As a landlord of a commercial property, issues with a tenant can soon escalate into stormy heights. You’re generally dealing with bigger numbers and issues here than, say, residential, and so you can either live or die by the sword, so to speak.
And having the rent paid is of course the biggie, although there can be other factors such as bad behaviours and letting the property’s condition deteriorate.
When you’re past the point of trying to resolve in whatever fashion, you end up asking the question of how to simply get them out. Maybe you already have a potential better tenant lined up to take over, or it’s just more of a case of seeing who else you can re-let to or develop longer-term options for.
Time will probably be an important issue, with having made the decision then simply wanting the premises vacated, and quickly. Cost of course will count; needing to keep this as low as possible while taking any hit on arrears that won’t get paid.
So here are a few issues to mull over as you think about taking this drastic action towards a tenant of commercial property:
1. Business Rates
These are normally covered by the tenant under their occupational lease, therefore only becoming an issue for a landlord when the property is vacant, or rather the lease has ended.
This lease-ending is critical as that’s the trigger date for the rates going back into the landlord’s name, and therefore there is the benefit of a tenant still being liable for these whilst their lease is still in existence.
And when you do get the rates direct, then look at options to reduce this liability whilst still vacant and unlet, including any initial zero-charge period.
As with business rates, they are normally covered by the tenant direct during the lease, unless it’s under any separate communal charge or recharge.
There may be hefty bills owed anyway by the tenant with the utility providers, and if the lease is formally ending then these accounts will need placing back into the landlord’s name.
You can then see what ongoing standing charges need to be covered directly, and make sure only sensible readings are being assumed in the invoices. These should near enough be zero with being an empty property, although watch out for any utilities still needing to be used such as electricity for security lighting and alarms.
Or on the contrary, check if utilities need to be all turned off for insurance purposes whilst vacant and therefore incurring on consumption.
And although you might be able to pass the buck to the tenant with utilities chasing them for any arrears, just watch out for consequences of this such as utilities then being turned off and huge re-connection costs (and time delays) then being incurred.
This is a nice and easy solution if you can get the tenant to agree to it, simply both agreeing to end the lease early.
If all goes well, then make sure you then formally document this with, say, a Deed of Surrender through solicitors who can also help mop up any other issues such as registering this surrender with Land Registry.
However this can all be difficult to get lined up and agreed in reality. Not only have you the challenge of beginning a dialogue with the actual tenant, but also then coming to an agreement on this, as they may want to continue blindly along with things.
Now comes a drastic option of forfeiting the lease if you can’t agree a sensible surrender. This is certainly a tricky one to get right, and needs some special advice.
If the lease permits this option, then you basically have a window of opportunity after each new rent demand to then literally end the lease and even change locks and stop any further access after so many weeks. This is for straightforward rent arrears though, with other breaches needing more complex section 146 notices and procedures.
There’s two caveats here though, the first is that a landlord needs to act correctly in order to validate this forfeiture and not ‘waive’ their rights away.
So during this window of opportunity no actual contact should be made with the tenant whether through correspondence, dialogue, or even sending an invoice through, as it’s all deemed to be acting as if they are still a tenant carrying on when in reality you’re preparing to end it all.
Secondly, even if you do pull it off correctly, the tenant will have a right of relief for six months afterwards. So if they do pay off arrears and stop their breach then they have a legal right to ask for a new lease back again, even though the original one has at that point formally ended.
In reality this will probably not happen and involve them incurring legal costs to proceed with, and in actual fact that’s probably acceptable in principle because all you’ve ever wanted as a landlord is for them to behave themselves. However it causes frustrations and hassle in the meantime, and more importantly technically delay any new letting for six months whilst this right fades away.
Arrears from a tenant is certainly the most popular offence, whether that’s a rent affecting a landlord’s pocket directly or other costs like service charges and insurance premiums that a landlord may still have to cover indirectly.
Although getting the arrears does not deal with getting them out and ending the lease, it can play an important role. So whether that’s, say, CRAR or solicitor’s action, this pressure on a tenant can help focus their minds regarding lease liabilities.
Also, remember other forms of security to rely upon, for example using rent deposits and involving any guarantors or even former tenants.
6. Tenant’s Goods
A final point is looking at what tenant’s goods are loitering around and causing a help or a hindrance.
It’s worth noting that this is a different issue to that of the lease, so you can’t just use, say, CRAR to try and seize these goods for arrears whilst trying to forfeit the lease.
If the lease is ending then the tenant will probably still need the ability to collect these, which can be a kick in the teeth if they still have arrears to pay. Even with valid forfeiture you have to allow at least a few weeks for them to legally collect these before any action to then keep these.
And also watch out for the grey area of what a tenant’s own items are compared to the landlord’s as part of the main property. This might take careful dissecting of the lease and ancillary documentation like licences of alterations.
Taking the Plunge
As you face the issues of a difficult commercial tenant, whether a landlord direct or an advisor stuck in the middle, you need to think through carefully all the options available to you.
Taking drastic action on impulse can backfire in many respects, including any form of other goodwill opportunities with the tenant. Try and understand what the bottom-line issue is and work back from there.
If after this there is no other option but a drastic one like forfeiture or surrender, then you may just need to go for it and finally bring things to a head.
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