Rent Arrears and Possession information in this section:
RECOVERY OF RENT ARREARS
When a tenant defaults on rent, there are various avenues open to the landlord. Depending upon the terms of the lease, and the action brought, the landlord may be entitled to damages, costs and interest.
In most leases, there is provision for the landlord to re-enter the premises in the event of default by the tenant. There will be different legal and commercial considerations, depending upon the type of lease, the premises, market conditions, and the tenant’s strength of covenant.
Commercial Rent Arrears Recovery
On 6 April 2014, the Commercial Rent Arrears Recovery Scheme (“CRAR”) came into force and the remedy of distress was abolished. CRAR sets out a series of rules relating to recovery of rental arrears by seizing goods belonging to the tenant.
The new rules impose a number of conditions that need to be met before CRAR can be used. The main changes are as follows:
- CRAR can only be used if the outstanding sums (less interest and VAT and any set off the tenant is entitled to make) exceeds the minimum amount of 7 days rent.
- The landlord must now give their tenant 7 clear days written notice (excluding Sundays, Christmas Day, Good Friday and bank holiday) together with information such as the name and address of the landlord and the nature of the debt, before allowing an enforcement officer to seize goods.
- The enforcement officer can only take control of goods belonging to the debtors. Goods necessary for the debtors personal use in connection with employment or their business are exempt up to an aggregate value of £1,350.
- The landlord will not be able to use the CRAR process to recover service charges, insurance rent or other sums reserved as rent under the lease. CRAR can only be used to recover the principle rent together with vat and interest.
- CRAR only applies to commercial premises where there is a written lease and does not apply to residential or mixed use premises.
Whilst the changes in the legislation are likely to have been welcomed by tenants, landlords are likely to find that CRAR will not provide them with such a quick and cost effective method of recovering commercial rent arrears.
If the amount owed by the tenant, whether an individual or a company, is an undisputed, unsecured sum of more than £750, the landlord may be able to commence insolvency proceedings. This would be likely to involve presenting a statutory demand, demanding repayment within 21 days.
If the tenant does not pay the outstanding sum within 21 days, then this can be used to support bankruptcy proceedings against an individual, or winding up proceedings against a company, on the basis the tenant is unable to pay its debts.
Presentation of a statutory demand is often an effective way of coercing a tenant to pay. However, a landlord should carefully consider the commercial viability of insolvency proceedings, and whether or not the landlord would ultimately make a return.
A civil claim could be brought against a defaulting tenant for rent arrears. Although this is a more time consuming, and often more costly, method of enforcement; a county court judgment will open up different avenues of enforcement. This includes:
- Bailiffs. This will allow for the tenant’s goods to be seized to pay the judgment debt.
- Charging order. If the tenant owns property elsewhere, it may be possible to secure the debt over that property by way of charging order. This will give the landlord an enforceable power of sale over that property.
- Attachment of earnings. This will provide that a proportion of the tenant’s salary is deducted by the employer before it is paid to the tenant, and paid to the landlord.
- Third party debt order. Although rarely used, this can be used as a method of freezing sums owed to the tenant by third parties (such as a bank), and ordering those sums be paid to the landlord.
There are a number of other methods of enforcement available. Please contact our specialist team for further information.
Action against the tenant’s guarantor
Taking action against a guarantor can be a quicker and more effective method of recovering rent arrears. However, this is not straightforward and there are various technicalities involved.
Consequences for the tenant
As well as enforcement action by the landlord, there may be other consequences for the tenant for non-payment of rent. This includes:
- Tenant may be unable to exercise a break clause while there are rent arrears.
- Where the tenant has persistently delayed in paying rent, the landlord may rely on this to oppose the tenant’s application for a renewal lease under the Landlord and Tenant Act 1954.
There are a number of options available to landlords in the event of tenant default. If you are a landlord and you require more information on enforcement action; or if you are a tenant and you would like advice on potential consequences of default, and how to tactically deal with a potential default; please contact a member of our team, and we will be happy to assist.
In the context of residential leases, tenants have the protection of the Protection from Eviction Act 1977. This makes it an offence to evict a tenant without a court order.
There are many different types of residential tenancies, such as:
- Assured shorthold tenancies.
- Assured tenancies.
- Regulated, or Rent Act tenancies.
- Common law tenancies.
- Oral tenancies.
A landlord will not need to obtain a court order for possession if the occupation is based upon either an excluded tenancy or a licence.
In the commercial context, a commercial tenancy must have been properly terminated before proceedings start. This may be on expiry of the contractual term, the operation of a break clause, or on forfeiture of the lease. The landlord may also bring a claim for possession against trespassers.
The procedure to bring a possession claim is set out in the Civil Procedure Rules. Broadly speaking, the landlord will need to:
- Draft and issue a claim form and particulars of claim.
- Serve the claim form and particulars of claim on the tenant.
- Await the tenant’s response. The tenant usually has 14 days from service of the particulars of claim to bring a claim.
- Submit witness evidence to support the claim.
- Attend a hearing.
There is an accelerated procedure for bringing assured shorthold tenancies to end. See Bringing an assured shorthold tenancy to an end.
The court has the power to shorten or extend prescribed periods, and will shorten the period to the hearing date in the following circumstances:
- The tenant has assaulted or threatened to assault the landlord or a member of the landlord’s family, or a local resident.
- There are reasonable grounds for fearing an assault by the tenant.
- The tenant has caused serious damage to the property or that of a local resident, or has threatened to cause damage.
Enforcement of a possession order
If the tenant does not give up the property by the date specified in the court order, the landlord will need to enforce the order for possession. An order for possession can be enforced by applying to the County Court for a warrant of possession; or applying to the High Court for a writ of possession.
Enforcement will then be carried out by an enforcement agent, or an enforcement officer of the High Court.
How We Can Help
A member of our specialist team will be happy to help.
To discuss Rent Arrears and Possession issues, please either use the contact form on the right, email us at email@example.com or call us today on +44(0)161 941 4000 to speak to a member of our team.