There are a number of options available to a commercial Landlord when their tenant falls into arrears, the most effective of which include the following:

• Commercial Rent Arrears Recovery (CRAR)
• Forfeiture
• Service of a Statutory Demand

Commercial Rent Arrears Recovery

The Commercial Rent Arrears Recovery process, or “CRAR”, entitles a commercial Landlord to seize possessions belonging to their Tenant in order to satisfy any rent arrears owed.

This option is available providing over 7 days of rent is owed and a formal 7 day notice has been served upon the Tenant. Further notices will also need to be served as and when the process progresses, such as if re-entry is required.

Whilst the threat of possessions being seized could be a quick and effective in flushing out payment from the tenant, pursuing this option does prevent a Landlord pursuing their rights of forfeiture and in some circumstances, receipt of the Landlord’s notice could give rise to the Tenant removing possessions from the premises within the 7 day period to avoid seizure. Thought should therefore be given to the risks and implications of pursuing this option before any notices are served.

Forfeiture

If a commercial Tenant has breached the covenants contained within the Lease, the Landlord has the right to peaceably re-enter the property. This right is known as forfeiture.

The provisions for forfeiture will usually be outlined within the terms of the Lease and if these have been satisfied, the Landlord should be entitled to regain possession of the property by entering and changing the locks peaceably. The word ‘peaceably’ is of paramount importance when exercising your right of forfeiture and you should ensure that nobody is occupying the property at that time. To reduce the risk of this occurring, many Landlords choose to re-enter the property outside of usual working hours.

Landlords can be prevented from exercising their right to forfeit the Lease by waiving their rights to do so in a number of ways, such as accepting rent or chasing the tenant for rental payments. Care should therefore be given to avoid this prior to forfeiture and often it is prudent to obtain legal advice before proceeding down this route.

Statutory Demands

A Statutory Demand is a formal and final demand for payment that can be served upon a Tenant, providing them with a three week period within which the debt is to be paid.

If the Tenant fails to settle the sums owed within that three month period, they could be deemed as unable to pay their debts and as a result, a Bankruptcy Petition or Winding-Up Petition can be presented in Court.  

The minimum debt amount that must be owed before a Statutory Demand can be served is £750 for a company debtor and £5000 for an individual debtor.

Because the implications of not satisfying the demand are so severe, the threat of bankruptcy or winding-up proceedings can prompt debtors to pay or offer a payment plan. Further, there is no Court fee payable upon service of the demand and they can be prepared relatively quickly. This is often therefore a quick and effective way of obtaining payment from a commercial Tenant if they have the means to pay.

Summary

The most appropriate means of recovering commercial rent arrears will depend upon your individual circumstances and the terms of the Lease. If you are a commercial Landlord and seek further advice and assistance in recovering sums owed to you contact our Dispute Resolution Department today.

If you are a commercial Landlord seeking advice in relation to a tenant who has fallen into arrears, contact our Dispute Resolution team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk.

If you are owed money by either an individual or a company, the service of a statutory demand can be an effective way of recovering the sums due to you if used appropriately.

What is a Statutory Demand?

A Statutory Demand is a formal and final demand for payment made to a debtor, providing them with a three week period within which the debt is to be paid.

If the debtor fails to pay the debt within this time-frame, they can be deemed as unable to pay their debts and as a result, a creditor may proceed to present a Bankruptcy Petition (if the debtor is an individual) or a Winding-Up Petition (if the debtor is a company). 

When is it appropriate to use a Statutory Demand?

A Statutory Demand should only be served if the following points apply to the sums owed:

• the debt is for a specific and known amount i.e. the sums due must be fully quantified;
• if the debtor is an individual, the sum owed is no less than £5000;
• if the debtor is a company, the sum owed is no less than £750;
• the debt is not disputed on genuine grounds.

What are the advantages of serving a Statutory Demand?

There can be a number of advantages in serving a Statutory Demand, rather than pursuing a County Court Claim including the following:

• there is no Court fee payable upon service of the demand;
• the demand can be prepared relatively swiftly;
• because the implications of not satisfying the demand are severe, the threat of bankruptcy or winding-up proceedings can prompt debtors to pay or offer a payment plan;
• upon expiry of the demand, there is no obligation on a creditor to pursue the matter further should they not wish to do so or consider it disproportionate to do so.

What are the disadvantages of serving a Statutory Demand?

Whilst there are a number of advantages to serving a Statutory Demand, can be disadvantages which ought to be considered prior to service:

• a Statutory Demand cannot be used to demand unliquidated sums, such as sums due in connection with a contract dispute in which the exact extent of losses or damages are yet to be determined;
• a Statutory Demand should not be used if there is a genuine dispute with regards to the debtor’s liability to pay the full amount of the sums demanded;
• if the debtor does dispute the debt and is successful in filing an application to set aside the demand (if the debtor is an individual) or an application for an injunction preventing you from presenting a Winding-Up Petition (if the debtor is a company), the costs consequences can be significant.

Summary

Serving a Statutory Demand can be an effective way of recovering sums legally due to you but only when used appropriately. Using one inappropriately can be deemed as an abuse of process and it is therefore important to seek legal advice before proceeding down this route, to avoid facing severe costs consequences.

If you require legal advice or assistance in pursuing a debtor for sums due to you, or information about our fixed-fee debt recovery services, please do not hesitate to contact a member of our Dispute Resolution team on 01604 828282 / 01908 66966 or email litigation@franklins-sols.co.uk.