Bad Debt And Rent Renewal

If you are in business, you may find that some of your customers are not in a position to pay you. What do you do when there is bad debt and does it depend on the nature of the client? ...

You will probably want to be a little more patient with long-standing, loyal clients. However, for any client, if there is a dispute over the quality of the goods or services that you supplied, then this should be resolved before any court proceedings are initiated.

"Next, figure out who owes you the money!"

It is quite amazing how many times a business doesn't establish who they are dealing with. Is it an individual or a business? Are they a sole trader, a partnership, LLP or a limited company?

Next up, start with a pleasant chase letter, remind the client about the money they owe you, but inform them of a deadline for payment. If you aren't paid in full by that date, or no payment arrangement has been made, send a more formal letter or email and ensure you get a delivery receipt.

If your debtor is an individual, including a sole trader, the final letter before legal action must be in line with a pre-action protocol and must be in the correct format.

If it's an LLP or limited company, it doesn't, but it is important to outline any interest due in line with your terms & conditions or under the Late Payment of Commercial Debts (Interest) Act 1998.

"At this point, if the client still hasn't paid, legal action is appropriate!"

Start by using the Money Claim Online portal and if the amount is less than £10,000 use the small claims track. If the debt is larger than that, you can consider starting insolvency proceedings against the debtor.

For individuals, the debt must be above £5,000 and for a limited company only over £750. However, for a limited company, you cannot proceed with an insolvency if it can show it's suffering financial difficulties due to COVID-19.

"What about rent renewals?"

If your lease is ending soon, and you want to avoid a massive increase in rent, you should check whether your lease is covered by the Landlord and Tenant Act 1954. To opt out of this, you must have signed a declaration to this effect which will mean you have no automatic right to stay as the lease ends and the landlord can do what they want to if you're looking to renew.

If the act does apply and you have exclusive possession and occupy the premises only for business purposes, if neither you or your landlord do anything, the lease automatically continues on the same terms.

If your lease doesn't contain a rent review clause, your landlord can't simply put up your rent and if they do you can legally challenge any increase!

If it comes to legal action, the tenant serves a Section 26 Notice request to the landlord for a new lease. The landlord then chooses whether to oppose it or not. Any new lease following court action must be substantially the same as before although you can expect your landlord to seek some sort of rent increase.

As always, take legal advice with any debt collection and speak to a local chartered surveyor about rent increases before moving forward.


If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.