17 Sep Commercial Tenants – What Should You Do If You Can’t Pay Your Rent?
With economic pressures affecting businesses across the UK, keeping up with commercial rent payments can be a significant challenge. If your cash flow is tight and you are facing potential arrears, it is vital to act quickly.
The temporary protections that existed during the pandemic have long ended, meaning landlords can utilise the full range of legal powers to recover debt or regain possession of their property. If you are concerned about your ability to pay, taking early legal advice and exploring your options is essential to protecting your business.
There are several steps a commercial tenant can take to resolve rent arrears:
- Discuss a payment agreement
- Check your break clause
- Draw down on your rent deposit
- Sublet or assign your lease
- Dealing with forfeiture
- Dealing with a statutory demand
- Dealing with Commercial Rent Arrears Recovery (CRAR)
Discuss a payment agreement
To prevent arrears from building up, it’s important to notify your landlord of your situation as soon as you foresee difficulty in paying your rent. As a valued tenant who has acted early, you often have a much better chance of reaching an amicable agreement.
You can discuss a range of concessions, such as a temporary rent reduction, moving from quarterly to monthly payments to aid cash flow, or a deferred payment plan. Ensure any agreement is documented in writing so there is no confusion later.
Check your break clause
If you find yourself in long-term difficulty and a payment agreement cannot be reached, check if your lease contains a ‘break clause’. This may allow you to end the contract early on a specific date without penalty.
Important note – Most break clauses have strict conditions, such as giving notice by a specific date and ensuring all rent is paid up to the break date. If you miss these conditions, the break may be invalid, leaving you locked in.
Draw down on rent deposit
You may be able to agree with your landlord to use your rent deposit to cover the immediate arrears. However, this is usually a short-term fix. The Rent Deposit Deed will typically require you to “top up” the deposit back to its original amount within a certain number of days (often 14 or 21 days), so you need a plan to replenish those funds.
Sublet or assign your lease
If the premises are no longer affordable, review your lease to see if you can assign (sell) the lease to another business or sublet part or all of the space to a subtenant who pays rent to you.
Landlord consent is almost always required, but they usually cannot unreasonably withhold it. Be aware that even if you assign the lease, you may be asked to sign an Authorised Guarantee Agreement (AGA), meaning you could still be liable if the new tenant fails to pay.
Dealing with forfeiture
Most commercial leases contain a forfeiture clause. This gives the landlord the right to peaceably re-enter the property, change the locks, and terminate the lease if rent is unpaid for a set period (often 14 or 21 days).
If your landlord forfeits your lease, you can apply to the Court for “relief from forfeiture” to have your lease reinstated. The Court will generally only grant this if you can pay all the arrears and the landlord’s legal costs immediately. You should seek legal advice immediately if you are locked out or threatened with forfeiture.
Dealing with a statutory demand
A Statutory Demand is a formal legal warning. If you do not pay the debt or secure it to the landlord’s satisfaction within 21 days of receiving the notice, your landlord can issue a petition to wind up your company (if you owe £750 or more).
This is a serious threat that can freeze your business bank accounts. Do not ignore a statutory demand, urgent legal action is required to set it aside or negotiate a settlement.
Dealing with Commercial Rent Arrears Recovery (CRAR)
CRAR is a process that allows landlords to instruct enforcement agents (bailiffs) to enter your premises and seize goods to sell at auction to cover the rent arrears.
- Notice required – The enforcement agent must give you 7 clear days’ notice before entering.
- Rent only – It can only be used for principal rent, not for service charges or insurance.
- Negotiation – If you receive a Notice of Enforcement, contact a solicitor immediately. It is often possible to negotiate a payment plan with the agent before they attend your premises, avoiding the disruption and reputational damage of goods being seized.
We are here to help
Negotiating rent arrears and understanding your lease obligations can be complex. To ensure you take the best route for your business, speak with one of our litigation solicitors.
For more information
The top 5 questions and answers about commercial leases
Dealing with a statutory demand? Here’s what you need to know.
Commercial landlords – what should you do if your tenant isn’t paying rent?