Date:  2 September 2009

SHOW ME THE MONEY? HOW DO YOU GET TO SEE THE RENT?

These are clearly difficult times for many tenants, and some landlords have struggled to recover rent both in the commercial context and in relation to residential long leases.  Here, ground rent is not normally a difficulty because it is so modest, but sometimes service charges are unpaid, and sometimes these are reserved as rent.

So, if you are the landlord faced with difficulties in recovering rent, what are the options open to you, and have you considered some of the more unusual possibilities?

First of all, we have our old friend, forfeiture.  You may need to jump through a number of hoops before forfeiting a long residential lease, of course, particularly where service charges are involved.  That sort of problem is not quite so acute in the commercial context, but of course in every case forfeiture means getting rid of the tenant and that may be the last thing a landlord wants to do, particularly with business premises.   Matters might be different in the private residential sector, where recovery of a property might mean the landlord can grant a new lease, at a premium, even though the premium may be depressed in the current market.  The landlord may still be considerably better off. 

Secondly, another old friend, distress – the landlord may be suffering from this, and it might be appropriate to send in the bailiff so the tenant suffers it as well.  Naturally we are only talking about the commercial sector here, not the residential sector.  Distress, or even the threat of distress, can still be a very effective way of proceeding.  You have probably heard of the new system called CRAR, or Commercial Rent Arrears Recovery, which is going to replace distress in due course. This is one of the changes introduced by the Tribunals Courts and Enforcements Act 2007.   Of course this might not be a great deal of help if your tenant has sublet, so that the tenant has no goods at the property on which you can levy distress. Detailed regulations for the CRAR procedure are still awaited but, for now, landlords should go ahead and make use of distress when they can.

Thirdly, you can also consider a claim for a money judgment, whether we are talking about residential or commercial leases. This can of course embrace both rent and non-rent debts which are due from the tenant, for example where service charges are not reserved as rent.  

One always has to think ahead, to the enforcement options.  Sending in the bailiff to seize and sell the tenant’s goods is sometimes effective but sometimes not. Of course there is the problem of the tenant who has sublet, and who therefore has no goods of their own at the premises.  Do not forget that in this sort of situation after you get a court judgment, the tenants’ goods anywhere can be seized, not just those at the property.

Furthermore, other enforcement options are available.  One which is frequently overlooked is the charging order, operating rather like a mortgage.  Whether there is a substantial lease, residential or commercial, this can be an effective tool.   The next step would be to seek an order for sale, although the landlord may bide his or her time pending sale by the tenant.

Fourthly, and often overlooked, is the procedure for the landlord to serve notice on any subtenant, requiring the subtenant to pay rent directly to the landlord. This ideal way of cutting out the middleman can be very effective, where a subtenant has been installed and other enforcement options appear doubtful.   The procedure is simply to serve notice under the Law of Distress Amendment Act 1906, requiring the subtenant to send funds directly to the landlord, instead of paying rent to the head tenant.

This procedure is not confined to the commercial realm, but is also valid in residential leases as well.   It can be particularly useful where the tenant of a long lease has sublet to short term tenants, who are probably paying a reasonably substantial amount per month.    This might easily cover the ground rent and service charges (if reserved as rent) owed by the tenant directly to the landlord.  

Another potential method of enforcement is serving a statutory demand – whether we are talking about a company tenant or an individual.  Relevant where the debt is over £500, a statutory demand often makes the debtor sit up and take notice, because if they do not then bankruptcy or winding up might follow.

These are some of the options open in any given case.  Naturally each case calls for its own particular consideration and the right approach in one case will not necessarily be right in the next.   It is surely worthwhile reminding yourself of all the options, each time, though. 

Richard Davis