Landlords warned of more protection for commercial tenants

Citation

Singleton, J. (2007), "Landlords warned of more protection for commercial tenants", Strategic Direction, Vol. 23 No. 9. https://doi.org/10.1108/sd.2007.05623iab.002

Landlords warned of more protection for commercial tenants

Landlords warned of more protection for commercial tenants

John Singleton is head of commercial litigation at the Leeds and Bradford-based law firm Gordons.

Business owners with commercial property interests will be aware that distress for rent is a key self-help remedy for landlords of commercial premises. If a tenant is late in paying rent, bailiffs can be instructed to attend the premises and take possession of goods. If the tenant does not pay off the arrears, then the bailiffs will take the goods away, auction them off and account to the landlord for the proceeds.

Distress is quick, cheap and a very effective way of persuading tenants who will not pay rather than can not pay. As a result, distress is very popular with commercial landlords. However, it can be regarded as being archaic in these days of human rights and much of the law relating to distress is complicated.

The Lord Chancellor’s Department has been reviewing the law on enforcement. Part of the Tribunals, Court and Enforcement Bill, proposes a new statutory right for landlords called “commercial rent arrears recovery” (CRAR) to replace distress which will be abolished. This right to recover rent arrears will be much narrower than distress. In particular:

• •

  There is no requirement that there is a written agreement before a landlord can distrain. However, if there is no written lease or tenancy agreement, the landlord will not be able to enforce rent arrears through CRAR.

• •

  At present landlords can distrain for service charge and insurance arrears if they are reserved as rent in the lease. CRAR will only be available in respect of rent.

• •

  Before sending the bailiffs in, a landlord will have to give the tenant notice of his intention to do so. This will of course, give the tenant the opportunity to remove goods from the premises.

• •

  There will be a statutory minimum amount of unpaid rent that can be enforced in this way. At the moment, there is no minimum amount for distress.

Reform of the law of distress has been talked about for many years and whether the proposed legislation remains in its present form remains to be seen. However, it seems likely that the law will now be reformed and that there will be new restrictions to the rights of landlords.

If CRAR is not available, then landlords will have to consider either forfeiture or suing for a debt in the courts. The landlord may well be reluctant to forfeit a lease and bring the tenant’s obligations to an end. Suing in the court is more expensive and slower than distress and judgments can often prove difficult to enforce.

As a possible double whammy for commercial landlords, the Law Commission has been reviewing the law on forfeiture and in particular, the landlord’s right to forfeit the lease by peaceable re-entry.

Peaceable re-entry is a quick and cost-effective way for a landlord to enforce breaches by a commercial tenant and to take back control of the premises in appropriate cases. Provided there is a written lease or tenancy agreement containing a forfeiture clause, then if the tenant is in arrears of rent, the landlord can simply change the locks and exclude the tenant. Forfeiture can also be used for other breaches of the lease provided that a Section 146 Notice is served first, giving the tenant an opportunity to put right those breaches.

The law commissioners have now produced a report proposing wholesale reforms. If the proposals are followed through, the right of peaceable re-entry will be abolished.

In cases of breach by the tenant, the landlord will be required to serve a default notice. If the tenant does not put the breaches right, then once the notice has expired, the landlord will be able to commence court proceedings, seeking a termination order.

In cases where the tenant has no prospect of being able to put the breach right, there will be a procedure whereby a landlord can serve a summary termination notice but the tenant will have one month to respond to it by either putting the breach right or apply to the court to discharge the notice. If the tenancy is summarily terminated under this procedure, then the tenant will have six months to apply for a Post Termination Order and seek the grant of a new tenancy.

If these proposals are enacted it seems that it will be much more difficult for a landlord to bring a rapid end to a lease where a tenant is in default.

Acknowledgements

Issued on behalf of Gordons LLP by Radiant. For further information contact Rob Smith on Tel: 0113 394 4610, mobile: 07840 677534 or e-mail: rob.smith@radiantpr.co.uk