Buyer’s contract negotiation guide—arrears
Buyer’s contract negotiation guide—arrears

The following Property guidance note provides comprehensive and up to date legal information covering:

  • Buyer’s contract negotiation guide—arrears
  • Arrears due diligence for buyers
  • Statutory position on arrears
  • What do the Standard Commercial Property Conditions provide on arrears?
  • Who takes the risk of non-payment of arrears?
  • What actions should the buyer take to recover arrears?
  • Restrictions on the buyer’s actions post-completion
  • Priority of arrears
  • Costs
  • VAT

Arrears due diligence for buyers

Arrears are sums due from tenants which have not been paid to the seller as at completion (including any VAT in respect of such sums). The seller should expect to provide a statement of arrears (if any) and a rent payment history (the usual period is 3 years) with the replies to Commercial Property Standard Enquiries and then update the arrears statement just before exchange and completion. Buyers should review and look out for the following:

Arrears where there is a single lease of whole

If the property is subject to a single lease of whole then the existence of arrears might suggest concerns about tenant covenant strength or a dispute. The buyer’s solicitor should raise enquiries and report to the buyer.

If the arrears are not high and do not signify any payment issues then the buyer may sometimes be prepared to pay over the arrears to the seller at completion and thus have a clean break. This is not standard but not outlandish.

How old are the arrears?

If there are sums which have been due for some time (say, more than a quarter), then the buyer should check if they are validly due and try to establish why they have not been paid by raising specific enquiries. The seller may have levied interest for