If you’re in the position where you can’t pay your business rent, or a commercial lease, it can be hugely stressful.
Although COVID-19 protections for business mean you can’t be evicted during this time, you will need to clear any arrears by the time the protection is lifted (currently 31 March 2021), or you may face eviction in the normal manner.
Having helped thousands of company directors our of situations like this, we’re here to advise you on what the ramifications of this situation are, and your options moving forward.
If you Can’t Afford to Pay a Commercial Lease due to Coronavirus
A commercial lease document is a legal contract outlining the conditions by which your business can occupy a business premises.
In establishing your options for non payment you first need to become very clear about the contractual wording of your individual lease document, ideally with the advice of a specialist.
Friendly negotiation is often the best way forward in situations like this, perhaps with the request of a discount due to the unparalleled economic situation. Many commercial landlords are now offering discounts of even 50% percent.
Negotiating with Your Business Landlord
This is a tough time for landlords so try to work with them and you may find yourself pleasantly surprised.
- Approach them politely and explain your situation, including your wish to stay if that’s the case
- See if subletting is contractually allowed, this could raise some quick revenue
- See if your lease offers a force majeure events clause, which may give you an exit due to COVID-19
- Read through the current government announcements on protection for commercial renters
Ending a Commercial Property Lease Early
UK law permits tenants to end a lease early under these conditions:
- If the landlord is in agreement
- If you’ve found someone to pass the lease on to (landlord may ask you to guarantee this)
What Can a Business Landlord do if You Don’t Pay Your Commercial Lease?
In normal circumstances commercial law offers landlords three options
(1) Commercial Rent Arrears Recovery
- Also known as seizing goods, CRAR can only be undertaken if you haven’t paid your rent. Breaking other terms of your lease does not qualify the landlord to do this.
- Usually, you must owe the equivalent to at least seven days’ worth of rent for the landlord to be able to do this – you should check the terms and conditions of your rental agreement.
- There must also be a signed lease in place.
- It cannot be used if any part of the property is used residentially
- The landlord has a legal requirement to give 7 days notice if they are planning to take control of goods.
By this method, the tenant is left in place and the landlord sends in a letter of notice, followed by a certified bailiff. Baliffs costs will be charged to the tenant, with any seized goods to be sold at auction to pay off the debt.
- Baliffs can only visit between 6am and 9pm (unless your business is open outside these times)
- They must behave peacefully
- You are under NO obligation to let them in
- They must use a ‘normal method of entry’, i.e. not windows
Read more about how landlords take control of goods, and their rights surrounding controlled goods agreements.
(2) Forefeiture of a Commercial Property
Also known as Repossession or ‘peaceable re-entry‘, this means the landlord sends a certified bailiff to seize control of the property, without needing a court ordert to do so.
Locks will be changed and the tenant will have no further legal right to enter the property.
Unlike Commercial Rent Arrears Recovery above, forfeiture can be triggered by any breach of the lease.
This option is considered slightly more risky for landlords as it carries the possibility that tenants could petition the court for ‘relief from forfeiture.’ This means the tenant can not only take back possession but claims compensation for losses incurred as a result of wrongful eviction.
It’s important to note that landlords cannot use both of these methods simultaneously. Where forefeiture is used they cannot proceed with Commercial Rent Arrears Recovery, and vica versa.
(3) Commercial Rent Arrears Recovery via Court Action
Landlords may also appeal to the court to enforce payment of rent via County Court Action.
If you are ruled against you will received a County Court Judgement (CCJ) which will negatively impact your credit score and make make it difficult to access future finance.
A CCJ will come with enforced payments via instalment. If you don’t pay these you might find yourself on the receiving end of a ‘Winding up Petition‘ which is the most serious threat a limited company can face. If a judge rules against you this will become a Winding up Order and your company will be immediately closed and liquidated.
We Can’t Pay Our Business Rent Due to Coronavirus (COVID-19)
The government has drafted protective measures to prevent mass commercial eviction due to COVID-19 which we detail here.
Options for a Business Which Can’t Pay its Rent
If you’ve literally run out of money, we can advise you practical steps
- Time to Pay Arrangement With HMRC – Pay debts in measured monthly payments over a 12 month period
- Company Voluntary Arrangement – Let us help you propose a structured repayment plan with creditors
- Alternative Finance – Let us help you find the right funding to improve your cash flow
- Going into Administration – This company rescue measure includes a creditor moratorium for 8 weeks while we can raise finance, broker a sale, or restructure the business.