Falling behind on your commercial rent payments can be daunting and stressful, but it’s important to remember that you have options and support available. The first step is always to communicate openly with your landlord to try to reach an amicable solution.
If you simply fail to pay your commercial rent or lease, your landlord has several options available to them, as follows:
Your landlord may terminate the lease and repossess the property.
Commercial Rent Arrears Recovery (CRAR) is a legal procedure that allows your landlord to seize goods from your property to sell to recover the unpaid rent. CRAR can be used even if you have not received a court order[1]Trusted Source – Legislation.gov.uk – Tribunals, Courts and Enforcement Act 2007 c. 15, Part 3, Chapter 2.
Your landlord may take you to court to obtain a judgment against you for the unpaid rent. If the court rules in your landlord’s favor, you may be ordered to pay the rent, plus interest and costs. If you do not pay, your landlord may be able to enforce the judgment by seizing your assets or making you bankrupt.
If you’ve gone beyond that stage, you’ll need to consider whether your company is insolvent and take professional advice immediately.
Can I Negotiate a Temporary Reduction or Deferment of My Business Rent?
Yes, you can negotiate a temporary reduction or deferment if you’re having trouble paying your business rent.
When negotiating, it’s essential, to be honest about your financial situation, suggest a clear plan for how you intend to manage rent payments moving forward and be open to compromise. This might include agreeing to a reduced rent for a specific period or setting up a payment schedule that works for both parties. Always approach the conversation professionally and be prepared with a plan B in case you cannot reach an agreement
What Are the Consequences of Breaking a Commercial Lease Agreement Early?
Under UK law, tenants can end a commercial lease agreement early in the following circumstances:
With the landlord’s agreement: If the landlord agrees to terminate the lease early, both parties can sign a deed of surrender to end the lease.
By exercising a break clause: A break clause is a clause in the lease that allows either the landlord or the tenant to terminate the lease early on a specified date. Break clauses are typically found in longer-term leases.
By assigning the lease: Tenants may be able to assign their lease to another tenant, but this will require the landlord’s consent. Landlords will often require the tenant to guarantee the new tenant’s rent payments[2]Trusted Source – GOV.UK – Ending a Commercial Property Lease Early.
It is important to note that you could face financial penalties for ending a commercial lease early. For example, tenants may be liable for unpaid rent, early termination fees, and other costs.
What Can a Business Landlord Do if You Don’t Pay Your Commercial Lease?
If you are unable to pay your commercial lease, your landlord has a number of legal options, including:
Commercial Rent Arrears Recovery (CRAR)
CRAR is a legal procedure that allows your landlord to seize goods from your property to sell to recover the unpaid rent. CRAR can be used even if you have not received a court order. However, there are a number of restrictions on when CRAR can be used, such as:
It can only be used if you have failed to pay at least seven days’ worth of rent.
It cannot be used if any part of the property is used residentially.
The landlord must give you seven days’ notice.
Forfeiture
Forfeiture is the process by which a landlord can terminate your lease and repossess the property. Forfeiture can be used for any breach of the lease, including non-payment of rent. However, landlords must use this power carefully, as tenants may be able to apply to the court for relief from forfeiture.
Court action
Your landlord may also take you to court to obtain a judgment against you for the unpaid rent. If the court rules in your landlord’s favor, you may be ordered to pay the rent, plus interest and costs. If you do not pay, your landlord may be able to enforce the judgment by seizing your assets or making you bankrupt.
It is important to note that landlords cannot use all of these methods simultaneously. For example, if a landlord forfeits the lease, they cannot then proceed with CRAR.
Can the Landlord Evict My Business for Not Paying Rent, and If So, How Long Does the Process Take?
Yes, a landlord can evict your business for not paying rent. The duration of the eviction process varies depending on the lease terms and legal procedures in your jurisdiction. Typically, it involves a notice period and legal proceedings, which can take several weeks to months.
What Are Your Options If You Can’t Pay Your Business Rent or Commercial Lease?
If you are unable to pay your business rent or commercial lease, there are a number of things you can do:
Contact your landlord as soon as possible. Landlords are often willing to work with tenants to find a solution, such as a payment plan or a rent reduction.
Consider a Time to Pay Arrangement with HMRC. If you owe money to HMRC, you may be able to agree to a Time to Pay Arrangement, which will allow you to pay your debts in monthly instalments over a period of up to 12 months.
Consider a Company Voluntary Arrangement (CVA). A CVA is a formal agreement between a company and its creditors that allows the company to restructure its debts. If a CVA is approved, creditors are legally bound to accept the terms of the agreement.
Seek alternative finance. Several alternative finance providers can offer loans to businesses with poor credit or limited collateral.
Consider going into administration.Administration is a formal insolvency procedure that protects a company from its creditors while it tries to restructure or sell the business.
What Can You Do to Prevent Enforcement Action for an Unpaid Lease?
If enforcement is imminent, and you’ve attempted negotiation with the landlord, or finding sources of alternative funding, it’s time to seek professional advice from experienced insolvency practitioners such as ourselves.
We specialise in assisting businesses in distressed situations. Our team of licensed insolvency practitioners can provide a comprehensive assessment of your company’s financial position and explore all available options to address the unpaid lease and any other outstanding debts.
References
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.
