Landlord Action
If your company has fallen behind with commercial rent, the landlord may have more options than simply chasing for payment.
Depending on the lease and the stage reached, the landlord may be able to pursue the arrears, take formal enforcement action or ultimately bring the lease to an end.
Losing the premises can turn a difficult cash-flow problem into a business-ending event very quickly.
The first questions are straightforward:
- How much rent is overdue?
- Has the landlord served a formal notice?
- Can the company afford the ongoing rent as well as the arrears?
- Is the business still viable from these premises?
- Are other creditors also overdue?
What can a commercial landlord do if rent is not paid?
The exact position depends on the lease, but a landlord may have several options.
- Demand payment of the arrears
- Negotiate a payment arrangement
- Use any rent deposit or guarantee available under the lease
- Raise court proceedings for the debt
- Use Scottish diligence once the necessary enforcement authority exists
- Serve a statutory demand in an appropriate case
- Present a winding-up petition if the legal requirements are met
- Seek to terminate the lease for non-payment
A landlord does not have to choose only one route. The response should therefore be based on how serious the arrears are and whether the company can genuinely recover.
Can the landlord terminate the lease because rent is unpaid?
Potentially, yes.
In Scotland, commercial leases commonly contain an irritancy clause. This is the legal mechanism that can allow a landlord to terminate the lease early following a serious breach.
Non-payment of rent is one of the most important examples.
For a monetary breach, Scottish law generally requires the landlord to give the tenant written notice allowing at least 14 days to make the overdue payment before relying on the breach to terminate the lease.
The lease may provide a longer period in some circumstances.
If you have received a notice threatening irritancy, do not treat it as another rent reminder. The company may be at risk of losing its premises.
What does “irritating the lease” mean?
It simply means bringing the lease to an end because the tenant has breached it.
For a director, the practical consequences may be much more important than the legal terminology.
If the lease ends, the company may lose:
- Its shop, office, factory or warehouse
- Access to an important trading location
- Storage space
- Customer footfall
- The ability to operate machinery or equipment at the site
For some businesses the premises are replaceable. For others, losing them effectively ends the business.
That distinction matters when deciding whether it is worth putting scarce cash into saving the lease.
Can I negotiate with the landlord?
Often, yes.
A landlord may prefer a viable tenant paying rent under an agreed arrangement rather than an empty property and an insolvent former tenant.
Possible proposals might include:
- Paying the arrears over a short period
- Making an immediate part payment
- Changing the payment frequency
- Using an existing rent deposit towards arrears where agreed
- Agreeing a temporary concession
- Restructuring or surrendering the lease by agreement
But the proposal needs to make commercial sense.
If the company cannot afford next month’s rent, agreeing to pay the old arrears as well is unlikely to provide a lasting solution.
Should I use personal money to save the premises?
Only after considering whether the business itself is viable.
Putting personal money into the company may make sense if:
- The rent problem is temporary
- The underlying business is profitable
- The arrears can realistically be cleared
- The company can afford future rent
- Saving the premises protects a genuinely viable business
It is much less attractive if the company will still be unable to pay HMRC, wages and suppliers afterwards.
Commercial rent owed by a limited company does not normally become your personal debt simply because you are a director.
Check first whether you have given a separate personal guarantee under the lease.
Can the landlord take court action for the rent?
Yes.
A landlord can pursue unpaid rent as a debt.
If the landlord obtains the necessary court order or other enforceable authority, sheriff officers may then be instructed to use Scottish diligence.
That could lead to action affecting:
- The company’s bank account
- Company-owned moveable assets
- Other property or money capable of enforcement
Can a landlord wind the company up?
Potentially.
A landlord owed money is a creditor.
If the company is unable to pay its debts and the statutory requirements are met, a landlord can potentially present a winding-up petition just like another creditor.
A qualifying statutory demand may also be used as part of that process.
If the landlord has threatened a winding-up petition, tell us that immediately. The position becomes more urgent once a petition has actually been presented.
What if the landlord is threatening to change the locks?
Take it seriously.
Whether the landlord is entitled to terminate the lease depends on the lease, the arrears, the notices served and whether the required procedure has been followed.
If the company needs the premises to continue trading, Scottish property legal advice may be required urgently.
At the same time, ask the wider question: even if the company successfully keeps the premises today, can it afford them going forward?
What happens to the lease if the company goes into liquidation?
The lease becomes part of the company’s wider insolvency position and the liquidator will need to deal with it.
Important practical questions include:
- Has the company already stopped trading?
- Are goods or equipment still at the premises?
- Is anything at the premises owned by third parties?
- Does the landlord hold a rent deposit?
- Are there personal guarantees?
- Could the business or assets be sold?
If liquidation is likely, tell the insolvency adviser about the premises early. Access to the site may be important for recovering company records and assets.
Is the rent problem actually an insolvency problem?
Sometimes rent arrears are temporary.
Sometimes they are simply the creditor pressure that has become most visible.
Warning signs include:
- More than one rent payment is overdue
- HMRC arrears are also increasing
- Suppliers are refusing further credit
- Wages are difficult to meet
- Directors are repeatedly putting in personal funds
- The business is no longer covering normal monthly costs
If that describes the company, simply finding enough money for the landlord may not solve the underlying problem.
What should I do today?
- Check exactly what is owed. Separate rent, service charge, insurance and other sums.
- Read any notice carefully. Look for a payment deadline or reference to irritancy.
- Check the lease. Particularly any guarantee, rent deposit and termination provisions.
- Decide whether the premises are essential.
- Prepare a realistic proposal only if the company can afford it.
- Review the company’s other debts at the same time.
- Take advice before an important deadline expires.
Landlord action FAQs
Can my landlord end the lease because the company owes rent?
Potentially. A commercial lease may contain an irritancy clause allowing termination for non-payment, but Scottish law requires the appropriate warning procedure to be followed.
How much notice does the landlord need to give?
For monetary breaches, the statutory warning period will generally be at least 14 days, although the lease and circumstances may require longer.
Can the landlord accept instalments?
Yes, if it agrees. There is no obligation on the landlord to accept an unaffordable proposal, so the company should make a realistic offer.
Can the landlord send sheriff officers?
Once the landlord has the necessary enforcement authority, sheriff officers can potentially be instructed to carry out Scottish diligence.
Can a landlord present a winding-up petition?
Potentially, where the landlord is a qualifying creditor and the company cannot pay its debts.
Does rent owed by my company become my personal debt?
Not automatically. Check whether you gave a personal guarantee under the lease or another separate agreement.
Is your landlord threatening action?
Tell us how much is owed and send us any formal notice you have received.
We can help you establish whether protecting the lease is part of a viable rescue plan, or whether the rent arrears are one sign that the company now needs an insolvency solution.
If the notice contains a deadline, tell us that first.