What To Do if a Tenant Leaves Owing Rent [In the UK]

Discovering that a tenant has vacated a property without notice or left without paying overdue rental charges can cause considerable stress. Our first advice for landlords and property investors is to seek professional advice before taking action.

Clearway’s commercial rental specialists have years of expertise in property management, from handling eviction processes and rental arrears collections to introducing security measures around newly vacant rental properties and helping clients manage contractual breaches. Being mindful of the legislation is vital to ensuring landlords remain compliant and avoid potential liabilities.

In some cases, the best way forward may be to accept that the tenant has forfeited their deposit and use this to cover rental arrears. However, this may not be acceptable if the debts owed are significant or if there are costs related to damage that need to be considered.

For the purposes of today’s guide, we’re focusing on commercial tenants and how landlords of business premises can react if their tenants leave with rental arrears.

Reacting to a Vacated Tenant With Rental Arrears: Key Facts

• Landlords dealing with an absent tenant need to work through a series of steps to determine the best action – verifying that the tenant has surrendered their right to access the property, confirming the values outstanding and quantifying the costs of repairs that the tenant may be legally liable for.
• Much may depend on the specifics of the tenancy agreement or lease because the strategy we suggest will differ if, for instance, the tenant was already subject to an eviction notice and if they were a business tenant of a commercial property or a private tenant renting a home.
• The best possible outcome may involve retaining the tenant’s deposit or calling on a guarantor to cover the arrears. Still, in other scenarios, it may mean taking legal action to recoup the amounts owed.

Rules Around Deposits if a Tenant Leaves Owing Rent

In the first instance, a tenant may communicate that they wish to leave the property before the contracted period ends.

As a landlord, you may have discretion about whether to agree, but in many cases, this is advisable, especially if there is a clear and valid reason.

Provided your contract states that the tenant forfeits their deposit if they choose to end the contract early, you, as the landlord, will have the right to retain this, assuming you have a clear, legally binding agreement showing the tenant agreed to the terms.

It is worth noting that if you choose to rent the same unit or premise to another tenant after your previous tenant has left, the original tenant is no longer obligated to pay the rent, regardless of whether this appears to be the case, according to the contract.

Determining Whether a Tenant Has Officially Vacated the Property

Next, a common area for ambiguity exists where a tenant appears to have gone missing, isn’t answering calls or emails, doesn’t seem to be using the property, but hasn’t communicated their intention to leave.

Of course, that doesn’t mean they have not vacated the property, but it may be useful to check for any clarity of their intentions, such as leaving the keys behind. Otherwise, the landlord will need to refer to the contract terms, which should state a period of non-payment beyond which the tenant is exposed to a forfeiture clause.

In short, that means that the landlord may be able to enforce a forfeiture clause and reclaim the property if the tenant, for instance:

• Has not paid the rent for three months
• Is not contactable to discuss the reasons or for the landlord to issue a Statutory Demand for payment
• Has made no efforts to remedy the situation

There are various rules around forfeiture, but provided the landlord is accompanied or represented by an authorised agent, they can re-enter the property, change the locks, and formally terminate the lease.

Read more about forfeiture of lease here.

Pursuing a Guarantor to Reclaim Unpaid Commercial Rent

If a former tenant had a guarantor who supported their lease and was a signatory to the contract, the landlord may be able to pursue this route to recover their debts.

As always, much will depend on the specifics of the rental contract. The landlord or their representatives can pursue a guarantor, provided there is documentation to evidence their commitment to pay the sums owed if the tenant defaults.

In some cases, the guarantor has limited liability and so might only be subject to covering the rental arrears. In others, they could have accepted the responsibility to pay any overdue sums related to the tenancy agreement, including repairs or the cost of removing furnishings or items left behind by the former tenant.

Initiating Court Proceedings Against a Commercial Tenant That Has Unpaid Rental Arrears

Landlords can begin court action against a tenant, including a commercial tenant who has since left the property, and pursue a wider range of costs owed, including:

• Rental arrears
• Service charge arrears
• Costs of damage caused to the property
• Other expenses linked to the tenancy or the unannounced departure

While court proceedings can take several months and usually carry varied costs, this avenue could be worth exploring if alternatives aren’t applicable or the landlord hasn’t been able to recover any or all of the rental arrears and other amounts owed to them.

There is a defined series of steps that have to be followed, which means most landlords will instead issue a Statutory Demand, which we’ll explain next.

However, court action may also need to be considered against the likelihood of the tenant making any court-ordered payments.

For example, if it seems very likely that the business is insolvent, is being wound up, or the tenant was a self-employed business with little prospect of making good on their debts, the cost of court action may not be feasible.

Issuing a Statutory Demand and Commencing Insolvency Proceedings

Statutory demands are fairly common in commercial tenancy disputes. They involve the business receiving a formal notice instructing them to make the outstanding payment within a maximum timescale, usually 21 days.

If the tenant ignores the demand or fails to make the payment, the next step is usually to file a winding-up petition, which is the first step in insolvency proceedings.

There are caveats here, too, to be mindful of. A Statutory Demand can only be issued when there is no controversy or argument about the amount owing and where the rental arrears are at least £750.

Provided the business continues to trade elsewhere, the threat of insolvency proceedings should be taken very seriously, resulting in prompt payment of the arrears. However, court proceedings might be more suitable if there is a dispute about the debt owed.

If you need more information about any of the steps we’ve summarised here or help you determine the right way to recover outstanding debt from a former tenant, you are welcome to contact Clearway’s commercial property experts at any time. We’re experts in commercial rent areas and debt recovery.