Rental Arrears Collection

In this current economic climate, many landlords of commercial properties are finding their tenant’s are unable to keep up-to-date with rental payments. This can have a serious knock-on effect, as it is likely a landlord is reliant upon this income, therefore often causing extreme financial concern.

If you are a commercial landlord in this situation, it is understandable you will want to collect your rental arrears in a cost-effective fashion – both in terms of time and money. So what exactly can you do??

Debt Recovery Procedures

As a landlord who is owned rent, you are, in effect, in the same position as a creditor pursuing outstanding debt. As such, it is possible for you to raise court proceedings. The first step is to apply to the court for a Decree which will stipulate the amount due. Once this has been successfully obtained, rental arrears can be recovered in a number of ways:-

1. Charge for payment

The first port of call is usually to instruct a Sheriff Officer to serve a charge for payment demanding the tenant to pay within a certain timescale. If this fails, a landlord can petition for a tenant’s bankruptcy or liquidation, or recover the sum by other means (eg. by attaching the tenant’s goods).

2. Arrestment

Serving an arrestment on the tenant’s bank account freezes the funds within it and is effective until the arrestment is lifted.

3. Inhibition

While an arrestment can be served upon a tenant’s moveable property, an inhibition can be lodged on upon immoveable property, such as commercial or residential property. This prevents the tenant dealing with their property until the inhibition (which can be valid for 5 years) is lifted.

Alternatively, if you do not want to pursue action through the courts, there are various other options available:-

1. Summary Diligence

If consent to registration for execution is contained within the lease (and such as clause often is) then a landlord can obtain an Extract of the Registered Lease – something which has the same effect as a court Decree. This is quicker and more cost-effect than going through the courts, and sees a summary warrant issued by the Sheriff to the local authority. They then authorise diligence for recovery of arrears.

2. Irritancy

If a tenant breaches the terms of the lease (ie. by not complying with provisions for rent) it is possible to take action known as ‘irritating the lease’. This essentially means terminating the lease early before taking steps to recover the debt after the tenant has left.

3. Guarantees

Guarantors are liable for a tenant’s rental payments, and thus if there is one (such as a parent company) a landlord can demand they pay on behalf of the tenant.

4. Landlord’s hypothec

This gives a landlord automatic right in security over a tenant’s immovable property. It only ever comes into force when rent is unpaid, and is revoked when outstanding debt is cleared.

Legal Advice in Edinburgh

If you are facing the difficult task of collecting rental arrears from a commercial tenant, contact the team at McKay Norwell. Our legal experts have experience dealing with these matters, enabling us to use our extensive professional knowledge to discuss the various different options open to you before guiding you through the best possible course of action.

Simply call us for a free assessment immediately on 0131 222 8000 or complete the enquiry form on the right of this page and we will be delighted to help you.