Commercial landlords - rent arrears recovery and forfeiture of leases

Dec 20th, 2019

John Singleton, Associate Solicitor

When a tenant of commercial premises is in arrears of rent the landlord has a number of choices about what can be done to recover the rent. Two common methods, both of which do not require court proceedings, are Commercial Rent Arrears Recovery (CRAR) and forfeiture. A Court of Appeal decision on 3 December 2019 confirmed that these options are effectively mutually exclusive, so a landlord needs to consider very carefully before going down one route or the other.

CRAR is where a landlord sends bailiffs into commercial premises to seize the tenant's goods, and if necessary to sell them, to pay off, or reduce the arrears. Before doing so, notice has to be given to the tenant, and there are various other restrictions which make it less attractive to landlords than the old remedy of distress which was abolished in 2007.

Forfeiture is where the landlord changes the locks, so excluding the tenant from the premises and bringing the lease to an end. This is the nuclear option and will only usually be attempted if the landlord wants to take back control of the premises. The tenant can apply for relief by paying off the arrears. In the case of Brar v Thirunavukkrasu the tenant failed to pay rent due on 25 December. The landlord sent in the bailiffs to exercise CRAR on 18 January, and having seized goods, then purported to forfeit the lease on 12 February.

Unsurprisingly the Court of Appeal found that by exercising CRAR the landlord had treated the lease as continuing, even though the rent was in arrears. The landlord could not then forfeit for arrears because the breach had been waived. The lesson to be learnt by landlords is that if the tenant is in breach and they are considering forfeiting the lease, they must not take any action which recognises the continuation of the lease. If they try CRAR, and even if it is unsuccessful, they will have waived the breach in respect of any arrears at the time and will not be able to forfeit. If they want to bring the lease to an end they will have to wait until there is a further breach before they can forfeit the lease. In the case of rent arrears that would be after the next quarter's rent has become due.

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John Singleton

Associate Solicitor

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