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Can’t Afford Your Commercial Lease?

A lease can become a major financial burden for a business. It can also have a serious impact on directors personally. Find out your options today.

A commercial lease is a legally binding agreement that allows a business to occupy a premises. A commercial property can be a necessity for a business but, when financial pressures become too much, they can be an expensive burden.

Lease agreements are a priority expense as without a business premises it can be difficult or impossible to operate. These situations can be further complicated in the instance where a director has signed a personal guarantee for the lease. Regardless of the issue, quick action is needed to prevent the consequences from affecting you and your business.

What To Do If You Can’t Afford Your Commercial Lease

If you are struggling to maintain regular payments, there are several options available to avoid eviction and/or formal legal action. Some of these include:

  • Speaking to your landlord.
  • Trying to find alternative finance.
  • Restructuring your debt.
  • Entering into a formal insolvency arrangement.
  • Reducing other expenses.

Ultimately, these options may only provide temporary relief, especially if there are large amounts of arrears involved. This is why we always recommend speaking to business debt experts who can analyse the commercial lease agreement and negotiate with landlords.

What Happens If You Don’t Pay A Commercial Lease?

If you have not signed a personal guarantee for your commercial lease, you are unlikely to face any personal liability. However, non-payment will still result in serious consequences for your business. These could, in turn, impact you. If you do not maintain payments on a lease, you will likely face:

  • County Court Judgements (CCJ) or Statutory Demands against your business.
  • Eviction/repossession of premises.
  • Repossession of business assets.
  • A winding-up petition.
  • The liquidation of your business.

As well as the value of the commercial lease, your landlord may add in their own legal expenses all whilst including ‘dilapidations’. This is the cost required for the landlord to refurbish the premises for the next tenant. This can add a significant amount to the bill.

“I Have a Personal Guarantee, What do I Have to Pay?”

Depending on your personal guarantee agreement, you can be made liable for some or all of the total lease amount.

On the one hand, you could be required to pay as little as one month’s rent, however, a more likely scenario is that you are liable for the entire lease value. This means you will need to personally pay for the entire amount remaining on the lease, plus dilapidations and additional costs. So, for example, if you are paying £10,000 per year for the next 5 years, you will be made to pay £50,000+ costs. If you fail to pay this, you can face personal insolvency action such as bankruptcy. Read more about the full consequences of personal guarantees resulting in bankruptcy here.

Sam Howell

Debt Solutions Team Manager

Making the impossible possible

The team at Bell & Company has been a tremendous help. What was not possible trying to solve with HMRC on our own was made possible. A great outcome which allows us to concentrate on running the business with less…

Making the impossible possible

The team at Bell & Company has been a tremendous help. What was not possible trying to solve with HMRC on our own was made possible. A great outcome which allows us to concentrate on running the business with less stress going forward.

Sascha Cutura – GB

What Can You Do?

If you want to keep your company trading, you need to come to an arrangement with your landlord. Otherwise, they will force your company into liquidation. Although there are formal options available such as CVAs, these do not help the business or the directors.

Formal insolvency arrangements will impact your company’s credit score and, ultimately your ability to trade. On top of this, formal insolvency will activate personal guarantees and may require you to pay back your overdrawn director’s loan account (ODLA).

We always recommend finding an informal yet enforceable solution to commercial lease issues. This will benefit all parties, allow you to keep trading and avoid the restrictive nature of any formal insolvency arrangements.

If your debts have become unmanageable and you need to close your business, there are still options available. The liquidation process involves more than just shutting a company down. There are other liabilities, personal guarantees, director’s loans and other potential surprises that may arise.

In this case, it is vital that you understand all the potential impacts and consult independent insolvency experts to hear first-hand the strategy we would implement to alleviate your issues.

If you would like to find out your options, you can get in contact with us to speak to our commercial lease specialist today.

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