Legal advice: Withholding rent

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Related tags: Tenant, Leasehold estate, Landlord, Lease

Tenancy agreements usually require rent to be paid in advance on particular dates. If a tenant is facing financial problems and has trouble paying on...

Tenancy agreements usually require rent to be paid in advance on particular dates. If a tenant is facing financial problems and has trouble paying on time, it may well make sense to contact the landlord and try to agree a payment plan.

If a deal cannot be struck, the landlord has a range of options. The ultimate sanction is forfeiture proceedings. This means the landlord can take back the pub.

Non-payment of rent is a breach of the tenant's contractual obligations in the lease, and the matter will be listed for a court hearing, when the landlord will ask the court to make an order for possession.

If the tenant clears the arrears of rent in full at least seven days prior to the court hearing, then the court is likely to grant the tenant relief from forfeiture. However, the tenant will still be ordered to pay the landlord's legal costs for the proceedings.

Note that, if the tenant falls into arrears again, and this matter comes before the court for a second or third occasion, the court is much less likely to be sympathetic to the tenant.

Withholding rent

The starting point in any lease is that the rent should be paid without any deduction. But what if the tenant argues that he has a claim against the landlord, and that this is the reason he is refusing to pay the rent?

For example, if it is the landlord's responsibility to pay the cost of repairs needed because of flood damage and the landlord is not acting speedily, is the tenant entitled to withhold his rent until the landlord's works are done? This is a very contentious area. Strictly speaking, the rent must still be paid without 'set-off or deduction'. As ever, it makes sense to try to speak to the landlord and prevent litigation in the first place.

If the landlord decides not to commence forfeiture proceedings, it can instead issue debt recovery proceedings in court, seeking judgment for any arrears of rent.

The judgment will be registered in the Register of County Court Judgments and can affect a tenant's ability to obtain credit in the future. There are various ways for a creditor to enforce a judgment debt, which will be covered in a future article.

A third option available to landlords is to send certificated bailiffs into the pub in order to 'levy distress' on the tenant's goods - in other words, to take them away.

This can be a very powerful remedy, especially if the fixtures and fittings belong to the tenant, as they may well be sufficiently valuable to cover the cost of the outstanding rent. Parliament has recently passed a law which will water down the impact of this remedy to some extent. You can expect to read more about this when more is known about when the changes will come into force.

Bankruptcy

Another remedy available to the landlord for non-payment of rent is to threaten the tenant with bankruptcy (or in the case of a tenant which is a limited company, to present a winding up petition).

If the tenant fails to clear the arrears in full within 21 days of service of what is called a Statutory Demand, the tenant will be deemed insolvent and bankruptcy proceedings are likely to follow.

This is just a brief summary of the options available. The advice for landlord and tenant alike remains the same: talk to each other, try to agree a payment plan, try not to default, and keep the channels of communication open if you want to avoid ending up in court.

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Kimbells is well versed in the legal issues facing the drinks, hospitality and leisure industry, having specialised for many years in advising companies in this sector. Legal updates and commentary on topical industry issues can be found at on their website in the right hand column. Key contacts: Leo Skinner, Neil Lyon and Peter Holden.

Related topics: Legislation

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