Tenant behind on lease payments What to do?

[juba]

Hi,

I own a half share in a commercial building, leased to a services company which appears to be run ok, but tenant has been slow during first year to pay rent despite it being at a reduced rate, coming into second year he will be 3 months behind next week, despite trying to make contact through all forms he is never available or there (on site?).

The lease is auck law society, unfortunately the penalty clause is only 12 percent which is hardly a deterent, as he could well be paying more than that for stock.

my question is the penalty interest accreued how often ie pa?

has anyone got any advice on best steps to deal with this tenant to get money?

I am optomistic (rightly or wrongly) about the tenants business long term and they have 4 years to go on tenancy.

I have tried communicating with him via email and phone and visiting premises and never get to talk.

Thanks in advance

[King13]

Hello Juba

Steps to follow:

1) Write / fax a letter, rather than phone or e-mail. Include an invoice for rent due + interest with a pay by date.

2) Ask solicitor to send a legal notice to tenant.

Cheers

[Davo36]

I would calculate and charge interest on a monthly basis. So show rent due, interest charged, summed to a total, so he can see how much it's costing him.

Add interest on the interest each month of course.

This is a crappy tenant. I hate people who don't return calls etc. Height of rudeness. Why don't you tell them they need to catch up or you'll kick them out? Will the property lease again fairly quickly?

You don't want to have to put up with this for another 4 years.

David

[Keys]

This is a crappy tenant. I hate people who don't return calls etc. Height of rudeness. Why don't you tell them they need to catch up or you'll kick them out? Will the property lease again fairly quickly?

Do you have a mortgage over the chattels? If so, seize them and kick him out.

What's important is the wording of your lease agreement. Get legal advice on your next move.

[juba]

Thanks for help people, will act now. cheers

[charley6]

Just a tip if you are phoning him on his cellphone or his landline and he has caller ID which he certainly has on his cellphone and he will not answer when he sees his landlords no. To prevent your no showing dial first 0197 then the no. Works well in lots of cases.

Cheers

[Glenn]

I sort of disagree with most of the other contributers.
The tenant is paying all but slowely. It will cost you lots more to get rid of him and find a replacement.
I have noted over the years that some business people (including some very big businesses) are really slow at paying. In fact some make it a policy of always paying late.
You just have to out class and out wear them down.
Generally most people hate asking others for money.
Some debtors have no feelings but most hate to be reminded all the time.
Just keep sending those faxes, text messages, monthly statements, and little reminder notes. It might seem pathetic but I bet that debtor has lots of other people chasing him as well.The sqeaky wheel gets the oil.
You are permitted to do a credit check on a business without their permission. That means you could load up the debt on the Veda file also.
If people want to be difficult and prickly you just have to avoid getting too close. Just keep firing off the barbs and these will get so tangled up with their own they will pay to get you off their back.
This wearing down process is what debt collection is all about.
Often they have a weak point like a child or partner sexual or business one that is that you can also hound. This can really get up their nose.
Pocking things up peoples noses is one skill most landlords hate to learn but it has to be done occassionally, This is why people employ property managers or debt collectors.

[Julian]

I have taken a slightly different approach to Glenn when I had this happen to me once.

I sent a letter to the registered address of the business advising 14 days to put things right including all costs including penalty interest and costs (as per the lease agreement). Took possession of the building after 14 days, having had all the locks changed. Did not allow business owner to collect stock or chattels, but advised that these would be sold to defray costs. Business owner was trying to sell his business but now could not do so - so guess what? He coughed up all costs owing, including charges for my time, my hotel (it was out of town) my meals, and my travel. I allowed him back in, and he sold the business.

The new owners were fully aware I was a serious landlord, and have been excellent tenants.

Sometimes you have to be tough. After all, the banks expect timely payment on their loans that you have taken out. If you are soft sometimes you are just making things worse for yourself in some false hope things will turn out all right in the long run.

Julian

[Davo36]

I agree 100% Julian.

Every time I've let someone slide it gets worse. They either just up and leave or they start arguing that they don't owe as much as stated, they've paid some of it and on and on, which just means you have to spend time proving to them what you as a landlord already know they owe.

Often they know this and use it as a delaying tactic.

I'd do the 14 days thing now. In fact it's stated in the lease that if they're behind, you can move in, so actually you don't even have to remind them, they have signed a document saying they agree to it. So you could just change the locks and take over the prooperty. But that would be being very tough. I myself would do exactly as Julian said and give them a letter stating how much they have to pay and by when.

Julian, how did you go about the actual lock changing etc.? Were they there at the time or did you go in after hours? Did they try to break back in?

David

[Julian]

Davo,

The tenant was trying to sell his business and the agents had a key, so I picked it up and let myself in, and let the locksmith in. The tenant did not try to break in afterwards. I developed a relationship with a neighbouring shop owner and he kept an eye on it for me.

I drove down (to the city the shop was located in) on the Monday with the intention of changing the locks on that day but the calls from the tenant's solicitors arrived that same day asking for a 24 hour extension. I kept granting 24 hour extensions until the Thursday night when I changed the locks. On Friday evening as I was well on my way home I got a call on my cell phone asking if I would give the lease back if the debt was repaid in full. I gave my word that, if, by the time I got home and checked on my computer, the money was sitting in my account they would have their lease back. It was, and they got their lease back.

The tenant sold his lease and chattels and I inherited new tenants who have been really good.

I did feel sorry for the original tenant who had obviously lost a lot of money, and that is why I kept extending deadlines, but his failures weren't my failures just because I was his landlord. He didn't communicate with me when things were obviously not going well, and I feel if hadn't acted as I did I would have ended up being just another creditor.

I try not to get emotional, but rather to behave as any professional investor or property manager should behave. My properties are in a company and as a director of that company I have a duty of care to all shareholders of that company. The company also has a number of loans, and I have a duty of care to those businesses that have extended me credit.

Julian

[Davo36]

Thanks Julian, interesting to hear how you went about that.

It's never nice that sort of thing, but as you say you have to be fair to yourself and the other stakeholders.

Sounds like you were firm but fair and the end result satisfactory. It's always a bummer when tenants do badly but then business is business, it's a bit risky, and some fail. That's the risk we all take right? And yes you could have ended up just another creditor. I had a tenant put themselves into liquidation last year. Cost me around $30k as they left the premises in a real mess. Got $3k back from the liquidator. Better than nothing I suppose!

David

[Glenn]

Guess what happened to me over the weekend.
I had a tenant all signed up with a heads of agreement for a small workshop. He was due to move in today but had been paying rent at a slight reduction for the last three months.
Well he has had problems and can no longer relocate his manufacturing business from Auckland to Nelson and wants to cancel the contract.
He asks what does he owe me.
I think I will just move on. Thank him for the $3000 he has paid and find another tenant. I might try for another $1000 but really what is the point.
Any comments ?

[muppet]

Great for Public Relations.

How is the book coming along, Glenn?

[Glenn]

Great for Public Relations.

How is the book coming along, Glenn?

Public relations?
Yes sure I suppose I will get all the dead beats applying knowing I am a softee.
Actually commercial properties and their landlords are a real mine field.
Many landlords stick to the letter of the law / lease and make the going down tenants bleed to the last drop.
I have found that finding a tenant for vacant properties can be significantly influenced by the reputation of the owner / landlord.
Far better to have a tenant paying a bit less than having the property empty.

As for the book.
I have a coffee table full of unread books and magazines.
I would not want my efforts to end up in a similar fate even if they had paid me for the priviledge.

[muppet]

Oh Glenn, you are too modest.