What can a commercial Landlord do to collect unpaid rent?.

As a Commercial Property Manager, rent collection is always at the forefront of my mind, however in the last 12 months we have collected over £5,000,000 in rent for our clients and not had to resort to using a solicitor or an Enforcement Agent. In fact, since I joined Fairhurst Buckley, three years ago I have only had to forfeit a lease once.

Our fantastic track record of collecting rent is not just based on understanding the legislation, it is also based on long term good relationships with our tenants that starts with a face-to-face meeting at the beginning of our instruction and on our firm but fair approach throughout.

If, however, you have been managing your commercial property yourself and matters have got out of hand, you need to establish whether the tenant can work their way out of the situation or whether you are better cutting your loses and taking back possession.

Your next step will be based upon a number of factors such as:

1. Is the tenant an individual with personal assets or a limited company with none?
2. Are there any other breaches of the lease that need remedy?
3. Is there a guarantor?
4. Is there a rent deposit?
5. Is the tenant still trading?
6. Has a liquidator or administrator been appointed?
7. Do they also live on the premises?
8. Is the lease coming to an end shortly, or has years to run?
9. How likely am I to relet it? Or will I end up with no tenant and a business rates liability?

There are many different situations, and they all need a different approach, but let’s assume for the purpose of this blog that the tenant is an individual who is still trading and has been consistently paying late and is now several months in arrears.

Some tenants just prefer to have the money sat in their bank account rather than yours, and if you have let things slip, they may see you as a soft target to keep their cashflow on the right side, so checking the lease and charging interest for late payment can help focus the tenant’s mind and speed up payments.

Personally, my first step on longer arrears is to try to agree a repayment plan which enables the tenant to have cleared the rent arrears by no later than the date that the rent is next due, however this is easily agreed by the tenant, but is often more difficult for the tenant to achieve.  The tenant should be in no doubt that breaking the plan will not be accepted and that this is a solution to a short-term issue and not to be a matter of course. If they do break the plan, I quickly send a Letter Before Action giving them 7 days to get back on track, so they know that there are consequences to missing a payment.

So, what is the next step if the notice before action doesn’t work?

Gone are the days of instructing a bailiff to turn up unannounced and distrain on goods to the value of the rent owed, Certified Enforcement Agents now have to follow CRAR (Commercial Rent Arrears Recovery) procedures which is the statutory process that enables commercial Landlords to recover rent arrears without having to go to court.

They now have to give your tenant 14 day’s notice that they are coming, which gives the tenant adequate time to remove anything of value from the premises. Whilst this approach does not carry the same weight as it once did, the notice of enforcement still sends the message that the Landlord is taking the matter seriously and will not be fobbed off. It often opens up a more serious discussion about repayment plans, and they are more likely to be adhered to.

If the Enforcement Agent is unsuccessful, you will need to take their advice on the next steps however for me, the next step is to consider Forfeiture (taking back possession of the premises). Again, this is not straight forward and there are many ways in which you can waive your right to forfeiture, so you have to follow your Enforcement Agent’s advice to the letter. This may involve not issuing an invoice when the rent is next due and not chasing payment – doing either can waive your rights to forfeiture and you may have to wait another 3 months before you can take action.

If the period of time stipulated by the lease has passed and no payment has been received, your Enforcement Agent can take Peaceable Re-entry, change the locks and place a notice on the premises advising the tenant to contact them.

You now have the problem of being responsible for the goods in the premises and if the premises are broken into and the goods disappear whilst in your control, the tenant may have a claim against you. If you have time for your agent to catalogue, photograph and remove the goods from the premises and store securely elsewhere this may be an option, but if the tenant arrives half way through this, you have to stop and let them back in, so you will have to get there early enough to be gone before your tenant arrives.

Your tenant can also make an application to the courts for relief against forfeiture up to 6 months later however to do that they would need to pay all the arrears in full.

One other thing never to forget is to advise your Buildings Insurance company that you have taken back possession. Failure to do so will result in your insurance being void if you have to make a claim. Empty property is a much higher risk, and they will want to either increase your premium or give you a list of requirements, which may include weekly property inspections.

Alternative options to peaceable re-entry include applying to the court for possession, a more certain approach, but often expensive and time consuming, serving Statutory Demands or starting insolvency proceedings. All have their place in certain circumstances and no one method is right for all.

The main message I want to get across is don’t delay, act quickly right from the start, have open and frank conversations right from day one, most issues can be solved with a collaborative and empathetic approach as long as it starts early. Letting matters drift or getting too heavy too early often leads to failure. This is a business relationship, and emotions should not come into it and most of all don’t wait until you have a problem tenant to ask someone to manage your property. Good commercial property management starts at the very beginning of the Landlord and tenant relationship and can avoid a problem from happening in the first place. If difficult conversations and decisions are not for you, get a professional property manager involved from day one.