Worthingtons Solicitors consider the options available to Landlords when tenants default
The free market, they say, is based on confidence.Perhaps the biggest confidence you must have in business is that you will get paid.In the business of property letting, tenants failing to pay rent or service charge have been a common problem in recent times.
One of the options available to landlords against defaulting tenants is to commence insolvency proceedings, i.e. to serve a statutory demand.Currently the debt must exceed £750 before insolvency proceedings can be issued.
The government is proposing to raise the threshold for insolvency proceedings from £750 to £5,000, with effect from 1st October 2015.This is clearly aimed at a principle which bankruptcy masters have repeated for some time – the bankruptcy court should not be used as a debt collection agency.However, for landlords the common thought when deciding to issue a statutory demand is that it will provoke a more urgent response from a tenant who values its solvency.A statutory demand requires a reply within 21 days otherwise the tenant faces a bankruptcy or winding up petition.This is seen as a quicker and sharper tool than proceedings in the county court or high court for forfeiture or breach of contract.
The raise in the threshold might not be such of an issue for commercial landlords and may be of more relevance to residential landlords but like any credit control system, the focus should be as much, if not more, on the checks and protections built in when first contracting with a tenant.Cash is king, and deposits are the most effective security for landlords against tenant default.Residential landlords should be aware of the new Tenancy Deposit Scheme Regulations which now govern the management and release of tenant deposits.Commercial landlords are encouraged to engage lawyers in documenting their deposit arrangements as significant provisions such as a ‘top up’ clause to replace deductions from the deposit throughout the term of the lease can be missed.
Similarly, cash can be king if the landlord wishes for commercial reasons to continue the relationship with a defaulting tenant who can commit to a payment agreement to discharge arrears over time.Such agreements must be carefully drafted to distinguish between arrears and on-going rental liabilities, to provide for termination of the agreement in default and to link in the landlord’s enforcement rights under the lease.
If your confidence in your tenant has been shaken, there are different options available to deal with the situation which Worthingtons can assist you with.
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