17 June 2016 by

Recovering rent arrears from a former tenant

With the EU Referendum looming, we are looking at a potentially unstable economy ahead.  If you are a landlord of commercial premises and find that your current tenant is struggling to pay rent and/or service charges due under the lease, and is falling into arrears, you may need to consider all of your options as to how best to recover those sums. It is also important that you act as quickly as possible in order to maximise your chances of recovery.

There are a number of methods of enforcement against a tenant, to recover unpaid rent and service charges, but in some instances it may not be viable to pursue the current tenant, particularly if they do not have the funds available to pay the arrears. In such cases, you could find yourself throwing good money after bad.

Prior to the Landlord and Tenant (Covenants) Act 1995 (the “LTCA”) coming into force, a landlord of  commercial premises was able to pursue the previous tenant to recover arrears falling due under the lease, even if the previous tenant had assigned his interest in the property many years before. The LTCA was introduced to reform the law on the enforceability of the landlord and tenant covenants contained within ‘new’ leases, being those granted on or after 1 January 1996. The changes were made largely as a consequence of the recession in the late 1980s, when landlords were bringing claims against previous tenants for arrears run up by their successors.

Now the default position, in respect of any leases granted after 1 January 1996, is that the liablity of the former tenant will come to an end on the assignment of their interest in the lease to the new tenant unless they enter into an Authorised Guarantee Agreement with the landlord. It is normally a condition of the lease that, on an assignment of the lease, the outgoing tenant will provide the landlord with an Authorised Guarantee Agreement and essentially guarantee the incoming tenant’s obligations under the lease.  The outgoing tenant will usually only be liable under the Authorised Guarantee Agreement until the term of the lease comes to an end or there is a further assignment of that lease.

In order to be able to bring a claim against a former tenant or a former guarantor, the landlord must serve a section 17 notice on the former tenant/guarantor, in the  prescribed form, within 6 months of the date that the arrears first became due. However, this only applies to sums which fall within the definition of a ‘fixed’ charge, such as rent and service charges.

Be warned – failure to serve the section 17 notice correctly, or within the required time period, will mean that the former tenant (or former guarantor) is not liable for the arrears and could therefore mean that there is little or no prospect of success in any action against the former tenant to recover the relevant sums.

If you are a landlord, a tenant or a former tenant, and you require legal advice on any landlord and tenant issues, please contact us at info@boltburdon.co.uk

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