The number of problem tenants is rising together with the cost to Landlords and their managing agents in dealing with them.
Prompt action is critical as delay can often result in tenants absconding or in the dwindling of assets/funds from which the Landlord may recover any losses. Consideration as to a course of action needs to be given at an early stage.
Where a tenant fails to pay rent the Landlord’s remedies are as follows:
- Sue for Rent
- Distain for rent
- Forfeit lease
- Divert any sub-tenant rent to landlord
- Drawdown rent deposit
- Pursue guarantor or former tenant
However, the current economic climate calls for Landlords to give greater consideration to restrictions on the route by which they wish to pursue rent arrears or possession to take account of tenants who may potentially be insolvent.
First, check the lease to determine whether the tenant is an individual or a company.
Where the tenant is an individual - Individual Voluntary Arrangement (“IVA”)
Where the tenant is an individual and has proposed an IVA and the tenant has made an application to the court for an Order reflecting this then the Landlord will require the court’s permission before he can enforce any remedies.
Bankruptcy
The Landlord may enforce all the remedies above so long as a Bankruptcy Petition has not been presented to the court. If a Bankruptcy Petition has been presented to the court (albeit a Bankruptcy Order has not yet been made by the court) then the Landlord may still purse the following:
- Divert any sub-tenant rent to landlord
- Drawdown rent deposit
- Pursue guarantor or former tenant
Any other means of pursuit can be stayed or undone by order of the court. Following the making of a Bankruptcy Order by the court the Landlord may only
- Divert any sub-tenant rent to the landlord
- Drawdown rent deposit
- Pursue guarantor or former tenant
- Sue for a maximum of 6 months’ rent before the Bankruptcy Order was made
- Forfeiture (with the permission of the court alone)
The Landlord may give notice to the Trustee in Bankruptcy giving him 28 days to disclaim the lease or lose the right to do so.
Where the tenant is a company
Where the tenant is a company there are even more restrictions on the methods of recovery the Landlord can use and each situation is different. The main considerations are:
- Whether a Law of Property Act 1925 (LPA) receiver has been appointed
- Whether an Administrative Receiver has been appointed or if there a moratorium in place
- Whether the company voluntary arrangement (CVA) has been approved and entered into
- Whether an Administrator been appointed
- Whether a liquidator been appointed
We recommend tailored advice should be sought from us if a Landlord believes he may be faced with an insolvent Tenant Company.
The Landlord’s legal option being paramount to making an informed decision, there are also commercial considerations when deciding whether and how to recover arrears or possession. Some of these considerations include:
Difficulty in finding a replacement tenant (to include any further loss of rent and the incurring of agent and legal fees to re-let the premises)
- Landlord’s liability of business rates on an unlet property
- Landlord’s liability to insure the building usually recovered as insurance rent under the lease
- Landlord’s liability to repair the structure of the building without the ability to recover that expenditure through the service charge account
- The vulnerability of unlet premises as regards security
- The remedying of any dilapidations
- Expending money and time in chasing arrears from a tenant who may ultimately be insolvent and therefore unlike to be able to pay even with the ratification of the court.
Consideration as to the options available to the Landlord should be given at an early stage.
For further information or advice please contact Kellie Williams-Jauvel on 0208 971 1020 or email mailto:kwj@morrlaw.com
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