REMEDIES FOR BREACH OF COVENANTS
Commercial Leases

Option

Take T3 to Court for the debt

Dealing with Tenant's Non-Payment of Rent
Procedure
Advantages & Disadvantages
 Take T3 to Court
 Shows T that L means
 Submit claim form and particulars of business, won't let things claim
Pros slide and may be successful
 Same as CIVLIT procedure in obtaining outstanding rent
 Litigation is costly/stressful
 Even if successful, L won't recover all legal costs
Cons  Only viable if current T is solvent

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Threaten to commence insolvency proceedings -
force T3 into insolvency

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Commercial Rent
Arrears Recovery
[CRAR]

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(set procedure)
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If T is a company, it must owe more than £750
If T is an individual, they must owe more than £5,000
Then, L can serve a Statutory
Demand on T
T has 21 days to pay up - if T fails to pay, Court will declare T
insolvent/bankrupt
Tribunals, Courts and Enforcement
Act 2007 [Part 3]
Must be 7+ days' worth of rent outstanding
L must give T 7 days' notice of its intention to seize goods to value of rent owed
L can then send in enforcement agents to seize T's goods and sell them to repay rent monies owed
L must hold on to the goods for 7 days before putting them up for sale at auction at a public auction &
must notify T of the time and place of auction

Pros

Cons



Threat may scare T into paying up

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T may call L's bluff and allow the business to become insolvent
L will be an unsecured creditor - will be at the back of queue for any money owing
Good as an immediate solution if T has valuable goods that will cover cost of rent owed

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Pros

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Cons
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Many goods are exempt and cannot be seized, so there may not be sufficient goods at the premises to satisfy the outstanding rent payment e.g. property that is leased;
equipment necessary for
T's business up to £1,350 Under a new Lease, T2 is likely to
 As long as L serves notice have entered into an AGA with L
in time, L is likely to be able upon assigning to T3 - need to to recover so long as T2 is check with L (client) that it did still trading & solvent actually get an AGA from T2.
Pros
Therefore, L can pursue T2 for the outstanding rent.
 Under an old lease, L could pursue
T3's guarantor.
 Alternatively, L could also pursue T1 as its liability would still be ongoing.
 If T2 is no longer trading or
 As L is seeking a 'fixed charge' (i.e. a is insolvent - it will not be quantifiable sum) from T2:
worth pursuing to satisfy

S.17 L&T(C)A 1995 the payment

L must serve 'Default Notice'
of the debt on T2 within 6
Cons months of default by T3

If time limit missed, L cannot pursue for that specific debt
BUT can pursue for next quarter's rent if unpaid by T3
If T3 breaches a leasehold covenant & L has served a s.17 notice on former
T/guarantor (to recover a fixed sum), they can serve a s.19 notice on L for an overriding lease. This basically makes former T/guarantor the 'intermediate' L
between head L and current T. This means they can seek to forfeit the lease rather than get hit continually for each outstanding quarter's rent by head L.
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Pursue T2 under
AGA
[New Lease]

Pursue T3's
Guarantor or
Original T (T1)
[Old Lease]

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Only available if T agrees to early termination

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Pros

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Surrender

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Cons

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Can end lease in a costeffective & timely way
Could be good if L has another tenant lined up to take over - if so, L could offer T3 an 'incentive' to move out early
May have to offer T3 an
'incentive' to move out
If market is weak and a new tenant is unlikely, it may be better to keep a tenant who pays sporadically than to leave the premises unoccupied
L would lose ability to sue
T2 under AGA if T3 agrees to surrender

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