Taking a while to recover: a case study

Taking a while to recover: a case study

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Author: Natalie Aldread

Applies to: England and Wales

Landlord remedies for pursuing tenants for debts have been subject to major change over the last few years; what are the options now for debt recovery?

Mr Landlord lets premises on a busy high street in a major city to Mr Tenant (a sole trader) under a lease for 15 years granted in 2006. Mr Tenant has failed to pay rent for the last 3 quarters, resulting in a debt of £150,000. While Mr Landlord was initially prepared to give Mr Tenant some breathing space to see if he clears the arrears, he has decided enough is enough. What are his options for recovering the debt?

Assuming a typical modern lease has been used, Mr Landlord has the following remedies:

  • forfeiture
  • commercial rent arrears recovery (CRAR)
  • demanding payment from any subtenant
  • statutory demand
  • letter before action as a prelude to court proceedings

However, some time has elapsed since he has had to take action to recover a debt of this size and he is aware the law has changed concerning the options available to him. Which route should he take?

Forfeiture

As the premises are on a busy high street, Mr Landlord is not particularly worried about re-letting, but he is concerned that the same level of rent will not be achieved given market conditions have changed since 2006. His agents have also reported that Mr Tenant is sleeping in the store room at the property, having sold his house to try and clear some other debts. Mr Landlord should be aware that this is likely to mean he cannot just change the locks and that he would need to issue court proceedings in order to forfeit, which could take some time and cost. Although Mr Landlord would get the premises back, the debt would also still not be paid, particularly as Mr Tenant would no longer have a source of income. Mr Landlord therefore decides not to forfeit for now.

CRAR

Mr Landlord is fairly sure he used to be able to simply enter his tenants' premises as soon as rent went unpaid, and take goods to the value of the debt to be sold if the debt wasn't cleared. He is disappointed to learn that he now has to ask enforcement agents to serve at least 7 days' notice in writing on Mr Tenant saying he intends to levy goods, and that only 'pure' rent can be recovered and not any other sums owed. In any case, since Mr Tenant's business involves the sale of cheap, high fashion clothing, even clearing the premises of stock would only cover part of the debt and by the time the process has been completed, the stock may well have depleted in value. Mr Landlord therefore decides against this remedy too.

Demanding payment from any subtenant

There is no sublease below Mr Tenant in this case but if there were, Mr Landlord could serve notice under s.81 of the Tribunals, Courts and Enforcement Act 2007 to transfer to him the right to receive the rent payable by the subtenant under the sublease in order to clear Mr Tenant's debt. Again, only 'pure' rent plus interest and VAT could be claimed but (assuming the sublease is for a similar rent) this would clear a big chunk of the debt if the remedy were available.

Statutory demand

Mr Landlord could issue a statutory demand as the debt is far greater than the minimum £750 required to do so and the prescribed form of written notice requiring 21 days for payment of a would focus Mr Tenant's mind on avoiding the threat of a bankruptcy petition being issued. As far as Mr Landlord is aware, the debt is not disputed and so, if successful, this remedy would be a cheap and quick route to recovery. In fact, Mr Landlord might consider using it to clear some other debts, particularly smaller ones before the minimum debt increases to £5,000 from 1 October 2015 under proposed legislative changes.

Letter before action before court proceedings

Even though Mr Landlord can state a shorter timeframe for payment in such a letter, he does not think it will be as strong an incentive as a statutory demand. Mr Tenant already knows the basis for the debt, how much is owed and that proceedings could be issued. Plus, Mr Landlord suspects Mr Tenant knows proceedings are unlikely to be issued given the increase in court fees on 9 March 2015 means Mr Landlord would have to pay £7,500 to even issue the claim.

The chosen remedy

Mr Landlord thinks the best way to proceed is to issue a statutory demand. If it does not result in payment, he still has all his other options available to him, save that he would have to wait for a further sum to go unpaid under the lease for a fresh right to forfeit to arise. Mr Landlord will send the demand today and will also obtain a status report checking Mr Tenant's creditworthiness and financial position to see whether the costs to be incurred in taking any further action and perusing his claim would make financial sense.

About the Author

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Natalie Aldread

Solicitor

03700 86 4252

Natalie is a property litigation lawyer who deals with a wide range of contentious property issues including; lease renewals acting for both landlord and tenant, break notices, dilapidations disputes, arrears of rent and forfeiture proceedings; actions against trespassers, service charge disputes, rent reviews, and enforcement of lease covenants. Natalie acts for a range of clients with a particular focus on the retail sector.

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