In the uncertainty surrounding coronavirus (COVID-19), many tenants have come to a stark realisation that they cannot afford to pay rent.
What Happens If My Tenant Does Not Pay Rent?
A tenant's failure to pay rent can have a number of consequences depending on the terms of the lease. For example, many leases will specify that the tenant will be liable to pay interest on the unpaid rent.
What Are My Options As a Landlord?
- Agree a rent concession with the tenant which could be in the form of a deferment or an outright waiver. If you do, it is important to document this to avoid any disputes down the line about what was agreed.
- Draw on some other security provided by the tenant (eg a rent deposit) to cover the rent arrears.
- Take action (if possible) against the current tenant’s guarantor, a former tenant, or even a former tenant’s guarantor for the non-payment of rent.
- As a result of the Coronavirus Act 2020, until 30 June 2020, you cannot force the tenant out of their business premises for not paying rent by forfeiting the lease. It remains to be seen whether this period will be extended.
- Use the commercial rent arrears recovery (CRAR) procedure which will allow you to take control of your tenant's goods and sell them in order to recover an equivalent value to the unpaid rent. However, recent coronavirus regulations mean that you can only use this if you are owed 90 days of unpaid rent or more.
- Take steps towards having an individual tenant declared bankrupt or a corporate tenant wound up in insolvency proceedings. However, a forthcoming temporary ban on the use of statutory demands may restrict your ability to do this.
- Bring the lease to an end. It may be possible to bring the lease to an end by serving notice on the tenant or alternatively you could agree a surrender of the lease with the tenant.
Which of these options are available to you will depend largely on the terms of the lease, the circumstances surrounding your relationship with your tenant, and your commercial aims.
You should bear in mind the potential reputational risks associated with taking action against a tenant in view of the coronavirus pandemic, your ability to re-let the property if you terminate the current lease, and your potential liability for business rates for an empty unit.
Are There Any Indirect Consequences of the Tenant's Failure to Pay Rent?
The non-payment of rent may also have indirect consequences on the tenant's rights. For instance, the tenant may not be able to properly exercise a break clause if it is in rent arrears.
For specialist legal advice or if you would like to know how to deal with a tenant that has failed to pay rent, please contact Katie Hickman in our Real Estate team on 0207 665 0913 or complete the form below.
The above reflects guidance as at 14 May 2020. As the situation develops, it is important that readers check the latest government advice for further updates.