These are hard times, and the light at the end of the tunnel seems to be getting dimmer and further away.
If you’re a landlord, what can you do if your tenant stops paying the rent or even goes bust?
If your tenant is still solvent but stops paying the rent (maybe it has a cash flow problem for example), most leases will give you the following options (if you can’t reach an amicable solution - and for more on that see my later post - Time For a Heart to Heart?):
· Forfeit the lease. There’s not much point in doing this straight away unless you have someone else lined up to take the premises; after all you don’t want to end up paying empty rates. It’ll give you the premises back but it won’t give you the money you are owed. Of course, if the situation cannot be resolved, you might have to resort to this eventually, either by going to court or by “peaceable re-entry”.
· Levy “distress” against your tenant’s goods. This is a self-help remedy that allows you (or more likely a certificated bailiff acting on your behalf) to enter the premises and seize your tenant’s goods without any legal process whatsoever, provided some basic conditions are satisfied, and retain them until the rent arrears are paid or the seized goods are sold to off-set the rent arrears. Even the bailiff’s statutory fees are payable by the tenant. For more details here’s a post I wrote earlier this year.
· Sue your tenant for the unpaid rent. This will only be worth doing if you think the tenant actually has the money. Or you could present the tenant with a statutory demand or winding up petition to persuade the tenant to pay or run the risk of being wound up.
You might be able to call on additional security given by your tenant when the lease was granted, such as a rent deposit or guarantee, or pursue former tenants under original tenant liability (if the lease is pre 1996) or under an authorised guarantee agreement.
What if your tenant has gone bust?
What if your tenant has gone bust?
Here it gets more complicated and your advisors will need to look at the options with you carefully.
Generally speaking, the insolvency rules will often stop you taking action without the permission of the court or the consent of the insolvency practitioner.
Depending on what type of insolvency it is, you may find yourself dealing with a receiver, an administrator, a liquidator or a trustee in bankruptcy. There are different rules for each type.
Most leases will give you the right to forfeit the lease if your tenant is insolvent, but how much freedom you have to do so will be governed by the insolvency rules, again depending on what type of insolvency it is.
Perhaps your tenant has a guarantor.
Good news if the guarantor has some money; however, a recent case has shown you can’t always assume a guarantor will be dependable.
Did the guarantor clearly understand the implications (and risks) of a guarantee?
In Beardsley Theobalds Retirement Benefit Scheme v Yardley  EWHC 1380 a director misled the landlord into believing that a former director of the tenant company remained on the board and was prepared to give a guarantee. The former director apparently signed the guarantee without a clear understanding of what it entailed.
The court decided that since the landlord knew of the tenant’s financial difficulties, it was only entitled to rely upon the guarantee where it had satisfied the following:
· that the guarantor had provided the guarantee willingly;
· an acknowledgement had been obtained from the guarantor that it had agreed to act as guarantor; and
· it had evidence the guarantor understood the risks associated with entering into the guarantee.
These tests hadn’t been satisfied and so the Landlord wasn’t entitled to enforce the guarantee.
Take care when accepting guarantees.
Of course, the grimness of the age means it’s not just tenants who are biting the dust; landlords are too.
That’s something I looked at earlier in the year in my post What Happens if Your Landlord Goes Bust?