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22

Jun 2016

How to manage problems with tenants

Owning commercial premises can be financially rewarding provided you have the right tenant and that your property is managed effectively.

However, despite your best efforts as a savvy commercial landlord, there still may be situations that lead to disputes with your tenants. Commonly problems arise where tenants breach the terms of their lease, such as falling into rent arrears, not keeping the property in good repair or subletting without permission.

David Hacker,  a commercial property specialist with Thackray Williams, looks at such problems and advises commercial landlords on the options available if a landlord and tenant dispute cannot be settled amicably.

Breach of the terms of the lease

Most leases will have a clause that seeks to protect a landlord so that where a tenant is in breach, usually for 21 days or more, the landlord is entitled to ‘forfeit the lease’.

The right to forfeiture is where the landlord is entitled to take back the premises from a tenant for a breach of certain covenants. It is not an automatic right and so it must be expressly included as a term of the lease.

Forfeiture is not to be taken lightly, as it can be very costly and is often only considered as a last resort.

As a landlord you will need to consider what is best for you, including whether you will be able to re-let the property and achieve the same level of rent if forfeiture is successful. You may wish to take back the property for your own purposes, perhaps for redevelopment.

If you decide to forfeit the lease it is advisable to take legal advice as soon as possible.  As a landlord, you must comply with complex rules and notice periods. You should also be aware that, in certain circumstances, your tenants may have the right to apply to court to have the forfeiture set aside.

Rent arrears

Where a tenant is in rent arrears, forfeiting the lease may not be the best route for recovering your money.  Alternative options are:

  • using the rent deposit - you may have a rent deposit that you can rely on to cover the amount of rent arrears;
  • applying to the guarantor – if there is a guarantor who has guaranteed the performance of the tenant’s covenants in the lease, you can instead seek to recover the arrears from them;
  • issuing a statutory demand – if the arrears are above £750 serving a statutory demand can be a cheaper and quicker method of recovery;
  • instructing an enforcement agent to seize the tenant’s goods and sell them under commercial rent arrears recovery (a new option since April 2014).You must serve the correct notices in writing before entering the property to seize the goods; or
  • bringing court proceedings to recover the debt.

Your lease should also allow you to recover interest on late payments. Often, a rent demand reminder together with a calculation of the interest due will be sufficient warning to encourage a tenant to pay any arrears.

Breach of repair covenant

If your tenant has not maintained the property to the standard specified in the lease they will be in breach of their repair covenant and so you could forfeit the lease.

To do this you would need to serve a section 146 notice on the tenant specifying the nature of the breach and giving them a reasonable time in which to remedy the situation.  If the tenant does not make the necessary repairs in the required time then you can, in theory, forfeit the lease.

Again you need to consider if this is the right route to take and if so, you will need to comply with the statutory rules for it to be lawful.  We can advise you on serving the correct form of notice.

Alternatively, a clause can be included in the lease giving you the right to inspect the premises to ensure that the tenant is complying with their repair obligation. If they are not, then the lease should also include the right for you to carry out those works and recover the cost from the tenant.

Subletting without consent

A commercial lease will often contain a provision against subletting or assigning of part. It will also contain conditions if a tenant does wish to sublet or assign the whole of the premises under the lease. Notably, the main condition will be that the landlord’s written consent must be obtained first.

If a tenant has sublet the whole or part of the property to a third party without your consent, or without complying with the other conditions in the lease, then there will have been a clear breach of covenant.

You will again need to consider if forfeiture is appropriate, or even possible. You need to be careful that the third party subtenant has not acquired any rights under the Landlord and Tenant Act 1954.

You may be able to apply to court for compensation from the tenant for subletting in breach but that may not necessarily mean that you will be successful in obtaining an order that the sublease should be set aside, particularly if the subtenant has acquired rights.

Conclusion

It is not always easy to resolve a dispute with a tenant. It is therefore important to take care with your pre-contract due diligence checks and obtain as much information and reassurances from any new tenant at the outset.

Whilst this does not guarantee the tenant’s performance throughout the lease term it will reduce the risk of any dispute arising and initiates an open and honest landlord and tenant relationship.

The commercial property lawyers at [Firm name] in [location] can expertly draft all your commercial leases, making sure that you fully understand your rights and remedies from the outset, to avoid problems at a later date.

Where problems do arise, our expert dispute resolution and debt recovery teams will resolve the matter as quickly and cost-effectively as possible.

Contact David Hacker

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.

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