My company can’t pay its commercial rent in Scotland – what can the landlord do?

If your company has fallen behind on its commercial rent or lease obligations, the worry about what your landlord may do can be overwhelming. Many companies rely on their premises, whether this is a high street shop, an industrial unit, or hospitality venue, in order to continue trading. This being at risk is a huge issue that, left alone, can lead to your company unable to trade and facing insolvency.

The good news is that you have more options than you might think, and your landlord cannot simply act overnight over unpaid rent. Understanding exactly what they can and cannot do, and how this action differs in Scotland, is the first step to taking back control.

In this guide we explain exactly what powers a commercial landlord in Scotland has, the steps that they can take to recover the money you owe, and what options your company has when dealing with rent arrears.

Commercial lease law in Scotland is different from the rest of the UK, so general “what landlords can do” advice written for England and Wales often doesn’t apply north of the border. As experts in company insolvency in Scotland, we are here to provide the advice you need:

1. 1. Irritancy (ending the lease)

Irritancy is the Scottish equivalent of forfeiture. It allows a landlord to bring the lease to an end where the tenant is in breach, including non-payment of rent. For a breach involving money, such as falling into rent arrears, the landlord usually cannot irritate the lease immediately. Instead they must first serve a formal pre-irritancy notice giving you a period to pay, generally at least 14 days, before they can take the lease back.

That notice period is your window to act and can seeking advice during this period can make a huge difference to the future of your business and what further action the landlord can take.

2. The landlord’s hypothec

The landlord’s hypothec is a security that gives the landlord a claim over moveable goods kept on the premises for unpaid rent. Its scope was significantly reduced by the Bankruptcy and Diligence etc. (Scotland) Act 2007, but it still exists as a security that can affect the landlord’s ranking as a creditor if the company becomes insolvent and enters into formal insolvency proceedings such as liquidation.

3. Court action and summary diligence

In Scotland, a commercial landlord is able to take court action in order to recover rent arrears debt. Many Scottish commercial leases are also registered for execution, which means landlords can enforce the debt through summary diligence, as well as steps such as a bank arrestment which sees money being taken directly from your bank account. Not all leases will have this clause, so it’s worth checking to see if this could apply to your situation.

Commercial Rent Arrears Recovery (CRAR), the procedure landlords use in England and Wales to seize goods for rent, does not apply in Scotland. You may have read advice mentioning CRAR, but it’s important to note that this isn’t relevant to your situation if you have a company registered in Scotland.

When it comes to commercial rent arrears, the single most important thing to check for in your lease agreement is whether you have provided a personal guarantee.

It is extremely common for company directors to personally guarantee their company’s commercial lease. In fact, a personal guarantee clause is often a mandatory requirement when signing a new lease for commercial premises. We regularly speak to directors who have given a personal guarantee to underpin their lease agreement but were unaware they had actually done so at the time.

If you have given a personal guarantee, you should be warned that the landlord can pursue you personally for the arrears on your commercial premises even if the company is liquidated.

You can read more about how this works on our guide to personal guarantees and liquidation.

If your company is unable to pay the rent, or if you have already fallen behind in payments to your commercial landlord, the good news is that there are options available to you. The right route depends on whether the business is viable in the long-term, or whether the company’s problems may mean it needs to close down. At Scotland Liquidators, we can help whether you want to save your company or wind it up. Your options include:

• Negotiations with the landlord – If your company is viable but cash flow is tight you may be able to enter into negotiations with your landlord to pay off your arrears through a series of affordable instalments. Landlords often prefer a paying tenant to an empty unit, so a rent concession, monthly rather than quarterly payments, or a short deferment may be agreed.
• Surrender or assign the lease – If you want to exit the premises and the landlord agrees, or if you can find a suitable replacement tenant, you may be able to get out of the lease and limit your exposure.
• Company Voluntary Arrangement (CVA) – If the company is viable but needs to restructure its debts, including rent arrears, a CVA can allow you to do this while continuing to trade as usual.
• Administration – For larger or more complex businesses, administration can provide the time and breathing space from creditors to be rescued or sold.
• Creditors’ Voluntary Liquidation (CVL) – Voluntary liquidation may be the most appropriate route if the company isn’t viable.

• A Scottish landlord must usually serve a pre-irritancy notice (commonly at least 14 days) before ending the lease for unpaid rent.
• The landlord’s hypothec and summary diligence are Scotland-specific remedies, and CRAR does not apply here.
• A personal guarantee is the biggest risk to you personally, and it remains even if the company is liquidated.
• Acting during the notice period, rather than after it, keeps the most options open.

If your company is struggling to pay its rent, our licensed insolvency practitioners are here to help you better understand your current position as well as your options moving forward. We will assess your company’s position, check your personal exposure, and then set out a clear plan, whether that means rescuing the business or closing down your company on the best possible terms. With offices across Scotland, we deal with directors in your situation every single day. Contact the team today for immediate help and advice.