What to do when a commercial tenant fails to pay rent

Categories: News

Zoe Smith, Head of Commercial Property at ORJ, looks at the options available to commercial landlords when faced with non-payment

If you’re a commercial landlord and your tenant fails to pay rent, it’s easy to act in haste. While swift action is required, it’s important to know the law and to stay within the boundaries to handle the situation effectively.

Here are some steps to take to try to reach a timely and satisfactory and conclusion.

1. Review the lease agreement

Firstly, review the lease agreement to ensure you have a solid understanding of its terms. A properly constructed lease agreement should include clauses about late payments and the consequences that follow. It might also have details around grace periods and interest charges.

2. Speak to the tenant

It is highly advisable to communicate with the tenant before taking legal action. A single missed payment could be a simple administrative error or temporary cashflow issue. Try to be reasonable where possible by negotiating a deferred payment date, or a payment plan where the debt is cleared over an agreed period of time.

Many businesses run into financial problems from time to time – it doesn’t mean they can’t go on to be a valuable, reliable tenant in the future.

Reasonable behaviour at this stage will also stand you in good stead if the matter reaches court in the future.

3. Send a formal demand for payment

If a compromise solution cannot be found or the tenant continues to fail to pay, the next step is to send a formal demand letter.

This should outline the amount of rent due, any late fees and a reasonable deadline for the debt to be repaid. This is an official notice before proceeding with legal action.

Our commercial property lawyers can help draft this letter.

4. Consider legal remedies

If the tenant continues to default, landlords should seek professional advice and consider legal options, which include:

• Forfeiture: If the lease allows it, a landlord may choose to terminate the lease and take back possession of the property. This can be a quick process but can make re-letting the property in the future more difficult.
• Debt recovery: Landlords have the right to sue tenants for unpaid rent through the courts. The level of difficulty of this process can depend on circumstances, including the strength of the original lease agreement, the tenant’s financial position and the business’ collateral.
• Commercial Rent Arrears Recovery (CRAR): Landlords may be able to seize goods from the tenant to recoup the debt. This can be an effective solution but proper process should be followed, including giving seven days’ notice before any goods are seized and using properly certified enforcement agents. 

5. Let ORJ help

Many commercial landlords will have to deal with non-payment by tenants at one time or another. If informal conversations don’t work, it’s time to speak to the experts at ORJ to ensure legal compliance – and to minimise the risk of costly court battles.

ORJ has one of the most respected commercial property teams in Staffordshire, Shropshire and the West Midlands. Our solicitors have a wealth of experience across all aspects of commercial property law and guarantee friendly, efficient advice at every stage.