and answers about commercial leases
Top ten things for landlords to consider when preparing a commercial lease
Commercial tenants – what should you do if you can’t pay your rent?