Can’t Pay a Commercial Lease or Rent ?
If you’re in the position where you can’t pay either your rent or a commercial lease, it can be hugely stressful.
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.
What Happens if You Can’t Pay Your Commercial Rent?
COVID-19 is just the latest in a stream of things which have put pressure on business tenants. Rising rents, higher energy bills, rates hikes and more have pushed commercial tenants like never before.
But what happens if you reach a place where you simply can’t make your next rent or lease payment?
Landlords have various methods of enforcement at their disposal including
- Forefeiture (ending your lease and reposessing property)
- Legal Action
- Winding up Petition
What Happens if You Don’t Pay Your Commercial Lease?
While there are technical differences between renting and leasing, the mechanisms of legal action which a creditor may take are the same.
Leases, however, often come with the necessity for what is called a ‘lease guarantee’. This is similar to a personal guarantee document and places the holder personally liable for non-payment.
Lease Guarantees require ‘security’, often a family home, to stand as collateral in case of non payment or insolvency. In these situations, a company director may suddenly find that the standard legal protections offered by the limited company structure (which typically prevent personal liability for corporate debt) are circumvented.
As such, lease guarantees should be signed with extreme caution. You should contact us immediately if you have signed one and find you cannot pay your lease. If the guarantee is called in it could mean the forced sale of your family home.
What Can LandLords do if You Don’t Pay Commercial Rent?
Commercial law offers landlords three options
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.
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.
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.