Inability to pay commercial rent

This is an important question and the answer depends on the type of lease you have, whether you are a sole trader or a company, how much you owe, and what your landlord decides to do. I will set out the legal position and practical options.

Legal position:

If you fail to pay rent on commercial premises, your landlord has several potential remedies. These include the following.

1. Debt claim. The landlord can sue you for the unpaid rent as a straightforward debt. If successful, the landlord obtains a county court or High Court judgment and can enforce it through various means including charging orders, attachment of earnings, or use of enforcement agents.

2. Commercial Rent Arrears Recovery (CRAR). Under the Tribunals, Courts and Enforcement Act 2007, a landlord of commercial premises can instruct an enforcement agent to attend the premises and take control of your goods to recover the unpaid rent. This can only be used for principal rent, not service charges or insurance rent, and the landlord must give you at least seven clear days' notice before the enforcement agent attends. CRAR replaced the old common law remedy of distress.

3. Forfeiture. Most commercial leases contain a forfeiture clause allowing the landlord to re-enter the premises and end the lease if you breach its terms, including by non-payment of rent. The landlord can forfeit by peaceable re-entry, which means physically re-entering and changing the locks when the premises are unoccupied, or by issuing court proceedings. If the landlord forfeits, you can apply to the court for relief from forfeiture under section 146 of the Law of Property Act 1925 or under the court's inherent jurisdiction. To obtain relief you would normally need to pay the arrears, costs, and any interest within the time the court allows. The court has a broad discretion, but relief is typically granted if you can pay what is owed within a reasonable period.

4. Drawing down a rent deposit. If you provided a rent deposit at the start of the lease, the landlord may draw on this to cover the arrears.

5. Pursuing guarantors. If anyone guaranteed the lease, the landlord can pursue the guarantor for the unpaid rent.

6. Insolvency proceedings. If the debt exceeds the relevant threshold, the landlord can serve a statutory demand and, if it is not satisfied, petition for your bankruptcy (if you are an individual or sole trader) or your winding up (if you are a company). The current threshold for a statutory demand leading to a winding-up petition against a company is £750 under the Insolvency Act 1986, although in practice landlords tend to use this route only for more substantial arrears.

What you should consider doing:

1. Check your lease carefully. Look at the rent payment terms, any break clause, the forfeiture clause, and whether there is any rent review or rent suspension provision. Some leases contain provisions that may help, for example a force majeure clause or a rent-free period that has not been fully used.

2. Talk to your landlord early. Many landlords would rather negotiate than lose a tenant and face a void period. You may be able to agree a rent deferral, a rent reduction, a payment plan, or a temporary rent-free period in exchange for an extended lease term. Get any agreement in writing.

3. Consider whether you can assign the lease or underlet. If your lease permits assignment or subletting (with or without landlord consent), this might allow you to bring in another party to share or take over the liability.

4. Consider whether you can exercise a break clause. If the lease has a break clause approaching, check its conditions carefully. Some break clauses require all rent to be paid up to date, so you would need to clear the arrears first.

5. Think about whether the lease is an asset or a liability. If the lease is onerous and your business is failing, you may want to surrender the lease by agreement with the landlord. This ends both parties' obligations going forward, although you would still owe any arrears up to the date of surrender. Some landlords will accept a surrender if they believe they can re-let quickly.

6. If you are a company, consider formal insolvency options. A Company Voluntary Arrangement or administration can sometimes be used to restructure debts including rent. If the business is not viable, liquidation may be the only option, and the lease would be disclaimed by the liquidator.

7. If you are a sole trader, consider an Individual Voluntary Arrangement or debt relief options if the wider financial position is serious.

Key risks to be aware of:

Forfeiture can happen quickly and without warning if the landlord chooses peaceable re-entry, which could disrupt your business overnight. Once the landlord has forfeited, you are on the clock to apply for relief.

If anyone has personally guaranteed the lease, they remain liable even if you surrender or the lease is forfeited, unless the guarantee says otherwise.

If you are a company director, trading while insolvent or incurring debts you have no reasonable prospect of paying can give rise to personal liability under sections 214 and 246ZB of the Insolvency Act 1986.

The position depends heavily on the specific terms of your lease and your wider financial circumstances. If you can share details of your lease, the amount of arrears, and the type of business structure you operate, I can give more tailored guidance.