Friday, 11 April 2014

Chasing commercial rent arrears - is it worth it?

Landlords could decide to cut their losses rather than chase tenants for outstanding arrears, according to a local solicitor.

Madelene Schofield-Whittingham, who heads up our commercial property team at Martin-Kaye LLP Solicitors in Telford, said chasing up outstanding rent could be a lengthy and difficult process.

“There are many options available to landlords who are concerned their tenants may be struggling to pay their rent. But sometimes it may be more sensible to just recover possession of the building while you still can, before the legal process takes over.”

Madelene said if a commercial landlord was determined to take an official stance, they should think carefully about what steps to take.

“If your tenant paid a rent deposit when they took on the lease, you may be entitled to use this to cover the rent due. And if your tenant has someone who stands as a guarantor to the lease, you may be able to call on them to pay the arrears.”

Madelene also said landlords may in some circumstances be entitled to seize, impound and sell any goods belonging to the tenant, or you could choose a right of re-entry and take back the tenanted property itself – as long as you stay within the confines of the law.

“If you decide to take court action and claim against the tenant to try to recover the debt, this is unlikely to be much use if the tenant is about to become insolvent. But if the property is sub-let, then in some circumstances the main landlord can ask an under-tenant to pay its rent directly to them and cut out the middle man.”

Until your tenant is formally declared insolvent, landlords are entitled to use any of the options available to them.

“After the tenant becomes insolvent, some remedies will only be possible if the insolvency practitioner or the courts give their permission – this is likely to be a long and expensive process, and permission is not always given.

“You may even find yourself in the difficult position of being unable to do anything with the property, with no right to take it back, and with a tenant who is in arrears. This is of course made even worse if you have a new tenant ready and waiting to take a lease on the property.

“Think carefully and take advice about the options available to you before you even start any formal proceedings – you may decide it’s not always worth the stress, cost and time to pursue someone who may never be able to pay up.”