What to do if you can’t pay your commercial rent

can t pay rent on commercial lease ukWhen you can’t pay your businesses landlord you need to act without delay as they can take enforcement action quickly to recover rent arrears.

As a tenant of a commercial space, it can be a challenging situation when you are unable to pay your landlord the rent owed. It is essential to communicate openly and honestly with your landlord about your financial situation and work towards a mutually beneficial solution.

Depending on the lease agreement and the landlord’s policies, there may be options such as deferring rent payments, negotiating a payment plan, or seeking financial assistance.

However, it is crucial to keep in mind that failure to pay rent could lead to legal consequences, such as eviction, and may damage your business’s reputation. Therefore, it’s crucial to take prompt and proactive action to address the issue and find a resolution that works for both parties.

My business cannot afford to pay rent

Getting behind with commercial rent jeopardises your business to the point of closure. Given the potential power held by commercial landlords you may only be seven days away from the seizure of your business assets.

Your landlord must provide seven clear days’ notice of attendance by enforcement agents, and a further seven days’ notice of their intention to seize your assets. Goods are likely to be sold at auction to repay the debt, and in some instances the landlord can also seize control of the premises.

  • Can you afford to pay any money towards your rent arrears? If so, it demonstrates that you’re not deliberately avoiding payment.
  • If your business is unable to cover the commercial rent it may have entered insolvency. You need to establish whether this is the case as it dictates your next steps.
  • If the business is insolvent you must cease trading straight away to protect the interests of your creditors, and obtain advice from a licensed insolvency practitioner. Otherwise you could increase creditor losses and face allegations of wrongful trading.
  • Have you signed a lease guarantee?

Business can’t afford landlord rent increases

If your business can no longer afford to pay rent increases, it’s essential to take prompt action to address the issue. First, review the terms of your lease agreement and confirm that the landlord has the right to increase the rent. If the increase is legal, you should contact your landlord to discuss the situation and negotiate a reasonable solution.

You may be able to negotiate a payment plan, a reduction in rent increase, or other concessions that can help your business manage the increased cost.

If negotiations are not successful, you may consider seeking legal advice or contacting a commercial tenancy advocacy group to explore your options.

Additionally, it’s essential to review your business’s financial situation and look for ways to cut costs or increase revenue to offset the rent increase. This may include reducing expenses, increasing sales, or seeking additional funding.

In any case, it’s critical to address the issue proactively and communicate openly with your landlord to find a mutually beneficial solution.

Why are commercial rent arrears so serious

Commercial rent arrears can have severe consequences for both tenants and landlords. For tenants, failure to pay rent can result in eviction, which can be damaging to the business’s reputation and disrupt operations. It can also result in legal action, which can lead to further financial losses and damage to credit scores.

For landlords, rent arrears can lead to financial losses, and in extreme cases, bankruptcy. It can also have a ripple effect on their ability to maintain and operate their property, impacting their ability to attract and retain tenants. Additionally, it can negatively impact their relationship with other tenants, leading to a loss of trust and confidence in the landlord’s ability to manage the property effectively.

Therefore, it is critical for tenants and landlords to communicate openly and work together to find a solution to rent arrears before it escalates into a more serious issue.

Getting behind with commercial rent jeopardises your business to the point of closure. Given the potential power held by commercial landlords you may only be seven days away from the seizure of your business assets.

Your landlord must provide seven clear days’ notice of attendance by enforcement agents, and a further seven days’ notice of their intention to seize your assets. Goods are likely to be sold at auction to repay the debt, and in some instances the landlord can also seize control of the premises.

Proceedings for recovery of business rent arrears

The most likely course of action for a landlord would be to allow the rent arrears to mount up and then, when the business can begin trading again, look to recover the arrears. Landlords may take a commercial approach and settle any outstanding rent through agreement and a payment plan. Nevertheless, there may be some landlords who look to issue court proceedings for the recovery of the full amount of rent arrears immediately.

Proceedings for rent arrears would likely take several months, but if successful, the landlord would be entitled to all arrears plus the costs incurred in bringing such proceedings. Whilst the courts have not yet issued guidance on their approach during the coronavirus pandemic, it is very unlikely a court would look favourably upon a landlord issuing such court proceedings during a time of national crisis.

What is Commercial Rent Arrears Recovery (CRAR)

If rent has not been paid for seven days after falling due, a landlord can instruct an enforcement agent in writing to seize goods from the property belonging to the tenant up to the value of any unpaid rent. The enforcement agent is legally obligated to provide a tenant with seven clear days’ notice prior to entering the property to seize goods.

A landlord may be reluctant to take this type of enforcement action, as seizing goods may impede the tenant’s ability to pay future rent. Further, in light of the government’s restrictions on movement, it would be unlikely such action could be taken at this time.

Commercial Rent Arrears Recovery (CRAR) legislation enables landlords to seize goods from business premises under certain conditions, without having to go to court. Even if this legislation doesn’t apply to your landlord, however, they may still take a different form of legal action to enforce the debt

Emergency legislation by way of the Coronavirus Act prevents landlords from forfeiting the leases of tenants who fail to pay their rent on time. Originally set to run for three months up to 30 June, this has subsequently been extended by another three months until 30 September now it has been extended again until 31st March 2021. This new legislation may mean that rent arrears are not a pressing concern to you right now, but the reality is that this is a temporary measure which will end and you will then be responsible for repaying the arrears that you have built up during this time. If you are struggling to pay your rent on time, you need to take early advice to ensure a swift recovery when this protective legislation comes to an end.

Action to take if you cannot pay your commercial rent?

If you know your business cannot pay rent, it is best to approach your landlord, informing them of your current situation and try to reach an amicable agreement, potentially including a temporary suspension or reduction in rent. Any agreement should be properly documented. The moratorium proposed by the government means that such discussions can be had without the threat of immediate forfeiture. Further, with the economic impact of the coronavirus still largely unknown, landlords may wish to retain tenants, as it may be unlikely that landlords will be able to find new tenants quickly.

It should however be noted that during the proposed moratorium, any action taken by a landlord other than an express waiver given in writing, will not be regarded as waiving their right to forfeiture for non-payment of rent. Tenants should bear this in mind when discussing rent arrears with their landlord during the moratorium and should request such a waiver where appropriate.

In the present circumstances, many landlords have concluded that it would not be in their own interests to take action against tenants which might increase the chance of a landlord not getting paid at all. If an agreement is reached about a rent concession, it is essential to record it in writing. Indeed, many leases will require variations to be in writing. A deed of variation is unlikely to be necessary, but many leases will require any form of divergence from existing terms to be agreed in writing and, ideally, in a single letter or other document signed by both parties, or by an exchange of communications confirming the terms.

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)
  • Surrender the commercial lease
  • 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.

Frequently asked questions

What should I do if I can't pay my commercial rent?

If you find yourself in a situation where you can't pay your commercial rent, the first step is to communicate with your landlord. Explain your situation, why you can't pay, and ask if they would consider a payment plan or a reduction in rent. If you are unable to come to an agreement with your landlord, you may consider seeking legal advice or contacting a commercial tenancy advocacy group for assistance.

Can I be evicted if I can't pay my commercial rent?

Yes, failure to pay rent can result in eviction, but it's not an immediate process. The landlord must follow the legal process for eviction, which includes providing a notice of default and a notice to vacate. You may have the option to negotiate with your landlord during this process or seek legal assistance to help you stay in the property.

Will my credit score be affected if I can't pay my commercial rent?

Failure to pay commercial rent can have a negative impact on your credit score, as it may be reported to credit bureaus as a late payment or a default. This can make it difficult to secure future leases or financing for your business. It's important to prioritize paying your commercial rent to avoid these consequences and communicate with your landlord if you are experiencing financial difficulties.

Conclusion

As a business owner, it’s important to take your responsibilities seriously when it comes to paying commercial rent. If you find yourself unable to pay rent, it’s crucial to communicate with your landlord and explore alternative payment options. It’s also essential to understand the legal ramifications of failing to pay rent, which can include the landlord exercising their right to distrain on goods within the building as payment towards the commercial rent.

This means that the landlord can legally seize and sell your business assets to recover the unpaid rent. The process of distraining on goods can be disruptive to your business operations and damage your reputation. Therefore, it’s important to prioritize paying rent and take proactive steps to avoid reaching this point, such as budgeting, seeking financial assistance, and negotiating with your landlord.

It’s important to remember that commercial landlords have their own responsibilities and obligations, and communication and mutual understanding are key to maintaining a positive landlord-tenant relationship.

Insolvency & Restructuring Expert at Business Insolvency Helpline | + posts

With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.

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