When a commercial tenant falls behind with their rent, acting early can make a significant difference to the chances of recovery. However, the right course of action depends on what is owed, whether the tenant remains in occupation and, importantly, whether you want the lease to continue.
Commercial landlords have several potential options, including Commercial Rent Arrears Recovery (CRAR), negotiating a payment arrangement, court proceedings and, where legally available, Forfeiture of Lease.
Choosing the correct route is important because taking one form of action can affect the availability of another. This guide explains the main options available to commercial landlords and when each may be appropriate.
Key Takeaways
- CRAR can allow a commercial landlord to recover qualifying rent arrears without first obtaining a court judgment.
- Forfeiture of Lease may be an option where the landlord wants to recover possession rather than continue the landlord and tenant relationship.
- Court proceedings may be appropriate where CRAR is unavailable or the debt includes sums that cannot be recovered through CRAR.
- Payment arrangements may be suitable where the landlord wants to retain the tenant and believes the arrears can realistically be repaid.
- The correct approach should be considered before enforcement action begins, particularly where both CRAR and forfeiture are being considered.
Understanding Commercial Rent Arrears
Commercial rent arrears arise when a commercial tenant fails to pay rent due under the terms of their lease.
Arrears can develop for many reasons, including temporary cash-flow difficulties, a downturn in the tenant’s business, disputes concerning the lease or more serious financial problems.
Whatever the cause, landlords should establish the position early. Confirm what is owed, when it became due, what the outstanding sums relate to and whether the tenant remains in occupation.
This is particularly important because not every sum due under a commercial lease can necessarily be recovered using the same enforcement procedure.
If the tenant is experiencing genuine short-term difficulties, a payment arrangement may sometimes preserve the tenancy and recover the debt. Where payment is unlikely or arrears continue to increase, more formal recovery or enforcement action may be appropriate.
What Options Does a Commercial Landlord Have?
There is no single solution for every commercial rent arrears case. The appropriate route depends on the lease, the type of debt, the tenant’s circumstances and what the landlord ultimately wants to achieve.
The main options may include:
- Commercial Rent Arrears Recovery (CRAR) – for the recovery of qualifying commercial rent where the statutory requirements are satisfied.
- Negotiation or a payment arrangement – where the landlord wishes to retain the tenant and repayment appears realistic.
- Forfeiture of Lease – where legally available and the landlord wants to end the lease and recover possession.
- Court proceedings – where a judgment is required to establish and recover the debt.
- High Court enforcement – where an eligible judgment has been obtained and transferred to the High Court for enforcement.
- Insolvency proceedings – potentially available in appropriate circumstances, but subject to specific legal requirements and not suitable as a substitute for ordinary debt recovery where a debt is genuinely disputed.
The important point is to choose the route before taking action. For example, exercising CRAR may affect a landlord’s existing right to forfeit for the same arrears.
If you are unsure which route applies, Absolute Enforcement can review the circumstances before you instruct and help establish which of our enforcement services may be suitable for the case.
Statutory Demands and Insolvency Proceedings
A statutory demand may be appropriate in certain circumstances where a commercial tenant owes an undisputed debt. It is a formal demand for payment and can potentially form part of the process leading to bankruptcy proceedings against an individual or winding-up proceedings against a company.
Insolvency proceedings should not be treated simply as a debt collection tactic, particularly where the debt is genuinely disputed. Landlords considering this route should ensure that the debt and circumstances are suitable and obtain appropriate legal advice where necessary.
Where straightforward recovery of commercial rent is the objective, CRAR or court proceedings may provide a more appropriate route depending on the circumstances.
Court Proceedings for Rent Arrears
Court proceedings may be appropriate where CRAR cannot be used, where the landlord needs to recover sums that fall outside CRAR, or where obtaining a judgment provides the most appropriate route to recovery.
The landlord will need to establish the amount owed and provide appropriate evidence supporting the claim. If judgment is obtained and the tenant still does not pay, further enforcement action may be available.
Depending on the judgment and circumstances, this can include transferring an eligible County Court Judgment to the High Court for enforcement.
Absolute Enforcement can assist with the enforcement stage and the transfer of eligible judgments to the High Court.
Negotiating a Payment Arrangement
Formal enforcement is not always the best first option. Where a tenant is experiencing temporary cash-flow difficulties and the landlord wants the lease to continue, a realistic payment arrangement may provide a sensible solution.
Any arrangement should be clearly documented in writing, setting out the outstanding balance, repayment terms and treatment of future rent.
Landlords should be cautious about allowing arrears to continue increasing without a clear repayment plan. If an arrangement fails, delaying recovery action can make collection more difficult.
Where forfeiture is also being considered, landlords should take particular care before accepting payments or taking other action that could affect their right to forfeit.
Using Commercial Rent Arrears Recovery (CRAR)
Commercial Rent Arrears Recovery (CRAR) is a statutory procedure that may allow a commercial landlord to recover qualifying rent arrears without first obtaining a court judgment.
CRAR is subject to specific legal requirements. It generally applies to wholly commercial premises, requires a lease to be in place and can only be used to recover qualifying rent and certain associated amounts. Service charges and other lease-related sums do not automatically qualify for recovery through CRAR.
The landlord instructs an authorised enforcement agent, who progresses the matter in accordance with the statutory Taking Control of Goods procedure. A Notice of Enforcement is issued and, if the amount due remains unpaid after the applicable statutory notice period, an enforcement agent may attend the commercial premises and, where appropriate, take control of qualifying goods.
If payment is still not secured, controlled goods can ultimately be removed and sold in accordance with the statutory procedure.
CRAR can be an effective option where the landlord wants to recover qualifying rent while allowing the lease to continue. However, landlords considering forfeiture should decide their preferred route before taking action, as exercising CRAR can affect forfeiture rights.
Absolute Enforcement provides CRAR services throughout England and Wales and can review the circumstances before instruction to establish whether CRAR appears to be the appropriate enforcement route.
Former Tenants and Sub-Tenants
Rent recovery can become more complicated where the original tenant has left the premises or where a sub-tenant is in occupation.
Former tenants: If the tenant has vacated, the appropriate recovery route will depend on whether the lease has ended, when the arrears became due and the continuing liability of the tenant or any guarantor. Where the debtor’s current address is unknown, a professional tracing service may assist before court proceedings or other recovery action is considered.
Sub-tenants: Where CRAR is exercisable against the immediate tenant, legislation provides a specific procedure that can allow the superior landlord to serve notice on a sub-tenant requiring rent to be paid directly to the superior landlord instead. This continues until the notified amount has been satisfied or the notice is otherwise replaced or withdrawn.
These situations can involve additional legal considerations, so landlords should establish the tenancy structure and current occupation before taking action.
Absolute Enforcement can assist with tracing former tenants and advise on the appropriate enforcement route where a commercial tenant has vacated.
Forfeiture of Lease for Commercial Rent Arrears
Where a commercial tenant has failed to pay rent, Forfeiture of Lease may allow the landlord to terminate the lease and recover possession of the premises, provided the lease contains an appropriate right of re-entry or forfeiture and the legal requirements are satisfied.
Forfeiture is fundamentally different from CRAR. CRAR is generally used where the landlord wants to recover qualifying rent while allowing the lease to continue. Forfeiture is used where the landlord intends to end the lease and recover possession.
For non-payment of rent, landlords should not assume that the same notice requirements applying to other breaches of lease apply. The lease and circumstances must be reviewed before action is taken.
Landlords must also be particularly careful about waiving the right to forfeit. Once the right has arisen, actions that recognise the continuing existence of the lease can potentially affect the landlord’s ability to rely on that right.
A tenant may also apply to the court for relief from forfeiture, meaning that recovering possession does not necessarily prevent a subsequent legal challenge.
If you are considering both CRAR and forfeiture, decide which outcome you want before taking action. Exercising CRAR can amount to affirmation of the lease and may affect an existing right to forfeit for the same arrears.
Absolute Enforcement provides commercial Forfeiture of Lease services throughout England and Wales and can review the operational circumstances before instruction.
Which Commercial Rent Recovery Option Should You Choose?
The right approach depends largely on what you want to achieve.
Want to keep the tenant and recover qualifying rent?
CRAR may be appropriate.
Want to retain the tenant but give them time to recover?
A documented payment arrangement may be worth considering.
Want to end the lease and recover possession?
Forfeiture may be available, subject to the lease and circumstances.
Need to recover sums that fall outside CRAR?
Court proceedings may provide the appropriate route, with further enforcement available if judgment remains unpaid.
Has the tenant already left?
The position should be reviewed before action is taken, as the available recovery options may differ.
The key is to establish the desired outcome before choosing an enforcement route, as taking one form of action can affect another.
Frequently Asked Questions
Yes. Where the statutory requirements are satisfied, CRAR can allow a commercial landlord to recover qualifying rent without first obtaining a court judgment.
CRAR can remain available in certain limited circumstances after a lease has ended. If the tenant has vacated or the lease has ended, the circumstances should be reviewed before instruction.
Landlords should be cautious. Exercising CRAR can amount to affirmation of the lease and may affect an existing right to forfeit for the same arrears. The intended outcome should therefore be considered before action is taken.
CRAR is restricted to qualifying rent and certain associated amounts. Service charges and other lease-related sums do not automatically qualify and may require a different recovery route.
Where CRAR is exercisable against the immediate tenant, legislation provides a procedure that can allow the superior landlord to require a sub-tenant to pay rent directly to the superior landlord towards the arrears.
Yes. Absolute Enforcement provides tracing services which can assist in locating former tenants before the appropriate debt recovery or enforcement route is considered.
Need Help Recovering Commercial Rent Arrears?
Absolute Enforcement works with commercial landlords, managing agents and property professionals throughout England and Wales to recover commercial rent arrears and regain control of commercial property.
Our services include Commercial Rent Arrears Recovery (CRAR), Forfeiture of Lease, tracing and High Court enforcement, allowing our team to consider the circumstances and help identify the appropriate enforcement route rather than treating every arrears case in the same way.
Commercial tenant not paying? Speak to our team before taking action, particularly if you are deciding between CRAR and forfeiture.
