I am a landlord and my commercial tenant is insolvent – what are my options?

For landlords of commercial premises, dealing with potential insolvent tenants can be a challenging situation as it involves both legal and financial complexities. From a landlord’s perspective, it is always going to be financially beneficial to maintain the flow of rental income for the entire duration of the lease.

We have detailed below some practical approaches landlords can adopt to try to reach a resolution if they are faced with a potential insolvent tenant:

Start by assessing the tenant’s situation

• Communicating with the tenant about their financial position.
• Requesting documentation from the tenant such as proof of loss of income, any notices they may have received and bank statements.
• Consider whether the tenant’s financial issues are due to temporary factors, or whether it is due to something more long-standing.
• If the tenant is a limited company, keep an eye on their activity on Companies House.

Check the lease agreement

• Review the tenant’s obligations in the lease in relation to the rent.
• Are there provisions in the lease that allow you to terminate for insolvency on the part of the tenant?

Explore alternative solutions

• Consider payment plans.
• Consider the possibility of a temporary reduction in rent.
• Is there a Rent Deposit that the landlord can withdraw from?
• If the tenant is unlikely to be able to afford the rent, are there other tenants willing to take on the property? If so, can the lease be assigned, or could you discuss potentially surrendering the current lease simultaneously with the grant of a new lease to a new tenant?

Landlords should ensure any agreement to enter into an alternative solution with the tenant is properly documented, to ensure both parties are protected.

If the tenant fails to pay the rent or other sums due under the lease, the landlord should seek legal advice as early as possible to discuss their options and ensure they do not take any action that could potentially harm their position in the future. Certain actions by a landlord could prevent them from being able to forfeit the lease for non-payment of rent.

Landlords can avoid these situations by taking these easy steps when granting new leases to tenants:

• Ensure background checks and credit checks are carried out on any potential tenants.
• Obtain references from the tenant’s previous landlord(s).
• Require the tenant to provide a rent deposit.
• Should the tenant be taking on the lease in a limited company, landlords should consider requiring a personal guarantee from at least one of the directors.

If you have questions about your lease or need assistance in exploring your options, get in touch with us today. Our experienced team is here to provide tailored advice to suit your needs.