When a tenant fails: what actually happens
A tenant failure takes the rent away and replaces it with costs. Rates, insurance, security and maintenance all fall on the participants while the building is empty, and the quarterly distribution reduces or stops. This sets out the sequence, and the examples are drawn from our own portfolio.
Written by Alexia Swift-Cookson, Director, Head of Asset Management. Last reviewed September 2026.
The first sign
The first sign is almost never a letter from an administrator. It is a rent payment arriving late, then a quarter paid in two parts, then a request to pay monthly.
Service charge arrears often move before rent arrears, because a tenant under pressure pays the landlord before the managing agent. Trading indicators matter alongside the ledger. Reduced opening hours, stock not replaced, staff not replaced, accounts filed late at Companies House.
We would rather have a conversation at the first missed payment than a schedule of arrears three quarters later. A tenant with a viable business and a cash flow problem is worth working with. A tenant whose business has gone is a different exercise, and the sooner that is identified the shorter the void.
Arrears and the rent deposit
Where a rent deposit was taken at the grant of the lease, it is drawn down against arrears under the terms of the deposit deed. It buys time and it is finite, typically a quarter or two of rent, and once spent it is gone unless the tenant tops it up.
A guarantor or a rent guarantee policy, where one exists, is pursued in parallel. The practical value of any of it depends on the covenant behind it, which is why covenant strength at the point of letting matters more than the headline rent.
Forfeiture and what it costs the participants
Forfeiture ends the lease. It is quick, and it carries a consequence worth stating plainly. On forfeiture the tenant's liability for future rent ends, the rates liability transfers to the participants as owners, and the building becomes an empty asset to be insured, secured and relet.
A lease kept alive against a paying guarantor is usually worth more than a building taken back early. Care is also needed on waiver, because accepting rent after a known breach can lose the right to forfeit.
Administration and the moratorium
Administration imposes a moratorium. Forfeiture, enforcement and proceedings against the company require the consent of the administrator or the permission of the court.
In practice a landlord waits. Rent falling due during the administration may rank as an expense of the administration where the administrator continues to use the premises, and arrears predating appointment usually rank as an unsecured claim, which is to say worth little. The building may be trading, dark, or marketed as part of a sale of the business, and the outcome depends on which.
Rates, insurance and the cost of standing empty
Empty rates are the largest single cost of a void. Full rates fall on the owner once the empty property relief period has run. Reliefs are set by legislation and change, so the position is checked at the time.
Insurers must be notified as soon as a building is unoccupied. We understand cover commonly narrows after a stated period of vacancy, often to a restricted list of perils, with conditions attached covering inspections, isolation of services, draining down and security. Premiums rise. There is no tenant to recover the insurance rent from, so the cost sits with the participants.
Then the standing costs. Security, alarm and sprinkler monitoring, keeping heating on against frost and damp, gutters cleared, statutory testing maintained, utilities standing charges. Small individually and material across a full year.
Dilapidations
A terminal dilapidations claim is prepared on lease end. Damages for disrepair are subject to the statutory cap under section 18 of the Landlord and Tenant Act 1927, which limits recovery to the diminution in the value of the reversion.
Against an insolvent tenant a dilapidations claim is usually worthless. It is a claim in the insolvency alongside everything else.
Reletting
Reletting is where the real cost appears. Incentives are the currency. A rent-free period, a capital contribution to fit-out, a shorter term, a tenant break option, a stepped rent.
Each of those reduces the effective rent, and a lower passing rent reduces the annual valuation and therefore the value of every participant's interest. A void of a year followed by a letting at a lower rent on a shorter term costs more than the lost rent alone.