- If commercial rent is unpaid, there are various steps to go through
- Keeping communication lines open, and all discussions amicable is key
- Observe the lease agreement, and have a strategy to work through
Earlier this year and during most of last year, the government implemented restrictions on what a landlord could and could not do should a lessee fall behind with their rental payments.
The Covid-19 Commercial Tenancies Act 2020 expired in March 2021 and is no longer applicable in most cases. This change means that the arrears management can be carried out again, following instructions from the lease agreement.
There are many ways to manage the arrears with a commercial tenancy, and each situation is unique. However, property managers generally follow the following steps:
1) Set up rental payment
Businesses usually pay rent and outgoings every month, monthly in advance. It depends on what the different parties agreed to, but it makes sense to have the rent fall due on the first of the month.
This way makes it easier for all parties to remember when the rent is due and to manage it when a property manager manages multiple tenancies.
2) Several days late
Depending on the month and what day the 1st of the month is, we issue a first friendly reminder when the rent remains unpaid for several days. For example, in September, Friday the 3rd would be a good moment to send out a friendly reminder.
3) Come up with a plan
Around the seventh day of the month, a strategy is determined. It all depends on the lease agreement, the period of tenancy, the type of tenancy, the background story and history, the situation, and so forth.
At this stage, I would recommend that the property owner discusses the next step, applicable to the case, with the property manager or property lawyer. Lessees should also obtain independent legal advice.
4) The aftermath
If the rent remains unpaid, eventually, the lease agreement will end or be terminated. Once the landlord has evicted the tenant, the landlord and the previous lessee need to negotiate on the make good to ensure the property is made ready for release. In my experience, these situations are usually highly contentious, and the continued use of solicitors is advisable.
I see tenants falling behind on their rental payments from time to time, and each situation is unique. There is one thing they all have in common: communication is vital.
Formal actions may be postponed when a lessee keeps the communication channels open, allowing the parties to resolve the matter amicably.
When there is a lack of communication, the opposite is typically the case. We have seen that most parties want to determine the situations amicably during the initial phases of Covid-19, and I strongly recommend we continue on this legacy.
It is up to the lessee to do the right thing, pay rent on time, and communicate with their lessor or property manager if and when they are having financial difficulties. It is essential to know that lessors have their responsibilities also, and most of the time, are not in a position to support the lessee who is falling behind on rental payments.
Bonus tip: use intermediaries during negotiations and seek independent legal advice when the situation gets out of hand. Take the emotion out of the equation.