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My Tenant Isn't Paying, What are my Remedies?
Increasingly, in the current economic climate, landlords
are seeking advice on means of recovering arrears of rent.
In view of this, we thought it would be useful to review the
available remedies.
WHAT IS "RENT"?
Rent covers not only the monthly or quarterly rental payments
due under a lease but any payments due from a tenant to a
landlord which are reserved in the lease as rent. This frequently
includes payments of insurance and service charges and interest
on unpaid sums. For further information please read on...
1. CLAIMS AGAINST WHOM?
The primary claim will be against the current tenant. Where
the lease was granted BEFORE 1st January 1996, there may be
other claims, for example, against an original tenant or surety
who remains liable for the whole of the term of the lease.
The same applies to intermediate assignees and their guarantors
where there are direct covenants with the landlord. To pursue
claims against anyone other than the current tenant and its
surety, notice of the claim must be given to the claimant
within six months of the claim arising.
One point to note is that any party who pays the arrears
in full is entitled to call for the grant to them of an overriding
lease. This is a lease on identical terms to the existing
lease which slots in between the existing landlord and tenant
relationship. Landlords must ask themselves whether the obligation,
if called upon, to grant an overriding lease is desirable.
In relation to leases granted AFTER 1st January 1996, all
tenants and sureties are released from liability on a permitted
assignment, although it is usual to provide that they will
guarantee the assignee's performance. Liability ceases once
the assignee assigns to a permitted assignee.
2. TO FORFEIT OR NOT TO FORFEIT?
Forfeiture is the procedure by which the landlord terminates
the lease for the tenant's breach of covenant before the expiry
of the lease term. In practice, a landlord will only seek
to forfeit where there is a prospective new tenant or a probability
that the property will be re-let swiftly otherwise a landlord
will be liable for rates on empty premises. The following
are pre-conditions to the rights to forfeit:
• The lease must contain an express term allowing re-entry
for breach of covenant;
• The tenant must be in breach of covenant;
• The landlord must not have waived the right to forfeit.
Waiver arises where, in full knowledge of the facts giving
rise to the breach, a landlord takes steps to confirm the
existence of the lease. Silence and a demand for rent accrued
due prior to the breach will not amount to waiver but demand
for, or acceptance of, any other rent or the grant of a licence
to assign or sublet will.
3. MEANS OF FORFEITING
A landlord can forfeit a lease in one of two ways:
• By physically entering on to the premises with the
intention of bringing the tenant's interest to an end. In
practical terms, the locks will be changed and a prominent
notice displayed stating that the landlord has forfeited and
giving a contact address for enquiries. The advantages are
speed, the fact that the procedure is within the landlord's
control and that once possession has been recovered, the onus
is on the tenant to seek relief against forfeiture. However,
it is a criminal offence:
- to use or to threaten violence to gain entry to premises
where there is someone opposed to the re-entry. For this reason,
it is advisable to take possession late at night or early
in the morning when there is less likely to be anyone on the
premises.
- to re-enter the premises or to attempt to do so if they
or any part of them is occupied as a residence, even if this
is in breach of the terms of the lease. A landlord will need
to obtain a court order for possession in these circumstances.
• Service of proceedings can also effect forfeiture
but possession may not be obtained until a court order is
granted and then enforced. Although longer and more expensive,
the landlord will know at an early stage whether a tenant
is likely to seek relief against forfeiture. The tenant or
its mortgagee can apply for relief against forfeiture up to
six months after physical re-entry or enforcement of a court
order for possession and the court can grant relief on such
terms as it thinks fit. The usual order is that the tenant
pays all the arrears of rent due and the landlord's costs.
Forfeiture for arrears of service charges, even where such
charges are reserved by the lease as rent, is not now possible
in the case of residential lettings unless the tenant agrees
the amount of the charges or a court order has been obtained
in relation to them.
4. SURRENDER
Surrender of the lease, where the parties agree to treat
the lease as at an end, as an alternative to forfeiture may
be preferable. The advantages are:
• There is no risk of the tenant or mortgagee seeking
relief from forfeiture;
• There will be no delay in obtaining possession;
• There will be no delay in the landlord's ability to
relet the premises.
Surrender is only possible by negotiation. Whilst it brings
a lease to an end, so cutting off further accrual of liabilities,
a landlord will still have a claim against the tenant and
any surety for arrears due before the surrender unless the
landlord agreed to forego his right to sue for arrears as
a term of the surrender.
5. DISTRESS
Distress is the process by which a landlord seizes and impounds
goods on the property as security for arrears of rent due.
If the rent is not then paid the landlord can sell the goods
and apply the proceeds of sale towards his debt and the costs
of the levy. The following points are relevant:-
• The process is only available where there is a relationship
of landlord and tenant both at the time the arrears accrue
and when the distress is levied.
• It is only available against the demised property.
• A levy of distress will waive the right to forfeit
in respect of any breaches of covenant which pre-date the
levy.
• Successful distress is dependent on there being sufficient
goods on the premises to make it worthwhile.
Leave of the court is required to levy distress against residential
tenants.
6. STATUTORY DEMAND
This is the primary method by which a creditor threatens
a debtor with bankruptcy or compulsory liquidation. A written
demand signed by the landlord or his agent is served on the
tenant requiring him to pay the debt or to secure or compound
it to the landlord's satisfaction within 21 days of service.
A statutory demand is usually served in the hope of frightening
the tenant into paying rather than with any real intention
to bring about a bankruptcy or liquidation. The procedure
is faster and more direct than commencing legal proceedings.
The following points are relevant:
• There must be a sum owing of more than £750.
• Pursuing the action by presenting a bankruptcy or
winding-up petition may not result in payment to the landlord
especially where there are secured or preferential creditors
who will take priority over the landlord's claim.
7. LEGAL PROCEEDINGS TO RECOVER RENT
Rent and other payments reserved as rent are a debt and are
recoverable by legal action in contract based on the covenant
in the lease to pay rent. In view of the speed and relatively
limited costs involved in pursuing the other remedies described,
it is likely that a landlord will only seek to recover rent
by the issue of proceedings where he is also seeking to forfeit
the lease and to recover possession of the premises by legal
proceedings or for particular reasons in individual circumstances.
It is essential that the landlord knows where to find the
tenant both for the purposes of serving the proceedings and
enforcing any judgment obtained. The tenant must also be worth
pursuing. Claims can also be bought against original tenants,
assignees and guarantors within the same proceedings subject
to the limitations in the 1995 Landlord and Tenant (Covenants)
Act. However, a tenant may be able to claim a set-off for
monies allegedly due from the landlord arising under the lease
and this is commonly used for alleged breaches of the landlord's
repairing covenants.
Provided that an order is obtained, it can be enforced in
any of the following ways:
• A writ of execution instructing the court bailiff
to seize the tenant's goods which will then be sold and the
proceeds of sale applied towards the judgment debt. The tenant
must itself own goods of sufficient value to make the process
worthwhile.
• Garnishee proceedings, which is a form of attachment
of the debt. A court order is directed to a third party, for
example the tenant's bank, requiring that party to pay to
the landlord sufficient monies to settle the judgement debt.
This requires the landlord to have the relevant details of
the tenant's financial arrangements.
• A charging order secures the judgement debt over the
tenant's interest in land or shares but an application for
an order for sale is necessary to realise the debt and third
party interests in the land or shares, for example a spouse
with young children, may be relevant to the court's exercise
of its powers to order a sale.
• Presentation of a bankruptcy or winding-up petition.
If the landlord pursues this course of action, he will only
be paid if there are sufficient assets to cover any secured
and preferential creditors who take priority over the landlord's
claim.
There are a wide variety of options available to a landlord
seeking to recover arrears of rent. The most appropriate course
of action will depend upon the landlord's principal objective,
whether to recover possession of the premises or to preserve
the income stream and on the financial status of the tenant.
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