It is not unusual for tenants to fall into arrears. An early review of a tenant's account and swift appropriate action taken by a landlord may avoid the all too common situation of the landlord being unable to recover all its losses if its tenant is in financial difficulties, and a tenant being allowed to run further into the red. Other than the obvious first step of notifying the tenant of its arrears and demanding payment, there are a number of further options as follows:
Review the lease to ascertain what contractual rights are available which could improve the landlord's position. These could include:
- Interest: interest is usually due on late payments. Check how the interest is calculated, the rate and whether it is due immediately or if there is a period of grace;
- Enforcement costs: a landlord may be able to recover from the tenant its professional costs in enforcing the tenant covenants, including a failure to pay rent, and may serve a demand on the tenant for such costs;
- Rent Deposit: if the landlord has the benefit of a deposit, review the terms to ascertain whether it can deduct what is owed, and then require the tenant to top up the balance.
If the arrears are very serious the landlord may wish to consider any of the following further steps:
- Exercise a contractual break option: if one is available in the lease;
- Forfeit the lease: a landlord may be permitted to forfeit a tenant's lease for non-payment of rent. The tenant will be entitled to obtain relief from forfeiture but will have to pay the arrears and usually a proportion of the landlord's costs;
- Serve a statutory demand: a landlord may serve a statutory demand on the tenant which must be paid in full within 21 days of service. If it is not paid, or contested by the tenant, the landlord can pursue winding up/bankruptcy proceedings;
- Issue debt proceedings: a landlord may issue debt proceedings against the tenant, claiming payment of the arrears, interest and legal costs.
Care should be taken when deciding how to pursue a defaulting tenant as there are various cost and other consequences to take into account. Please get in touch and we will be happy to provide you with advice on your options.