Non-payment of rent is sadly more of a feature of business than it might have been during boom years. In times of recession, even with the best of intentions, tenants can find themselves in a position where rent cannot be met. Meanwhile, landlords are in no better a position, and may feel that their hands are tied and that they must take tough steps to remedy the situation. A Commercial Property Solicitor should be able to advise on the methods (below) in which landlords can protect their interests when rent is unpaid, or a property falls into disrepair in contravention of the lease. At Mary Monson Commercial Law Solicitors, we have extensive experience in dealing with Commercial Property, both from a tenant’s and a landlord’s perspective.
In the case of non-payment of rent, a remedy of distraint exists. This is where a Landlord seizes a Tenant’s goods in the premises to sell or keep in payment of unpaid rent. It is an old common law remedy which does not rely on previous written notice and does not apply to other breaches of tenant’s covenants.
It can be a swift remedy usually exercised by a certified bailiff and must only be carried out after peaceable re-entry. The bailiff will usually attend in person and give 7 days notice before such a seizure takes place. This means that a tenant can have a chance to pay once the bailiff is involved, which is usually preferred by the landlord.
It is important to understand that ‘rent’ can include both service charge and insurance premiums. It is therefore advisable for a commercial property lawyer acting for a Tenant when negotiating a new lease to limit the meaning of ‘rent’ in the forfeiture provisions of the lease to only the rent firstly reserved and not the service charge and insurance which are commonly secondly and thirdly reserved. Indeed other payments that may be levied on a tenant e.g. interest, VAT, etc., can also be reserved as rent.
Distraint will not bring a lease to an end if exercised by a landlord. It is a quick remedy, and it has been criticised for some time. There have been calls for it to be abolished and replaced with a remedy where formal notice must firstly be served.
Forfeiture of a commercial property lease is not an implied remedy. This means that it must be expressly allowed by the lease. The forfeiture provisions of a lease can be wide ranging and cover non-payment of rent and breach of covenant (for example failure to keep in a good state of repair).They can also cover, in modern commercial leases, acts of insolvency. This can include not only the appointment of a receiver or liquidator but also an administrator, positions created by the various Company and Insolvency Acts.
Forfeiture can only be exercised by written notice and served pursuant to Section 146 of the Law of Property Act 1925. It is commonly known as a 146 notice and generally is served to bring an end to a lease before the expiry of the contractual term. A Court Order is required to do this.
However, the Court can give the tenant time to allow it to implement steps to satisfactorily remedy the situation. It is not a remedy commonly used by landlords unless they require recovery of possession of the leased premises. A 146 notice must state what the breach is and require the tenant to remedy it. Indeed a lease usually states the time required for remedy. E.g. immediate for non payment of rent, 7, 14 or 21 days for other breaches or a reasonable time to remedy disrepair.
Waiver and Estoppel Explained
Either of the above remedies for non-payment of rent can be subject to the doctrine of waiver and/or estoppel. Waiver will defer or stop action and generally refers to an act by the landlord, which could be passive, e.g. accepting some rent or giving consent to a tenant’s application to do something under the lease. Estoppel will prohibit the landlord from pursuing a specified course of action in respect of the breach complained of. Unlike waiver, estoppel cannot be used as a threatening response by a tenant to a landlord but only “as a shield” to defend against an attack. There is a considerable volume of case law about waiver and estoppel and this can be a highly complicated branch of property law.