Date:  18 December 2006

TENANT IN DEFAULT

Landlords of commercial properties are often faced with the tricky decision of trying to decide what steps to take if they have a tenant who is unreliable in paying his rent.

Landlords can instruct a “Certificated Bailiff” to enter the property and “distrain” upon (or seize) the tenant’s goods at the property.  In practice, a Bailiff will usually persuade the tenant to sign a document giving “walking possession” of the goods to the Bailiff.  By doing so, the tenant is undertaking not to remove the goods from the property.  The Bailiff will later return so the tenant can then pay the arrears of rent. 

It should be noted that only goods actually belonging to the tenant may be seized in this way.  For example, goods which are held on hire purchase or some other lease or hire agreement cannot be seized by the Bailiff.

A landlord is also entitled to recover possession of the property.  All properly drawn commercial leases should provide a standard forfeiture clause giving the landlord the right to recover possession of the property by “peaceful re-entry” if the rent is unpaid for 14 or 21 days, or whatever other period may be specified in the lease.  If the landlord wishes to exercise this right, he must instruct a Certificated Bailiff to retake possession of the property and exclude the tenant.  No court order is required.  However, there are a number of factors which must be borne in mind when deciding whether or not to proceed in this way. 

• Firstly, the landlord must not have waived his right to forfeiture.  For example, if after the date on which rent was due the landlord demands payment from the tenant, by writing to or telephoning the tenant, then the landlord can lose his right to forfeiture.  However, the right to forfeiture may arise again following the next due payment date.   

• Secondly, the landlord must be confident that no part of the premises comprises of residential premises.  For example, if the premises comprise of a ground floor shop with living accommodation above, then the landlord cannot proceed by peaceful re-entry as a court order is essential if a landlord is seeking possession of residential premises.  If a landlord tries to evict a tenant of residential premises without a court order, he can be open to criminal prosecution under the provisions of the Protection from Eviction Act 1977. 

              If the landlord is confident that the residential premises are vacant, then this may not present a

              problem, but the landlord would have to be absolutely confident in this respect before proceeding

              in this way.   

• Thirdly, if a landlord recovers possession by peaceful re-entry, then the tenant has a right to apply to the court within six months for the lease to be reinstated.  The court has a discretion as to whether or not to allow the application and as a starting point, one would expect the tenant to pay all rent arrears, together with the landlord’s costs, before any order is made.  This will present a problem to a landlord who is thinking of re-letting the property because the tenant may obtain an order entitling him to re-take possession.  However, if a reasonable period of time has elapsed before the original tenant makes his application to the court, then it is likely that the court will decide that it would be unfair to allow the original tenant to re-take possession, bearing in mind the impact it would have on the new tenant who would be regarded as being an innocent party in these proceedings. 

• Fourthly, landlords must be wary of taking possession by peaceful re-entry and then subsequently allowing the tenant to re-take possession on an informal basis if the tenant pays all rent arrears.  This is because under these circumstances, the tenant would be regarded as having a new tenancy from the time that he was permitted to re-take possession.  This can present unexpected difficulties.  For example, if the original tenancy was contracted out of the Landlord and Tenant Act 1954 (that is the tenant was not entitled to a new tenancy as of right at the end of the lease), then the new tenancy would not necessarily be contracted out and at the end of the lease, the tenant might be entitled to a new tenancy.

The alternative way of obtaining possession is by applying to the court for a possession order.  This is the safer way of proceeding.  It will ensure that the landlord is acting properly if there is any residential element to the lease.  It will also mean that the tenant would not have a right to apply to the court for reinstatement of the lease after the possession order has been enforced.  However, it is a lengthier process than simply taking possession by peaceful re-entry in that court proceedings would have to be prepared, the landlord would have to wait for a hearing date and then quite often the court would order that possession would not take effect until a fixed period after the date of the court hearing.   It is also a more expensive means of proceeding since the landlord would incur court fees and, presumably, the legal fees of being represented.  Whilst the court may make an order for costs against the tenant, there is every chance that the tenant would not have the means of paying the costs.

Most situations where a landlord is considering what steps he should take when he is faced with a tenant who is in arrears of rent will have distinctive characteristics.  A landlord would be well advised to take professional advice on the appropriate course of action to be adopted to ensure he is proceeding in the most efficient and cost effective manner, and also to ensure that he is not inadvertently creating problems for himself.

Roger Williams