How Can Landlords Enforce Your Commercial Lease?

A commercial premises is a vital part of any business. If you are not in the position to purchase this, you will be required to sign a commercial lease. This ties your business into fixed monthly payments, usually for at least 12 months or longer.

When formulating business plans and creating projections, payments are often factored in. However, many of these projections focus on the best-case scenario. So, when costs are rising or profits falling, commercial lease obligations can rapidly become a major burden.

Due to their fixed nature, it can be very difficult to reduce payments or find a suitable solution. The addition of personal guarantees can make these situations even more difficult.

“I can’t pay my commercial lease, what happens next?”

Generally, you may be allowed to miss one or two payments before action is taken. However, this is not guaranteed, and you can face serious consequences after just one missed payment. If you are unable to maintain your payments, then it is important to communicate with your landlord and explain the situation. This may allow a resolution to be reached that benefits both parties. Often when you are at this stage, it is necessary to appoint third party debt experts who can deal with this on your behalf. Otherwise, you could risk making the situation worse for you and your business. 

If you are in arrears and can’t reach a compromise with your landlord, then you are likely to face recovery action. This is likely to include:

• Lease forfeiture and eviction – Often, the first resort of any landlord is to remove your business from the premises. Depending on your working relationship and past payments, they may delay this but are within their rights if there is a forfeiture clause in your lease. They can do this by changing the locks to prevent re-entry or, applying to the court to evict your business. To apply for relief from this, you will likely need to pay all arrears.

• Commercial Rent Arrears Recovery (CRAR) – This act was introduced after the Covid pandemic to deal with rental arrears. Essentially, it makes it easier for landlords to appoint a certified recovery agent to repossess business assets and sell them to repay arrears. This can be used when the premises is purely commercial, there is a written lease in force, and the rent is more than seven days overdue.

• County Court Judgements & Statutory Demand – These two options are slightly different, but both hold the same consequence; failure to respond will expose your business to the potential of a winding up petition being issued. There are potentially other consequences but, this is the most likely course of action.

• Winding up the company – This is potentially the most serious outcome of rental arrears. If not defended, your business will be forced into liquidation. You should avoid the issuing of a winding-up petition at all costs. If your situation has progressed to this stage, you will need to appoint specialist help as having a winding up petition withdrawn is not a ‘DIY’ job.

• Personal guarantees – Personal guarantees are common for commercial leases. If you have signed a PG, you can face all the above actions and you can be made personally liable. Depending on your lease agreement, this could be just for arrears or, the full amount remaining on the lease. So if you have signed a 5 years lease at £10,000 per year, you could be forced to pay £50,000. There will also be additional legal fees and other costs added. If you can’t afford to pay this, you will most likely be issued a statutory demand personally and could face bankruptcy as a result.

How to resolve commercial rent arrears

When it comes to commercial leases, the best solution is always informal. In the first instance, directly liaising with your landlord may help to bring a resolution in the short term.

Often rental arrears are the main issue but, are not an isolated problem. If you cannot resolve these issues through dialogue or, if there is a deeper, long-term problem with your business, it may be time to look at alternative options. However, as mentioned, this is not something to attempt on your own.

Whether your business needs to be restructured, given breathing space or even closed down, there are always options available. Impartial business debt strategists will be able to provide a fresh perspective on the health of your business. More importantly, the correct help can find the strategy that works for you and your business.

Bell & Company have been helping to resolve financial difficulties for business and directors for over a decade. Our team of specialists are available to fully review your business and explore your options. Call us on 0333 305 4331, request a callback or join our live chat below for a confidential discussion.