Posted by Marianne Johns, Senior Associate
My tenant is in arrears. What can I do?
When a tenant hasn’t paid their rent, you need to think about whether you want to keep your tenant and simply recover the debt to improve your cash flow, or whether you feel that the tenant is too unreliable and the time has come for them to go.
As market conditions improve, you may wish to take enforcement action more quickly than you would have in the past. However, times are still uncertain and many prudent landlords will still work to preserve the tenancy if possible to manage the risk of throwing ‘good money after bad.’ This could include proposing to convert accumulated arrears into a charge to be put on other property owned by the tenant, or agreeing a temporary change to accept rent payments on a monthly basis where the lease provides payments be made quarterly.
If this approach is not appropriate or does not work, then stronger action is needed.
In the case of both residential and commercial tenancies, you can, while maintaining the tenancy agreement, instigate court debt recovery proceedings in an attempt to secure payment and if not, a judgment which can be enforced in a number of ways dependent on the tenant’s circumstances.
It is important to consider at the outset whether your tenant will be able to pay what is owed under a judgment. Often the arrears will turn into a larger liability once costs are added, which could exacerbate the problems faced by the tenant. If the tenant is declared insolvent, a county court judgment is likely to be of limited value.
Other things to consider for business tenants
In the case of a commercial tenancy (excluding any leased premises with a residential element i.e. flat above a shop), you could invoke the new statutory regime for Commercial Rent Arrears Recovery (CRAR). This came into effect in April 2014 and replaces the ancient remedy of distress for rent.
CRAR is carried out upon the appointment of an authorised Enforcement Officer and can be a quick and cost effective remedy where the tenant owns goods of value (other than those which are necessary for the debtor’s personal use or in connection with employment, business, trade, profession, study or education) which could be sold to recover the sums due.
You should also carefully check the lease in case there are guarantors who might be liable, including the previous tenant if the lease has been assigned at some point since it was granted. Usually the outgoing tenant will sign an Authorised Guarantee Agreement (AGA), whereby it guarantees the incoming tenant will comply with the terms of the lease, including payment of rent.
What if I want the tenant to leave?
In the case of a residential property let on an Assured Shorthold tenancy, once the tenant stops paying rent, we would usually recommend landlords serve notice to terminate the tenancy. The type and length of notice to be given will be dependent on the circumstances. If the tenant ignores the notice, then court proceedings will need to be taken to obtain an Order of the Court. The type of proceedings will again be dependent on the circumstances.
Once an order has been obtained, should the tenant not vacate, steps can be taken to evict the tenant with the assistance of a High Court Enforcement Officer or County Court Bailiff.
What you should not do is just change the locks! This would apply even if the tenant disappears and you believe that the tenant has abandoned the property.
Some would, in such circumstances, advise abandonment notices are attached to the property and that you do just that. But this is a very risky procedure to adopt. What if old Aunt Ethel has been ill in hospital and the tenant has simply been away for example? If that was the case, you could find yourself prosecuted for committing a criminal offence.
The safest option is always to serve notice, instigate possession proceedings and obtain an order from the court.
In the case of a commercial tenancy, subject to the right being retained in the lease, in the right circumstances, steps can be taken to enter the premises and change the locks. The circumstances need to be carefully analysed before doing so as the right can be lost and you can again be acting unlawfully.
If in doubt, the safest option is to instigate court proceedings and get an order for possession.
If you're having problems with either residential or commercial tenants paying their rent and would like advice on recovering possession contact our Property Disputes team for advice. To discuss collecting rent arrears, contact our Debt Recovery team to find out about our dedicated service.
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