THE INSOLVENT TENANT

Caroline Wort

Caroline is a highly experienced commercial property litigator, advising across all aspects of commercial landlord and tenant disputes, as well as broader real estate litigation. She leads substantial claims and manages teams handling telecoms and property portfolios. Caroline has advised a wide range of clients, including retailers, property investment companies, government departments, developers, telecommunications operators, and charities. She is a member of the Property Litigation Association and regularly lectures on property-related issues to clients and surveyors. Davitt Jones Bould is the UK’s largest and most experienced specialist real estate law firm, operating for over 25 years. With over 75 senior lawyers, we offer unparalleled expertise across the full range of real estate legal services — including commercial property, planning, construction, environment, real estate finance, and property litigation https://www.djblaw.co.uk/

Caroline presented at the Eastern Branch meeting held at Croxley Park, arranged by Paul Brooks, Watford Borough Council, on 27 March 2026. She kindly agreed to write on this timely and relevant issue of insolvent tenants and terminating tenancies. “A landlord facing non-payment of rent should act swiftly to recover it.” Thanks Caroline and Paul. 

Caroline (far right) and Paul (second left) at Croxley Park

Landlord options

Amid the current political and economic uncertainties, landlords are becoming increasingly concerned about the financial viability of their commercial tenants. With this in mind, it would be helpful to consider the various remedies available to a landlord when its commercial tenant faces financial difficulties and becomes insolvent.

The landlord has an array of remedies it can pursue against a commercial tenant who is not paying their rent, and some of these may include bringing the tenancy to an end. However, this needs to be balanced against insolvency legislation, which is designed to protect all creditors when there are insufficient funds to satisfy them.

Generally, a landlord should act quickly when it suspects that a tenant is in financial difficulty and struggling to pay its rent. The landlord may accept that the lease will continue, and take whatever measures are available to recover the rent, or it may wish to bring the lease to an early end in the hope of finding a new tenant.

The landlord needs to be mindful of the costs of vacant premises, notably rates and security. This means that, on occasion, even when the tenant is not paying rent, there may be some merit in allowing the tenant to remain in occupation.

This article will consider the landlord’s remedies to recover rent and, if the landlord has decided that it is best to cut its losses and terminate the tenancy, the restrictions that insolvency legislation imposes on the landlord’s ability to pursue the tenant.

The options available to recover rent include court proceedings, exercising Commercial Rent Arrears Recovery (CRAR), requiring the subtenant to pay, calling on rent deposits, and pursuing guarantors. The options available to the landlord to bring the lease to an early end include forfeiture, surrender, break options, and disclaimer, where available.

Court proceedings to recover the rent 

Court proceedings are not always the fastest way of recovering rent, but they can be effective. If the tenant is in administration or compulsory liquidation, the landlord will need the consent of the court, administrator, or liquidator to sue or continue suing the tenant. If the tenant is an individual and is in bankruptcy, there will be an automatic stay of any proceedings.

Where the company is in a company voluntary arrangement (CVA), or an individual is in an individual voluntary arrangement (IVA), the terms of those arrangements will dictate whether the landlord is entitled to sue for the arrears. It must be remembered that there is an initial moratorium on an IVA, preventing the landlord from taking action.

Commercial Rent Arrears Recovery (CRAR)

The CRAR procedure requires the landlord to serve notice on the tenant before the landlord is entitled to instruct enforcement agents to seize goods to recover the arrears. The restrictions on the landlord taking this action when the tenant is insolvent are similar to those that apply when suing for rent, and again, the landlord is likely to need permission to proceed.

Requiring the subtenant to pay the rent

Where there is a subtenant in the premises, the landlord can serve notice under s81 of the Tribunals, Courts and Enforcement Act 2007, requiring the subtenant to pay rent directly to the landlord. Credit must be given for this amount against the tenant’s own rent.

This can usually be done without the consent of the court, administrators, or liquidators, although it may be challenged. In the case of a CVA or an IVA, the terms of the agreement will determine whether this option is available to the landlord.

Calling upon the guarantors

If the tenant’s obligations are guaranteed under the terms of the lease, the landlord should ensure that it promptly demands the rent from any guarantors.

There may also be an Authorised Guarantee Agreement (AGA) in place where the lease has been assigned. The landlord should seek the rent from the former tenant under the AGA as soon as possible, by serving a notice under s17 on the former tenant, remembering that this must be served within six months of the rent falling due. 

Rent deposits

If there is a rent deposit, it is prudent to draw down from it as early as possible, even if the tenant is not required to top it up immediately. Ideally, this should be done before the tenant enters into any form of insolvency procedure. There are restrictions against drawing down on a rent deposit once the tenant is subject to an insolvency procedure, but this will also depend on the wording of the rent deposit deed. 

Forfeiture

The most useful of these options is forfeiture, which allows a landlord to end the lease when the tenant has failed to pay the rent. There are a number of prerequisites to taking such action, and the landlord must be certain that there is a right to re-enter the premises for breach of covenant, and that the landlord has not waived this right by taking any action consistent with the lease continuing. If the breach is not rent arrears, the landlord must also serve a s146 notice pursuant to the Law of Property Act 1925. It is always sensible to get advice before taking this step.

Forfeiture can be affected by either peaceable re-entry or court proceedings. Peaceable re-entry allows the landlord to recover possession quickly and mitigate any future losses. However, it should be noted that in either case, the tenant and any subtenants have the right to apply for relief from forfeiture to recover possession of the premises. 

Further, the landlord should be aware that it cannot forfeit the lease without either the permission of the liquidator, or the court where the tenant is already in liquidation, bankruptcy, or administration, or where the tenant is subject to a voluntary arrangement. 

Surrender

Where the parties are in discussion, it may be in both parties’ interests to terminate the lease. By agreement, the parties can surrender the lease. While this is best done by deed, it is also possible to surrender the lease by operation of law. Landlords should be careful where a tenant vacates the premises, to ensure that the landlord does not inadvertently surrender the lease. If a tenant offers the keys back, it is arguable that this is an offer of surrender, which may be accepted when the landlord accepts the keys. Landlords should always be careful when taking back the keys to the premises and, if it is not intended to accept a surrender of the lease, should make this abundantly clear, preferably in writing. 

Break options

If there is a landlord’s break option, this is also an effective way of bringing the lease to an end. However, landlords’ break options need to be carefully construed, and often they are only redevelopment break options, which means that the landlord can only exercise the option if it intends to redevelop the premises. It should also be noted that if the tenancy is protected by the Landlord and Tenant Act 1954, a landlord’s break option will only serve to trigger the renewal process. However, if the tenant is insolvent, it may not wish to take a new lease. 

Tenant disclaimer

If the tenant is in liquidation or bankruptcy, the liquidator or trustee in bankruptcy may disclaim the lease. This is a simple process under the Insolvency Act 1986 and allows a liquidator to serve notice on the landlord terminating the lease with immediate effect. The landlord would have the option to apply to court to have the lease vested in any guarantor or subtenant. The landlord also has the ability to claim rent and future rent, although this will be subject to a discount in the liquidation.

Conclusion

A landlord facing non-payment of rent should act swiftly to recover it. However, the landlord should seek advice at an early stage if it is concerned that the tenant may have entered into some form of insolvency procedure, and to check that any action taken is lawful.