Arrears
by Dulan Perera
Director of Growth
Updated 19 June 2026
Contents
Key Takeaways What are arrears in commercial leasing? What is the difference between "in arrears" and "paid in arrears"? What is the difference between current arrears and historical / accumulated arrears? Why do arrears occur in commercial leasing? What are the consequences of falling into arrears for commercial tenants? How can landlords manage and mitigate commercial arrears? What can tenants do to avoid falling into arrears? How do you resolve commercial arrears effectively? How do property management solutions help manage arrears at scale?Key Takeaways
- Arrears are overdue payments (rent or expenses) that can lead to financial instability for both parties.
- Typically driven by tenant cash flow issues, poor budgeting, or unresolved lease disputes.
- Tenants face legal action, eviction, and credit damage, while landlords face disrupted cash flow.
- Robust screening and automated property management tools are essential for mitigation.
- Recovery processes (like CRAR in the UK) vary significantly by jurisdiction.
What are arrears in commercial leasing?
Arrears refer to payments that are overdue or behind schedule, such as rent, operating expenses, or other financial obligations outlined in a commercial lease agreement. When a tenant fails to make a payment by the due date specified in the lease, they are considered to be in arrears. Commercial rent arrears can quickly accumulate, leading to significant financial challenges for both tenants and landlords.
What is the difference between "in arrears" and "paid in arrears"?
The two phrases sound similar but mean different things. Confusing them is one of the most common sources of dispute in commercial leasing.
| Phrase | Meaning | Example |
|---|---|---|
| "In arrears" | Behind on a payment that has fallen due | A tenant whose 1 May rent has not been paid by 1 May is in arrears from 2 May onward |
| "Paid in arrears" | A payment method where the obligation settles after the service period (rather than before) | A lease where May's rent is due on 31 May (not 1 May) is paid in arrears |
| "Paid in advance" | A payment method where the obligation settles before the service period | A lease where May's rent is due on 1 May for the period from 1 May to 31 May is paid in advance |
In commercial leases, both methods exist -- some leases require rent in advance (most common in Australia, New Zealand, UK) and others require rent in arrears (common in US net leases, percentage rent calculations, and some long commercial tenancies). The lease itself defines which method applies, and getting it wrong in the lease creates compounding cash flow problems.
What is the difference between current arrears and historical / accumulated arrears?
For property managers running a portfolio, the distinction between current and historical arrears matters because each requires a different operational response.
Current arrears are amounts that have just fallen due and have not yet been paid -- for example, a tenant whose 1 May rent has not arrived by 5 May. The right response is automated payment reminder + first-line follow-up, often resolved within 7-14 days.
Historical / accumulated arrears are the total of unpaid amounts from previous periods -- a tenant 60+ days behind on multiple invoices. The right response is structured arrears workflow: payment plan, escalation to legal action if necessary, or termination of the lease.
A portfolio's "arrears age" -- the proportion of receivables in each bucket (0-30 days, 30-60 days, 60-90 days, 90+ days) -- is the leading indicator of cash-flow risk. Property management platforms like Re-Leased aggregate this view automatically across the portfolio, with automated workflows per arrears age bucket so each tenant receives the appropriate response without manual triage.
Why do arrears occur in commercial leasing?
- Cash Flow Issues: Market downturns or unexpected expenses.
- Financial Management: Inadequate budgeting or poor oversight.
- Lease Disputes: Disagreements over maintenance or terms leading to withheld rent.
What are the consequences of falling into arrears for commercial tenants?
- Financial Penalties: Late fees and interest charges.
- Legal & Operational Risks: Default notices, legal action, and potential eviction.
- Long-term Impact: Damage to credit ratings and business reputation.
How can landlords manage and mitigate commercial arrears?
- Implement a robust tenant screening process to assess prospective tenants' financial stability and ability to meet lease obligations.
- Maintain open communication with tenants and address any issues or concerns promptly to prevent arrears from escalating.
- Offer flexible payment plans or temporary rent deferrals to help tenants navigate short-term financial challenges while ensuring the landlord's cash flow remains stable.
What can tenants do to avoid falling into arrears?
- Prioritize rent payments and ensure sufficient funds are allocated to meet lease obligations consistently.
- Communicate proactively with the landlord if financial difficulties arise, and work together to find mutually beneficial solutions.
- Seek professional advice from financial advisors or legal counsel to navigate complex lease agreements and understand the implications of non-payment.
How do you resolve commercial arrears effectively?
- Encourage open and honest dialogue between tenants and landlords to understand the underlying reasons for non-payment and explore potential remedies.
- Consider setting up payment plans that allow tenants to catch up on overdue rent over time while still meeting their ongoing lease obligations.
- Engage in mediation or alternative dispute resolution to find mutually agreeable solutions and avoid costly legal proceedings.
If necessary, landlords may need to pursue legal action, such as issuing default notices or initiating eviction proceedings, to protect their interests and recoup lost income.
How do property management solutions help manage arrears at scale?
Property management solutions play a crucial role in addressing and mitigating arrears in commercial leasing. Here are some key ways they can help:
- Automated Rent Collection: Streamlined processes for invoicing and payment collection reduce the risk of late payments and ensure timely reminders are sent to tenants.
- Financial Reporting: Comprehensive reporting tools provide landlords with insights into cash flow, outstanding payments, and tenant financial health, enabling proactive management.
- Tenant Communication: Integrated communication platforms facilitate open dialogue between landlords and tenants, allowing for quick resolution of issues that may lead to arrears.
- Flexible Payment Options: Some property management systems offer features that allow landlords to set up flexible payment plans, making it easier for tenants to manage their obligations without falling into arrears.
By leveraging property management solutions, landlords can enhance their ability to manage arrears effectively, fostering better relationships with tenants and maintaining financial stability.
Frequently Asked Questions
Late fees, interest charges, formal default notices, lease termination, and damage to credit / commercial reputation. The exact consequences depend on the lease terms and the jurisdiction.
Use automated rent collection, age receivables by 0-30 / 30-60 / 60-90 / 90+ day buckets, escalate workflows per bucket, and use property management software with arrears dashboards and integrated payment tracking.
Prioritize rent by maintaining a budget for on-time payments, flag financial difficulties early to work with your landlord on a plan, and seek professional advice to understand your lease terms and the implications of missed payments.
About the Author
Dulan Perera
Director, Growth
Dulan combines strategic technology expertise with deep knowledge of commercial real estate (CRE) to drive meaningful growth across the industry. His focus is on connecting property professionals with insights that matter, spanning compliance, financial operations, property management, stakeholder relationships, and the evolving role of technology and AI. His goal: help real estate businesses scale smarter in a digital-first world.
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