- Landlords: what are your options for rent arrears?
Landlords: what are your options for rent arrears?
Landlords: what are your options for rent arrears?23rd June 2020 - Published by
Remit Consulting reported that by the end of March, UK landlords had collected just 57% of rent due for the March quarter, down from 90% a year ago. Despite the recent easing of restrictions, with social distancing measures still in place, businesses are likely to continue to struggle and June’s quarter may be another disappointing one for landlords. So with rent for June’s quarter fast approaching what options do commercial landlords have to recover rent from tenants who are unable to pay?
Landlord’s usual options to recover outstanding rent have narrowed recently as the Government has introduced measures to support defaulting tenants. Currently there is a moratorium on forfeiture until 30 September 2020 and the Government has taken steps to prevent landlords from issuing winding up proceedings to any tenant that is in arrears as a result of a COVID-19 related issue.
One option landlords may have to recover unpaid rent is to call upon an existing guarantee. With the dramatic fall in income, many landlords have recently experienced this option and it is becoming increasingly attractive.
There may be a standalone guarantor under the lease which the landlord can call upon. In addition, landlords should be aware that they may have a former tenant and their guarantor on the hook for tenant covenants under the lease.
Whether the landlord can pursue a former tenant depends on whether the lease is an ‘old lease’, granted before 1 January 1996, or a ‘new lease’ granted after 1 January 1996. Under an old lease, provided that the licence to assign contained a covenant to do so, the former tenant guarantees the future tenant’s performance and remains liable for rent due until the lease expires. Under a new lease, the tenant’s liability ends as soon as the lease is assigned, unless they give an Authorised Guarantee Agreement (“AGA”). In addition, a guarantor may have guaranteed the former tenant’s performance under the AGA, which is known as a “GAGA”.
Under both new and old leases, there are strict time limits for pursuing former tenants and their guarantors. In order to recover unpaid sums from a former tenant or former guarantor, the landlord must serve notice on them, known as a Section 17 Notice, within six months of the debt falling due. Failing to serve the Section 17 Notice within the six-month period releases the former tenant or former guarantor from their liability for the debt.
Given that many landlords have taken a “wait and see” approach to struggling tenants, if they want to recover rent from a former tenant or former guarantor, they should not wait for too long before taking action so as to avoid losing their ability claim on the guarantee. Landlords should also be aware that any side arrangements agreed with tenants must join in any guarantors, otherwise they risk releasing the guarantor.
If you are a landlord currently dealing with rent arrears and are unsure of how to deal with this issue, please contact David Moroney on 0161 838 7866 or email email@example.com.