How to Handle Arrears in Commercial and Retail Property Today

With commercial real estate tenants as the property manager will come across arrears issues from time to time. In almost all cases the tenants in your tenant mix are of a business nature and can be under pressure from time to time. For this reason it pays to keep in close contact with your tenants…

With commercial real estate tenants as the property manager will come across arrears issues from time to time. In almost all cases the tenants in your tenant mix are of a business nature and can be under pressure from time to time. For this reason it pays to keep in close contact with your tenants in all your managed commercial or retail buildings.

So arrears will happen for a variety of reasons most of which are one or more of the following:

  • The tenant can not pay the rent due to business slow down
  • The tenant does not want to pay the rent due to conflict or disagreement with the landlord
  • Inability of the landlord to maintain the concessions for the contracts and conflict occurring
  • The tenants business has suffered a structural change or incomes into receivership
  • The property manager has misapplied the rent to anotherants account and therefore the ledgers and invoices for the building are incorrect
  • The rent reviews or other charges under the lease have been raised late by the property manager and the consequential accumulated back charges are a burden to pay all at once by the tenant.

Whatever the reason for the arrears, the first place to go is straight to the lease document that exists for the tenancy. In most cases the lease document will display the issue and give the landlord or the property manager some methods of response or action.

Go through the lease document to ensure that you know what has to be done and when it has to start. When it comes to a response to a lease default like an arrears problem, the actions that you take will be critically viewed by a court if the matters go that far in resolving the problem.

When you know what the lease says regards the lease default or arrears, it is best to speak with a property experienced solicitor so they can assess all the events and the actions taken to date. The solicitor will then advise as to the best strategy to apply, and they will also advise you as to the local laws and legislation that are part of the arrears response process.

When the property market is buoyant and active, a potential arrears and vacancy problem is not as disruptive for the property owner as you are likely to have other tenants around to fill the void or vacancy. If however the property market is slow and tough, the tenants that you have in the property are important to income and rental. You will need to make a choice here as to how much time you spend in negotiation with the existing tenant to resolve the dispute.

Regardless of what the property market is doing, there will be costs associated with the vacancy such as:

  1. Lease documentation charges
  2. New lease fees or awards to be paid
  3. Loss of rent from the time that the vacancy occurs till new rent comes in
  4. Loss of the recovery of outgoings from the tenants that have vacated the concessions
  5. Solicitors fees in recovery of outstanding monies
  6. Cost of any incentives to be provided to the new tenants taking up the vacancy

So the matter of a lease dispute or and arrears problem should be looked at in the fuller perspective of the total property market, together with the lease and legal position of the client. The is nothing wrong with achieving a payments arrangement for the arrears with the tenant providing you can see that the tenant is of long term benefit to the landlord and the property or tenant mix.