Landlords Guide for Overdue Payments
Guide to Landlord’s Options When a Business Tenant’s Payments are Overdue
This is the first of a series of Information Sheets designed to offer an outline of the options available to a Commercial Landlord where a Business Tenant fails to make payments due under the relevant Lease or Tenancy Agreement.
This first instalment is a guide to the general process for debt recovery where the Landlord does not want to bring the Lease or Tenancy to an end, or to start insolvency proceedings against the Tenant.
Where any other individual or Company has given the Landlord a Guarantee that the Tenant will comply with the terms of the Lease or Tenancy, similar action can be taken separately against that Guarantor and this is often the best means of ensuring that the outstanding amounts are paid. There are, however, important time limits and other issues to bear in mind in those circumstances and so it is important that the Landlord reviews the position on Guarantor liability as soon as it is clear that there is a problem with payments due from the Tenant.
Unless the claim is settled along the way, the basic steps required will be:
1. A Letter Before Action
Before any Court action is taken, the Court will expect to see that the Tenant has been given a clear written warning that Court proceedings are imminent and a record of:
- the amount outstanding;
- f the payment is for something other than a regular rent instalment, a reference to the particular provision in the Lease or Tenancy Agreement which entitles the Landlord to demand a payment;
- if the payment is not due automatically, a record of when the payment was first requested from the Tenant;
- any relevant provisions in the Lease or Tenancy Agreement which support any claim the Landlord is making for additional interest or costs;
- a deadline for payment, usually not less than seven days after the date of the letter.
2. County Court Judgment
Court proceedings issued for recovery of amounts less than £5,000.00 will almost always be allocated to the Small Claims Track of the County Court and:
- the Court will charge a fee (currently £30-£108) for processing the initial Claim Form;
- that Court Fee and a nominal fixed contribution towards the Landlord’s legal costs can be added to the amount claimed from the Tenant; and
- if the Lease or Tenancy specifically requires the Tenant to pay the Landlord’s costs for recovering overdue payments then those may be included in the amount claimed, but otherwise the Court cannot order the Tenant to pay any legal fees incurred in dealing with the Court proceedings;
- Court proceedings issued for recovery of amounts over £5,000.00 will be allocated to the Fast Track (or possibly the Multi Track for amounts over £15,000.00). In these cases:
- a higher Court Fee of £225-£1,530 will be charged for processing the initial Claim Form, depending on the amount of the claim;
- the Judge will issue more detailed directions on the action to be taken by both sides to prepare for trial;
- the proceedings will take longer if they are defended; and
- the Judge can order one side to pay all or part of the other’s legal costs for dealing with the Court proceedings.
The most common defences put forward by Tenants to a Landlord’s claim are: - that the payment is not due;
- that the Tenant is owed money by the Landlord and should be able to set one payment off against the other.
In the case of unpaid rent, it is generally clear whether or not the payment is due and any dispute over that can be dealt with by an application for Summary Judgment (i.e. an application to the Court to dispose of the proceedings without the delay of a full trial, on the basis that either the Landlord’s claim is obviously a mistake or the Tenant’s defence is obviously spurious).
Demands for other payments, particularly Service Charge contributions or other variable amounts, may be less clear cut and offer the Tenant more opportunity for challenge.
Set-off can only be applied where that is not specifically excluded by the Lease or Tenancy Agreement and so the Tenant will need to be clear on their position before relying on that as a defence.
If the Tenant does not defend the claim, or the defence is rejected by the Court, the Landlord is entitled to a County Court Judgment (CCJ) ordering the Tenant to pay the specified amount.
3. Enforcement
Once a CCJ has been obtained there are a number of ways to enforce that. In particular:
- the Landlord can pay Court Bailiffs or Sheriffs to take possession of goods owned by the Tenant in order to satisfy the CCJ;
- the Landlord can make a separate application to Court either to take payment from the Tenant’s Bank Account direct or to obtain a Charging Order over any property owned by the Tenant (which would potentially entitle the Landlord to be paid out of the net sale proceeds available on any future sale of that property);
Court action can only be taken in relation to debts which are actually due on the date the claim is lodged with the Court.
There is therefore a common problem with Tenants who are regularly late in making payments but clear the arrears before a formal claim is made or the CCJ is obtained.
Part Two of this series will deal with the alternatives open to the Landlord who is prepared to close down the Tenant’s business and recover possession of the premises through the Tenant’s insolvency.
Part Three of this series will deal with the alternatives open to the Landlord who is prepared to forfeit the Lease, or exercise a right to claim “distress” for rent, or seek repossession of the premises at the end of an otherwise renewable business Tenancy on the grounds of the Tenant’s persistent late payment of rent.
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