Commercial tenant not paying rent?: What you should do
There are few situations which are less ideal for a commercial landlord than that of a commercial tenant not paying rent.
If a tenant in your commercial property has failed to pay their rent, this may cause financial uncertainty and it can be difficult to know how best to resolve the issue, especially if you have never experienced this before as a commercial landlord.
Things to consider if your commercial tenant is not paying rent
Before taking action against your commercial tenant for failing to pay their rent, there are several things worth considering, such as:
Has the tenant broken the terms of their lease in any other way besides not paying their rent?
Is this an isolated incident, or has the tenant missed multiple rent payments?
Is the tenant solvent and financially secure? If you have doubts that they are, pursuing legal action could lead to bankruptcy in certain cases, making it less likely that you will get your money back
Would you rather keep the tenant or repossess the property? If you do not think that you can find another tenant quickly you may lose money by recovering possession
Does the tenant have any guarantors who can settle the outstanding funds on their behalf?
When a commercial tenant breaches any of the terms of their lease, you generally have the right to ‘forfeiture’. This means you are free to re-enter the property and terminate the commercial lease.
Forfeiture may be a good option for you if your main priority is recovering possession of the commercial property in question. If you can re-let the property to a new tenant with little difficulty, or simply wish to redecorate or even sell it, you should consider forfeiture, especially if you doubt your tenant’s ability to pay the outstanding sum.
Forfeiture is however not without its risks. A commercial tenant can apply to the court for relief from forfeiture within six months of the day you terminate their lease. In such scenarios the court will base their decision on the settlement of rental arrears.
If the tenant can settle their arrears the court may award them relief, meaning that they can retake the property. This will be problematic if you are in the middle of redecorating the property, or you have already re-let it. In this instance, it is more likely that you would have to pay your former tenant damages.
Commercial lease surrender
If the situation cannot be resolved without the tenant leaving the property, you may be forced to execute a lease surrender. This is also known as a ‘surrender and acceptance agreement’ or ‘lease termination agreement’.
A lease surrender involves you and your tenant agreeing to end the lease prior to the officially stated lease expiration. This may be the best situation if the tenant wishes to vacate the property and end the lease.
Ideally you will be able to settle any issues with your tenant without requiring the services of a solicitor or going to court. It is advisable to make use of specialist landlord and tenant services in order to resolve the situation amicably.
At Martin Slowe, we are experts in commercial property management. We specialise in rent reviews, lease renewal services and lease surrender. In extreme cases we also provide an expert witness service to arbitration and mediation proceedings.
If you are struggling with a commercial tenant not paying rent and need advice, get in touch with our team of landlord and tenant service experts. With more than 50 years of industry experience, we will be happy to help you resolve any issues you may be having.