Non-payment of rent
Demand for rent
A tenant is obliged to pay rent under a lease or tenancy agreement. There is no requirement that the landlord demands payment of the rent from the tenant. However, a demand for rent can serve as a useful reminder to ensure that the tenant pays the rent in full and on time.
A landlord may only take enforcement proceedings under a lease or tenancy agreement after the rent has been formally demanded or is more than six months overdue. There is a set procedure by which rent may be formerly demanded. It is possible for the landlord to exclude the requirement to formerly demand rent.
A demand for rent letter should be sent to advise a tenant that the rent is due. The document should set out the way in which the tenant is to pay the rent to the landlord. It is becoming increasingly common to transfer money by bank transfer rather than to rely on the post to deliver cheques.
Failure to pay rent
If the tenant fails to pay the rent, which they promise or contract to pay under the lease, the landlord can take the following actions.
Proceedings against the tenant
The landlord may commence court action against the tenant for recovery of rent.
Bankruptcy and winding-up
If the sum owed exceeds £750, the landlord may consider serving a statutory demand on the tenant with a view to commence bankruptcy proceedings against them. However, the landlord has to bear in mind that the bankruptcy of the tenant may reduce the chance of them getting paid in full since the landlord will become an ordinary unsecured creditor on the bankruptcy of the tenant.
Commercial rent arrears recovery
Commercial rent arrears recovery (CRAR) applies to any commercial premises let using a written lease. This legal procedure replaced the landlord's common law remedy of distress in April 2014. The landlord still has a right to enter the premises that have been let to the tenant to seize their property, but the procedure for dong this has changed.
The landlord must instruct an enforcement agent to carry out the recovery once a minimum of 7 days' 'net rent' remains unpaid. The net rent means the actual rent less any VAT, interest and payments the tenant can set-off against the rent. It doesn't include payments such as insurance premiums and service charges even if the lease says they are included as part of the 'rent'.
The enforcement agent must then give the tenant 7 'clear days' notice of their intention to take control of the tenant's property to the value of the rent arrears and any VAT, interest and costs. Clear days don't include Sundays and Bank holidays.
After this, and so long as the minimum rent remains unpaid, the enforcement agent can take control of the tenant's property. This can be done by securing the goods on the premises, entering into a written agreement with the tenant not to remove the goods from the premises or removing them.
Certain goods on the premises cannot be secured/removed e.g. necessary equipment personally used by the tenant for their employment, trade, business, profession or for education up to the value of £1,350.
Once control is taken, the enforcement agent must usually wait 7 clear days before selling them, after having obtained a valuation. If the goods will be unsellable or if their value will be lost or substantially reduced if 7 clear days' notice is given, then they can be sold on the day after they have been secured.
Recovering rent arrears from a sub-tenant
If the premises have been sub-let, the head landlord can serve notice on the sub-tenant requiring them to pay their rent to the head landlord until the arrears are paid off. The sub-tenant must be given 14 clear days' notice before the rent is paid directly to the head landlord. There are some conditions that the head landlord must fulfil before doing this so legal advice is essential.
If a tenant breaches a covenant under the tenancy the landlord may have the right to re-enter the property to end the tenancy. This is known as forfeiture. The landlord can only forfeit a tenancy if such a right for breach of particular terms of the tenancy and is expressly stated in the tenancy.
When forfeiting a tenancy, the landlord can either issue proceedings for recovery of possession or peacefully re-enter the premises. Usually, the first method will be used, as the landlord does not want to run the risk of any claim of violent re-entry.
It is possible for a landlord to waive their right of forfeiture. This will occur if the landlord, knowing of the breach, performs an act that recognises the continued existence of the tenancy.
For example, if a landlord still demands rent after the right to forfeit has arisen this will amount to a waiver. The reason for this is that the act of demanding rent recognises that the tenancy is continuing even after the breach has occurred. However, if the breach itself then continues, the right to forfeit, though waived on one occasion, will arise again.
Landlords should always get legal advice on their options in taking forfeiture action because it carries significant risks. For example, if not done properly, forfeiture can expose a landlord to a significant damages claim by the tenant.
Ending the tenancy for non-payment of rent
The landlord can use either the CRAR procedure (mentioned above) or can forfeit the lease, but cannot do both.
In order to forfeit the lease the landlord must make a formal demand for rent, unless the lease specifically exempts them from this obligation. To avoid the technicalities of a formal demand, most leases will state that the lease will be forfeited if the tenant is in arrears for a specified amount of time (often 21 days), whether or not it is formally demanded.
However, the tenant may apply to court for relief from forfeiture. If the landlord goes to court the action will be suspended if the tenant pays all the arrears of rent together with the landlord's legal costs before the hearing.