Owning and managing commercial property can be a minefield for the unsuspecting landlord, especially in these difficult economic times. There are, however, things you can do to avoid problems and to improve the situation if the landlord/tenant relationship does deteriorate.
My top ten suggestions are:
Prevention (always better than cure!)
- Having a well-prepared lease that protects your interests can save time, money and trouble if your tenant does default. In a well-drafted lease, the landlord should, amongst other provisions, have the right to re-enter the premises if rent remains unpaid, charge interest on any outstanding rent and recover legal costs from the tenant. These provisions can give you a real advantage in dealing with a defaulting tenant.
- To avoid a dispute regarding the condition of the property when your tenant leaves, a detailed ‘Schedule of Condition’ agreed before the lease starts can make all the difference.
- Make sure you find out about your prospective tenant’s financial position. Ask for bank references, and if your proposed tenant is a limited company, you may well want a third party (possible one of the directors) to act as guarantor to the company’s obligations.
- If you have real concerns about the tenant’s finances, but are not in a position to turn them down, you could ask for a rent deposit. This would give you greater protection if the tenant stops paying.
Management - Keep an eye on your tenant and the premises. For example, a shop operating with irregular hours, or not opening at all, is generally a sign of trouble. If your lease allows you to re-enter to carry out an inspection, consider using it.
- Look after your tenant and deal proactively with any issues. If a lease is worded correctly it is difficult for a tenant to withhold rent on the basis of having a complaint against you, but I have seen plenty try! The best approach is to not give them the opportunity in the first place.
- Monitor payments of rent. Are the payments being made on time or is there a slippage? Are payments coming from different sources or different bank accounts? Such changes can be worrying signs as to trouble ahead.
Cure - Don’t let rent arrears get too large before you take action. There are many options available to you including having goods seized to cover the monies owed, issuing court proceedings, using various insolvency mechanisms to put pressure on the tenant and ending the lease. All of these options have advantages and disadvantages and it is a case of finding the best one that fits your circumstances.
- Consider a negotiated settlement. Often a compromise can be reached that has the potential to give all parties some of what they want. What might be acceptable to each party will depend entirely on the situation.
- When problems arise, get professional advice. This can, in the long run, save time and money and achieve a far more advantageous outcome.
Matt Hill is a solicitor in the Dispute Resolution Unit and specialises in Property and Commercial Disputes. To contact Raworths telephone 01423 566666 or visit our offices at Eton House, 89 Station Parade, Harrogate, HG1 1HF. Alternatively, you can email Matt – matthew.hill@raworths.co.uk
