Tim Haine, Director of Commercial Property Management at Keygrove Chartered Surveyors explains how early discussion with your landlord or their managing agent can help reduce the difficulties that rent arrears can cause.
Recent industry figures have shown a surge in the number of tenants with rent arrears. Businesses must continue to combat the difficulties of the uncertain economic climate but there is also the ever present financial obligation of rent payments for business premises. This obligation cannot be ignored.
Too many businesses leave it too late to acknowledge serious financial issues. Reaching the stage where they are unable to pay rent is not the best time to start talking to the landlord or managing agent about financial difficulties. A landlord is far less likely to be sympathetic to any plea for leniency or assistance if no prior effort has been made to avert the situation.
The vast majority of commercial leases require rent to be paid quarterly or monthly in advance and include provisions for interest to accrue on late payments. It does not take long for this to become a financial burden once rent payments are suspended.
Many landlords use their rental income to cover the payments on their own borrowing and unexpected disruption to this cash flow can cause severe difficulties; particularly with their banks in the current climate. They will need to safeguard their own business by strictly enforcing the terms of the lease. In the case of rent collection it is a relatively simple matter for the landlord to send bailiffs or lodge a money claim online.
As a leaseholder, if you foresee yourself or your company experiencing genuine difficulty in paying the rent, you need to speak to your landlord or their managing agent as soon as you become aware of a potential problem.
You should be prepared to provide supporting evidence to demonstrate your difficulties, for example your management accounts and bank statements may be requested. Should the landlord be willing to grant a concessionary rent, increased payment period or other payment plan, they may well require you to discuss your business plan with them or their advisors.
If your difficulty is genuine, you would be foolish to refuse reasonable requests for this information or action on your part. During the economic downturn, many landlords have experienced tenants ‘crying wolf’ over financial difficulties in order to negotiate a reduction in rent, which has made it even more essential for this supporting information to be made available.
7 tips for tenants struggling to pay their rent
· Be aware of the due dates for your rent (and any other charges) and exactly what is owed – where possible ensure that payments are made on time and to the right place – double check account details or to whom cheques should be made payable to if you are at all unsure
· If you miss a payment date don’t wait to be chased for payment. Contact the landlord or their agent and explain the situation
· Be truthful – don’t make up excuses for non payment and don’t say you will pay on a certain date unless you are 100% sure you can – one missed payment date can be forgiven but miss a subsequent one on which you have promised to deliver and you look unreliable and untrustworthy
· Be open to discussion on how to address any difficulty, be ready to provide supporting information – no informed landlord will simply let you off your rent if you say you can’t pay it, no matter how much you may feel they ought to!
· Remember the lease between you and the landlord governs the formal business relationship you have with them. It is a contract and what is in the lease, a document that both you and the landlord agreed and signed, is ultimately legally enforceable. Neither you nor the landlord is under any obligation to do anything differing from what is set out in the lease. The only way that the obligations in the lease can be changed is by mutual agreement. Payment of rent is one of the more readily enforceable obligations.
· Take advice from legal and property professionals – this may seem like an extra and unnecessary cost when cost cutting is top of the agenda but it will invariably save you more than you pay in fees. Many tenants are surprised by certain obligations within the lease and much bad feeling and financial pain can be caused in the enforcement of these obligations. Problems can be avoided if professional advisors are employed at an early stage to clarify your responsibilities under the lease. Remember your landlord’s agent or solicitor is acting for the landlord and therefore cannot advise you.
· And finally The Golden Rule: Communicate any problems with payment of due monies as early as possible. As with any debt, if you ignore it, matters will invariably get worse. It is not only good to talk but essential!