The Diary of a Troubled Landlord – Defaulting Tenants

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“Eight years ago, I granted a 10 year lease with the protection of the Landlord and Tenant Act 1954 to a small company called ‘Spooky Ltd’ who manufacture Halloween costumes. Up until November 2014, they were model tenants but due to the changes in the safety standards in relation to children’s costumes, they have openly admitted that business is struggling. Cash flow is poor and having just paid the suppliers for the delivery of much needed materials, they have calculated they cannot now pay the December’s quarter. What can I do?”

Prior to Spooky Ltd defaulting, there isn’t a huge amount you can do aside from potentially entering into a payment plan with them (such as moving to monthly rents rather than quarterly) or agreeing a rent break/reduction. This could help both them and you.

After default, there are a number of options available to you such as issuing a statutory demand or issuing proceedings for an unpaid debt but ultimately, if they do not have the funds to pay, both methods could prove futile.

Do you have rent deposit deed you could use or is there a guarantor you could call upon?

If the market in the area for rental property is good and you think you could get a new tenant, then it may be worth forfeiting the lease (if the lease so permits) but bear in mind that Spooky Ltd could make an application for relief from forfeiture if their fortunes changed up to six months after forfeiture.

You could exercise Commercial Rent Arrears Recovery (CRAR) which allows you to take control of goods pursuant to an enforcement notice having been served. If the rent remains unpaid you could then sell the goods controlled but, if the reason for non-payment of rent is because of a lack of demand, again, this method may not be too successful.

Ultimately, talking with the tenant is key as is reviewing the terms of the lease. Remember, the lease is “king” so it is imperative you always check what is permitted in various situations. If in doubt, always seek legal advice from a qualified solicitor.