What to do if you cannot pay your rent under a commercial lease
Businesses are finding it hard to pay their rent to landlords during this Covid-19 pandemic as a result of the recession, enforced lockdowns and business closure notices.
Legislation has been enacted that stops landlords forfeiting leases, issuing petitions or statutory demands where rent has not been paid due to Coronavirus. As it stands, rule changes due to the pandemic expire on the 31 March 2021.
This is all good news for tenants struggling to pay the rent but it should be noted that it does not mean the liability has gone away...In fact the debt will increase and interest charged will be added.
What can the business tenant do?
The first thing the tenant must do is contact their landlord and be open and honest about the situation. Inform them the inability to pay the commercial rent due to a lack of supporting cash flow. A discount can then be requested. It may seem daunting, but many landlords are actually open to this as they do not want to have the prospect of having to relet a premises in the midst of the pandemic. Discounts of up to 50% are being offered by landlords to tenants at the moment. With discounts, landlords may also offer alterations to paying i.e. negotiate the time to pay the lease amount due.
Considerations when negotiating rent payments:
- Read the lease so you are familiar with all the provisions - maybe offer to improve the premises in some way?
- You may be able to sublet or assign the lease to another business - so long terms outline this in the signed lease agreement
- You could agree to a surrender of the lease, but bare in mind that the landlord will need to be compensated for the unexpired portion and this will be expensive.
- Negotiate a break clause into the lease. This may mean that you can leave earlier than originally intended in the lease. When doing this be aware that any arrears built up until this point still need to be paid
- Agree that the landlord can share in the upside by looking at turnover rents (this is best in the retail sector)
- Offer to pay little and often - maybe even weekly?
What remedies does the landlord have in the event of non-payment of rent?
Landlords: enacting the Commercial Rent Arrears Recovery (CRAR) procedure
Before claiming unpaid rent from a commercial tenant, the landlord must remember the following:
- The arrears must be at least seven days’ worth or more at the time the notice is served and at the time of enforcement
- The landlord does not have the right to seize tenant’s goods themselves; they can only be seized by a certified enforcement agent
Once they have found an authorised enforcement agent, they will need to fill out a Warrant of Control form to enable them to begin enforcement action. The enforcement agent will then take over the process, issuing a seven day notice to your tenant in the first instance.
If the rent remains unpaid at the time of enforcement, the agent will enter the property and take control of certain goods located thereon to be sold at public auction.
Aside from CRAR, what other options do landlords have?
- Order a county court judgement against your business
- Repossess the property and terminate the lease
- Take the situation to the court and potentially wind up the business
If rent cannot be paid, what options does the business have?
In essence, if the company cannot pay its debts as and when they are due, then it is insolvent. This means directors must look at and assess the options available to them:
- Seek a time to pay arrangement on other debts such as HMRC - renegotiate such debts
- Propose a company voluntary arrangement to write off some of the debts and allow an extended period of up to 5 years to pay off the debt
- Raise additional finance (be careful that this does not delay the inevitable and increase you debt)
- Go into administration which allows an 8 week moratorium against any further actions against the company allowing breathing space for the company to be rescued via a sale or additional finance.
We have lots of experience in negotiating with landlords so do not delay and give us a call if you are at all worried.
Categories: Winding up petition