During the last two years of economic difficulty, many commercial Landlords have had difficulty with tenants who have been unable to pay their rent.
These are the options available to Landlords in this position:
Distress is where the Landlord seizes goods owned by the Tenant as security for arrears of rent.
Distress for rent is used much less frequently as a remedy for rent arrears than forfeiture however, used in the correct way, this remedy can be efficient, cost effective and fast in recovering rent arrears.
This remedy is not however without pitfalls, for example there is a limitation period of 6 years from the date of the cause of action after which time the Landlord will not be able to use distress for rent as a remedy for such arrears as have accrued prior to that time.
There are also certain items which cannot be taken under the remedy of distress, such as trade tools to a stated value and clothing and bedding.
As with forfeiture, no force can be used in gaining entry to the premises meaning the Landlord can only re-enter the premises peaceably. In addition, any goods seized by the Landlord must be proportional to the amount of arrears and once such goods have been seized, the Landlord can retain them either to sell or to obtain payment from the Lessee to release them.
If a Landlord wishes to use the services of a bailiff to seize goods they must ensure that the bailiff is certified to act as such through the County Court.
Whilst a useful tool in the Landlord’s armory for recovering rent arrears, this remedy is by its very nature particularly contentious and should not be exercised without the Landlord receiving prior legal advice.
Forfeiture is the termination of a lease by the Landlord prior to expiry of the agreed term on the grounds that the tenant has breached one or more of the covenants of the lease. It is widely accepted that the forfeiture procedure for non payment of rent is significantly easier than for breach of other covenants and this therefore remains a useful remedy to commercial Landlords where the tenant has fallen into rent arrears.
It is important that Landlords act quickly and decisively when faced with a tenant who has not paid their rent, or a tenant that breaches one of the covenants within a lease.
It is not an automatic right to forfeit a lease, so a Landlord must ensure the lease specifically states the grounds for forfeiture. A Landlord must also serve a formal demand for rent prior to forfeiture and any action contrary to this, such as acceptance of rent, may lead to the loss of this right.
Landlords should always be mindful of the fact that forfeiture can only be effected by way of peaceable re-entry or through Court proceedings. The former is of course a quicker and cheaper option but should not be undertaken without formal legal advice. Securing entry to premises where there are persons present who object to such entry is a criminal offence.
A further consideration for Landlords in forfeiture proceedings is that the tenant has the right to apply for relief from forfeiture under Section 146(2) of the Law of Property Act 1925. In deciding whether or not to grant such relief the Court has a wide discretion but generally the tenant will be likely to obtain relief if the rent arrears are discharged and payment is made to the Landlord in respect of their costs incurred.
It is essential to ensure leases are as comprehensive as possible and drafted by experienced commercial specialists, a particularly useful provision in this regard is ensuring that things such as services charges, insurance payments and other payments due under the lease are reserved as rent.
At Frettens we are prepared to review your commercial lease at no charge and advise you of any amendments which could be beneficial to your position. Contact us if you would like a free review or if you have any questions.