Expert advice for commercial landlords and tenants

If you are a landlord and your tenant stops paying their rent then it is vital that you act quickly. One answer may be to forfeit the lease but with the prospect of finding a new tenant uncertain, you may consider keeping the tenant in place so as to avoid the costs associated with empty commercial premises and, if possible, to maintain an income stream.

Pursuing former tenants and guarantors for rent payments

If the original commercial lease has been assigned then one option is to look to the former tenant or guarantor for payment.

Landlords, who want to pursue former tenants or guarantors in respect of payments due under a lease, must serve a Notice pursuant to Section 17 of the Landlord and Tenant (Covenants) Act 1995 (the “Act”).

The landlord’s options will depend upon whether the lease was granted before 1st January 1996. A lease granted before this date is classified by the Act as an “old lease” and after, as a “new lease”.”

Under an old lease, the landlord can pursue:

  • The original tenant, unless it has been specifically released;
  • Any former assignee that has entered into a direct contract with the landlord and who has not been specifically released; and
  • Guarantors of the original tenant or former assignee depending upon the terms of their guarantee.

Under a new lease, the landlord can only pursue an immediate former tenant if they have entered into an Authorised Guarantee Agreement and if they serve a Notice under Section 17 of the Act. There are, however, several things to watch out for:

  • A Section 17 Notice must be served within six months of the sum claimed falling due.
  • A landlord needs to think carefully about serving the Notice because if the former tenant pays they have a right to call for an overriding lease of the premises.
  • Make sure the Notice is served at the right address, using the right form. Errors here can invalidate the Notice.

Conversely, if you are a tenant and are on the receiving end of a Section 17 Notice, you need to act quickly to decide whether you want to take the lease back on or whether you want to challenge the validity of the Notice.

This is a complicated area of law where time is very much of the essence, and mistakes can be costly. In such circumstances, we recommend that you take legal advice as soon as possible.

How our solicitors can assist

At Nelsons, we have an expert team of property dispute solicitors in Derby, Leicester and Nottingham who can provide focused, strategic advice to landlords as to how to deal with a tenant who is not paying their rent and are considering pursuing a former tenant or guarantor for payment.

We can also advise tenants who have received a Section 17 Notice and are assessing as to whether they should take back the lease or challenge the validity of the Notice.

Our team, which is recommended by the independently-researched, Legal 500, has many years’ experience of the laws associated with Section 17 Notices and have advised many commercial landlords and tenants across the country.

For further information on how our expert team of property dispute solicitors can assist, please contact us on 0800 024 1976 or via our online enquiry form.

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