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Tenant insolvency: what’s next for your commercial property?

Dealing with non-payment of rent and a tenant who is struggling financially can be difficult. But there are ways that you can tackle tenant insolvency and reduce risk to your business. With the right commercial property legal advice you can explore the right route to take and recuperate your losses.

What are the signs that a commercial tenant is insolvent?

Late or missed rent payments: One of the most obvious signs of financial distress for a commercial tenant is consistently late or missed rent payments. This could indicate that the tenant is struggling to generate enough revenue to cover their expenses.

Declining sales or foot traffic: A noticeable decrease in sales or foot traffic could be a red flag that the tenant's business is not performing well and may be at risk of insolvency.

Requesting rent concessions or lease modifications: If your tenant approaches you to request rent concessions or lease modifications to help alleviate financial strain, this could be telling of problems in their business.

Reduced inventory or staffing levels: A noticeable decrease in inventory levels or staffing levels at the commercial premises could indicate that they are cutting costs to try to stay afloat.

Legal actions or judgments against the tenant: If there are legal actions or judgments filed against the tenant, depending on their nature, it could indicate that the tenant is struggling to meet their financial obligations.

Changes in management or ownership: If there are sudden changes in management or ownership, it could be a sign that the business is facing financial difficulties and trying to restructure to improve its current failing operations.

Poor maintenance or upkeep of the property: If the tenant is neglecting maintenance or upkeep of the property, it could indicate that the tenant is cutting costs to try to stay afloat, which may be a sign of insolvency.

Subletting the property: If your tenant requests to sublet the property, this may be a sign that their business is struggling so they wish to sublet the unit or premises to another business from which to recover the rent and continue to meet their financial obligations to you as the landlord under the head lease.

What options does a landlord have if a tenant fails to pay rent?

If a tenant fails to pay rent a landlord may wish to consider the following:

Do nothing - This may be appropriate if the market is weak and/or there are other commercial influences. For example, if the tenant’s business is likely to improve or they are seeking alternative finance.

Participate in an alternative dispute resolution process - Such as negotiation or mediation

Commercial Rent Arrears Recovery  - There is a specific procedure for non-payment of commercial rent – Commercial Rent Arrears Recovery procedure (CRAR) which does not involve taking court proceedings

Issuing a claim in the courts – With a debt action

Call in any security - Such as payment by a guarantor (or drawing from a rent deposit)

Forfeit the lease - To terminate it and evict the tenant.

Bring insolvency proceedings – Serve a statutory demand and/or petition to wind up the tenant (if a corporation) or for bankruptcy (if an individual)

Commercial rent arrears recovery (CRAR)

Commercial rent arrears recovery (CRAR) is a method of enforcement action available to commercial landlords. The commercial rental arrears recovery process gives a landlord the ability to instruct agents/bailiffs tasked with enforcement to take over control of a tenant’s assets and sell them to effect recovery of an equal value to the rent arrears.    

CRAR sets out a staged process within which various notices are required to be sent by the enforcement agents to the tenants.

Advantages of CRAR:

  • Can be quick and efficient means of recovering arrears
  • Limited costs as the cost of enforcement is borne by and recovered from the tenant as part of the enforcement recovery

Disadvantages of CRAR:

One disadvantage of using CRAR is that it will have the effect of waiving any right to forfeiture. A commercial landlord should take specific advice and explore:

  • Whether it will matter that any right to forfeit will be lost in consequence
  • How the landlord will deal with any existing breaches of the lease (other than the non-payment of rent)

As the tenant is required to be given seven days’ notice of the potential enforcement action, it gives the tenant the opportunity to dispose of or ‘hide’ its assets before they are seized.

Court action

Court action may be taken in certain circumstances. A claim could be brought in the civil courts for a commercial property dispute or debt due. This would also include a claim for costs and court fees incurred.

Forfeit of a lease

Forfeiture of a lease is a process by which a landlord exercises a right to terminate a lease. This is also sometimes referred to as ‘re-entry’.

A lease can be forfeited:

  • Where the tenant has breached its obligations under a lease and/or
  • In specific circumstances which are expressly detailed in the lease

Before forfeiting a lease, a landlord should ask themselves:

  • Is the forfeiture appropriate in the circumstances?
  • Is there a benefit to taking back possession?
  • What is the market like? Will you be able to find a new tenant quickly?
  • Are there any guarantors or other forms of security (rent deposit) that can be called upon to address any arrears in rent, if this is your concern?
  • Can the property be secured? (risk of squatters)
  • Does the property need to be developed/would benefit from development?

A right of forfeiture may generally only be exercised if it is expressly provided for within the lease. The exception to this is that the landlord may have an implied right where the tenant has breached a condition (a fundamental requirement of the contract). This includes non-payment of rent, assuming that payment of rent is a condition of the lease (which would normally be the case).

Forfeiture of a lease for non-payment of rent can be affected in the normal way (by peaceful re-entry or a court order).

A landlord should be aware that:

  • If rent is accepted despite the landlord knowing that there has been a breach of the lease, the landlord is likely to be deemed to have accepted that breach and given up its right to forfeiture (known as ‘waiving’ its right)
  • A landlord may wish to refuse to accept rent, to avoid waiving its right to forfeit. If the grounds for forfeiture are non-payment of rent, it will be difficult for the landlord to resist. This is because a tenant has an opportunity to claim relief from forfeiture and payment of arrears is a key factor in supporting such a claim.

Tenant insolvency processes

If a tenant becomes insolvent, all the options noted at the outset will continue to apply. The key differences are that:

  • If insolvency proceedings have not already commenced, the landlord may wish to instigate these
  • If insolvency proceedings have commenced, then the landlord will now likely need to deal with an administrator, liquidator or receiver appointed to deal with the realisation and distribution of available assets
  • It is possible that even if the landlord has a strong claim against the tenant unless there is a form of security that can be called on, actual recovery of arrears may be diminished or entirely lost (depending on the extent of the financial issues of the insolvent tenant)

In insolvency situations, a variety of procedures may apply. These are discussed below.

Creditors’ Voluntary Arrangement (CVA)

A creditors’ voluntary arrangement is a method of arranging for the repayment of debts to creditors as part of a protected repayment plan, avoiding administration or liquidation of the tenant. CVAs if agreed with a sufficient proportion of the creditors can be binding on all creditors.


Administration relates to corporate entities and is a process by which a company is moved under the control of an administrator (an insolvency practitioner) to achieve specified statutory objectives.

These are:

  • To rescue the company as a going concern
  • If rescue is impossible, the aim is to attempt to achieve a better result for the creditors than would be the case if the company was put into liquidation
  • If the administrator cannot achieve a better result for the creditors, then any property should be sold and secured, and preferential creditors paid

The company may move from administration to liquidation, or combine it with a CVA, or a Scheme of Arrangement.

To support the objectives of the administrator, a moratorium (block) is provided under which creditors are prevented from bringing legal proceedings. A landlord should be aware that any legal proceedings that they may otherwise have intended to bring will not be effective whilst a tenant is in administration.


Receivership is a process by which a receiver is appointed to take control of a debtor’s asset(s) subject to security. A receiver is often appointed by a bank and usually arises due to a contractual right under security documents. The purpose of a receiver’s role is to sell a specific asset (or several assets) which is/are the subject of a security and then use the proceeds to discharge the debt to the charge holder.

A landlord may appoint a receiver as a means of recovering debts due if it holds and security of the tenant’s assets (such as a mortgage).


Liquidation involves the appointment of a liquidator, the realisation of assets, the distribution of proceeds of sale (once costs of liquidation have been paid) and the dissolution of a company.

Before a landlord starts a winding up petition, a landlord may wish to first consider serving a statutory demand. This is a formal notice which is a pre-curser to a winding up or bankruptcy petition. It can put significant pressure on a recipient. This is because they will be required to either pay or challenge the demand within a very short period of time. A challenge will require evidence of a genuine dispute and/or that the landlord has sent the notice abusing the process. An unanswered statutory demand is, on the face of it, evidence of insolvency/bankruptcy which can be used against the tenant in a subsequent winding up or bankruptcy petition.

How can commercial landlords mitigate the impact of potential tenant insolvency in lease agreements? 

Before entering a lease, it is important to conduct thorough due diligence on the tenant to get a better idea of their financial position and discover whether they have any long-standing financial problems that can cause issues further down the line. This may not always be predictable though or even possible in the case of young businesses. There are precautions that you can take to mitigate against losses as a result of an unstable tenant such as:

Rent Deposits: One option is to require the tenant to put down a security deposit at the outset of the lease. This is a common feature in commercial leases and consists of a negotiated sum (often calculated as a multiple of the monthly rent) paid by the tenant to the landlord to provide financial security in case the tenant defaults on their rent or obligations under the lease. As such, rent deposits can provide some peace of mind to landlords in the knowledge that they can draw down on the deposit to recover unpaid rent or other costs the tenant is liable for but has not or cannot pay. The terms related to the rent deposit, including the amount, protection, use and return should be agreed between parties and contained in a professionally drawn-up rent deposit deed.

Guarantor: Another option to safeguard against potential losses from an unstable/insolvent tenant is to request that a third party joins the lease to act as a guarantor. A guarantor can be an individual or entity that essentially agrees to be liable for the tenant’s financial and other obligations under the lease, such as if the tenant defaults on their rent payments, maintenance and repair costs, insurance, service charges etc. The extent of the guarantor’s liability will be negotiated and agreed upon at the outset of the lease. If therefore your tenant is potentially insolvent, as a landlord you can pursue a guarantor to minimise your losses. You should make a financial assessment of the guarantor to ensure they have the financial means and stability to meet their guarantee.

Former tenants: You may be able to pursue a former tenant of your property if they assigned the lease to your current tenant and you obtained an authorised guarantee agreement (known as an ‘AGA’) from them. This is commonly found in most commercial leases as a condition for the landlord to agree to the assignment in the first place. The former or outgoing tenant remains liable and guarantees the obligations of the incoming tenant (including rental payments, repair and maintenance costs, and other lease terms). If your tenant is potentially insolvent and unable to make payments, as a landlord you could turn to the former tenant under the AGA to recover any sums owed to you. The former tenant will of course need to be financially able itself to meet the costs

Sub-tenant: Some landlords may not be comfortable with the idea of their tenant underletting the premise to another, but it may be useful if your tenant is at risk of insolvency. Under the CRAR regime, a landlord has the right to request an undertenant to pay their rent directly to them. All the same provisions apply here, such as with the type of rent and amount owed as per the CRAR regime. The landlord needs to serve a signed written notice to the undertenant confirming, amongst other things that the undertenant must pay their rent directly to the superior landlord until the specified amount is paid, the notice is replaced or withdrawn.


Dealing with a tenant who is struggling to pay rent or is on the cusp of insolvency is never easy for any landlord. Becoming one of a line of creditors vying to recover sums owed to you can be stressful, uncertain and time consuming. The good news is that with the right legal advice, you can limit your losses. It is always best to discuss your options with an experienced commercial property solicitor if faced with failed rental payments or a tenant who is struggling financially. While issuing court or initiating insolvency proceedings may be the only solution in some cases, there may be more suitable ways to recover what is owed to you while at the same time helping your tenant stay afloat.

About our expert

Simon Smith

Simon Smith

Senior Dispute Resolution Solicitor
Simon is a very experienced dispute resolution solicitor, he qualified in 1996 and has worked in dispute resolution for over 25 years. He is used to analysing large amounts of complex information quickly to make well reasoned, practical and commercial decisions. Simon is very hands on and prides himself on being approachable and easy to work with.

What next?

For more information on any of these provisions, or to discuss any aspect of your commercial property issues, contact one of our expert commercial property team today, who can talk you through your options. Call us on 0800 689 1700, email us at, or fill out the short form below.

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