Tenant Arrears – Are Landlords Running Out of Remedies?

Written on 18 Feb 2015

Last year the Ministry Of Justice consulted on proposals to reform court fees. The Government response (published in January) sets out how it is intended to proceed and includes proposals to dramatically increase court fees for money claims. The fee for issuing a money claim worth more than £10,000 will increase to 5% of the value of the claim to a maximum of £10,000. So, for a claim of £45,000 the fees will go from £610 to £2,250.

Currently landlords have the following options available to them to recover arrears from their tenants:

  1. Drawing down on a rent deposit;
  2. Recovery from the guarantor or former tenant;
  3. Recovery from a sub-tenant;
  4. Forfeiture;
  5. Serving a statutory demand;
  6. Commercial Rent Arrears Recovery (“CRAR”); or
  7. Issuing court proceedings.

The first 3 options are only available to landlords in limited circumstances where rent deposits exist or there are guarantors, former tenants or sub-tenants in the picture that are worth pursuing.

Serving a statutory demand can have the desired effect on some tenants but many tenants know that the costs to a landlord to wind up a company where they will then only be an unsecured creditor for their debt turns this option into a tiger without teeth.

Forfeiture can be an effective and low cost remedy but in many cases will result in the landlord getting the property back rather than being paid the debt, which is not always the desired outcome.

CRAR can be a useful and cost effective way to recover rent arrears. However, since its introduction in April 2014 and the abolition of the common law remedy of distress, landlords can no longer recover service charge or other debts due using this method so it makes it of only limited effect.

Although many landlords see the issuing of court proceedings as a last resort because of the already off-putting costs, these dramatic increases in court fees will surely turn off landlords except for those with the largest claims.

So what can landlords do? The best answer is to protect themselves up-front at the lease negotiation stage with adequate rent deposits, tightly drafted alienation provisions and getting guarantors with strong covenants where there is any doubt that a tenant will be able to pay their debts in the future.