Ask The Experts: Bad debt and rent renewal

  • 14 Dec 2021

Our legal experts are on hand to provide you with advice on setting up and running your own business. Adam Grimwood (pictured), a solicitor at FSB Legal Hub, answers some of the latest queries

Q I am having trouble with bad debts. What should I do?

A What you do depends on the circumstances, such as the nature of the client and the amount of debt. You may want to be more patient with a long-standing or regular customer. If there is a dispute over the quality of the goods or services, you must try to resolve this before issuing court proceedings. 

It’s important to ascertain who owes the money. It is amazing how often we don’t establish who we are dealing with: an individual or a business; a sole trader, partnership, LLP or limited company? 


Generally, you should start with a pleasant chasing letter, politely reminding the client about the debt, but with a deadline for replying. If the money isn’t forthcoming, or an acceptable arrangement made, then send a letter (or email) before action. 

If the debtor is an individual (including a sole trader), your final letter before action must comply with a ‘pre-action protocol’, so needs to be in a certain format. If the debtor is an LLP or limited company, it doesn’t. It’s a good idea to state what interest is due either under your terms and conditions or, if your client is a business and your T+Cs don’t cover this, under the Late Payment of Commercial Debts (Interest) Act 1998.

If the client still hasn’t paid, you can take court action. You typically start using the Money Claim Online portal. If the amount is less than £10,000, it’s generally referred to the small claims track. If the debt is large enough, you could consider starting insolvency proceedings against your debtor. If they are an individual, the debt must be above £5,000; for a limited company, it’s only £750, but these actions cannot currently proceed if the limited company can show that it is suffering financial difficulties caused by Covid-19. There are precedents for the appropriate letters on the FSB Hub, and FSB Legal offers fixed-fee debt recovery services.

Q My lease ends next May. We’d like to stay on, but wish to avoid an increase on our rent. What is our position?

A Check whether your lease is ‘inside’ or ‘outside’ the Landlord and Tenant Act 1954. For the Act not to apply, you would have signed a declaration to this effect, known as ‘contracting out’. This means you’ve no automatic right to stay when the lease expires, and the landlord calls the shots on the new lease terms. If you can’t reach agreement, you could be left looking for new premises. 


If the Act applies (which it does if you have exclusive possession and occupy premises for business purposes) and neither you nor the landlord do anything, your lease will automatically continue on the same terms.

Check if your lease contains a rent review clause – without this, the landlord cannot just put up your rent. If there is such a provision, there will be a procedure to follow, and you can challenge any increase. You may decide to leave things as they are and hope the landlord also finds this acceptable. 

The Act provides a mechanism for either party to bring matters to a head, but the final outcome may only be achieved by issuing court proceedings. 

For tenants, the procedure is triggered by serving a Section 26 Notice request to the landlord for a new lease. The landlord can choose whether to oppose it. If the matter goes to court, any new lease granted must be on substantially the same terms as before, although it’s likely the landlord will seek a rent increase. 

Before starting this process, take advice from a local chartered surveyor about the amount of rent you could be expected to pay – you’ll know whether it’s worth having an interim discussion with the landlord about renewing. There are now cases where the courts have had to look at Covid-19’s effect on what the new rent should be.

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