Tenants' Financial Dificulties - the tell tale signs

I once had a landlord client who questioned the financial stability of any tenant who installed a fish tank in his reception. Such reasoning may be somewhat ‘off the wall’ but other indicators may give clues about the credit rating of tenants – and in this current economic climate, landlords need to be vigilant and know what they want to achieve if they are facing a tenant in difficulties.

Usually landlords rely on one indicator – has the tenant paid his rent? It is only when the rent cheque does not arrive on time that the landlord sits up and takes note. Usually if rent is not paid, it is as a result of months of financial difficulties – with the tenants believing that they can trade through, and while that thought rules, the rent will be found. It is only when the bank refuses to honour the payment that the landlord is left high and dry. By then, it may be too late for the landlord to do whatever he can to help the tenant – and, in the process, help to preserve his own income from the property.

So what other indicators should landlords be looking for? 

  • Are the premises looking shabby or falling into disrepair?
  • What level of activity is taking place? Less activity suggests less business.
  • Is it noticeable that levels of stock are depleting?
  • Is the bailiff making regular trips to the premises?
  • Are the tenant’s employees grumbling about shorter working hours or delayed payment?
  • Has the financial controller disappeared from the business?
  • Are personnel being made redundant?
  • Is the owner of the business putting in fewer appearances at the premises?
  • What is the word on the street about the stability of the business?
If you suspect that your tenant has problems, you need to decide on what you want to achieve. There is a world of difference between the reactions of a landlord who has a new and better tenant waiting in the wings and a landlord who will find it difficult to relet the premises in the near future. The former is in a position to be aggressive, the latter is not. There is no point having empty premises, as in some cases this could last for years. Empty rates liabilities in themselves can turn the asset of a lettable unit into a liability. In extreme cases, I have known landlords agree to suspend rent payments on the basis that the tenant pays the rates and other outgoings until their business has turned the corner.
 
While you may feel that you are entitled to the rent which your tenant has agreed to pay, you are not immune from the effects of this recession. Your tenant’s problems will become yours if your tenant cannot pay. If appropriate, agree to take rent in monthly, instead of quarterly, instalments and in more extreme cases, consider reducing the rent for a period. Put another way, do you want to risk having no income at all? You might as well put your money in a bank account to achieve that result at the present!
 
Mike Sharp is a partner and head of the Commercial team at Raworths. To contact Raworths, telephone 01423 566666 or visit our offices at Eton House, 89 Station Parade, Harrogate HG1 1HF.