Recovering Commercial Rent Arrears

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What are the options for commercial landlords when a tenant defaults? 

Before deciding on how to proceed, landlords should think about what they want to achieve, including whether they want to maintain the landlord/tenant relationship, as well as the costs and consequences of the various options.

What can a commercial landlord do to collect unpaid rent?

Commercial landlords have several remedies available when tenants default on rent payments. The most appropriate course of action depends on your individual circumstances, including whether you wish to maintain the landlord-tenant relationship and the costs involved.

Before deciding how to proceed, our commercial litigation team helps you consider what you want to achieve and the consequences of each option. Whether pursuing arrears recovery or seeking possession, we provide clear, practical advice tailored to your situation.

Forfeiture – reclaiming your property

If your tenant fails to pay rent, most commercial leases provide the right to re-enter the property, change the locks and terminate the lease. This remedy, known as forfeiture, enables you to recover possession.

Forfeiture may suit landlords with:

• Tenants with a history of rental default
• Properties in strong rental markets where re-letting is likely
• Situations where continuing the tenancy is no longer viable

However, tenants can apply to court for relief from forfeiture by settling arrears. If relief is granted, they can retake possession. Additionally, exercising forfeiture may waive other remedies under the lease.

The law of forfeiture is technical – we recommend seeking legal advice before proceeding with this option.

Rent Deposit Drawdown

If your tenant paid a rent deposit when the lease was granted, you may be able to use this to cover arrears. Your ability to do so depends on the terms of your Rent Deposit Deed.

This option works well for:

• Isolated incidents of default
• Situations where the deed requires tenants to top up deposits
• Maintaining ongoing landlord-tenant relationships

For persistent defaults, other recovery options may be more appropriate.

Commercial Rent Arrears Recovery (CRAR)

CRAR allows landlords to instruct enforcement agents to take control of tenant goods and sell them to recover debts. Introduced in April 2014, it replaced the historic remedy of distress.
Key limitations:

• Only applies to commercial tenancies (not mixed use)
• Only recovers principal rent
• Cannot recover service charges, insurance rent or other sums
• Requires specific notices to tenants and sub-tenants

The process is complex and requires careful compliance with statutory requirements.

Court proceedings for rent recovery

Where you wish to maintain the tenancy, court proceedings can recover rent arrears and other sums due. While this process can take several months, the threat of proceedings often prompts payment or negotiation of payment schedules.

This option suits situations where:

• The debt amount is clear
• You want to preserve the tenancy
• The tenant has assets to satisfy a judgment

A solicitor’s letter before action can be particularly effective in encouraging settlement.

Statutory demand and insolvency

For undisputed debts, serving a statutory demand can be highly effective. If payment isn’t made within 21 days, you may present a bankruptcy or winding-up petition.

While there are limitations to this approach, the threat of insolvency often motivates swift payment from tenants who can pay but have chosen not to.

Pursuing a guarantor or former tenant

Many leases include guarantor provisions obliging third parties to pay if tenants default. Similarly, former tenants may have guaranteed current tenant obligations.

Before pursuing these parties, we’ll review your lease to confirm:

• The extent of guarantor obligations
• Notice requirements
• Time limits for claims

Payment Agreement

Where tenant default appears temporary and you wish to preserve the relationship, negotiated payment agreements provide structured repayment of arrears.

Effective agreements should include:

• Clear instalment schedules
• Default provisions
• Rights to pursue other remedies if breached

While this approach may compromise immediate remedies, it can maintain income flow and avoid vacancy costs.