How to deal with commercial tenants who don’t pay

Commercial,Leasing,Property ManagementFriday 21 October 2016
Property-Blog

The law around the eviction of commercial tenants who fail to pay rent varies from state to state, and landlords not complying with the letter of the law can end up being taken to court by tenants.

A commercial lease is entered into for a fixed term, and can only be terminated within that term under certain circumstances. These can include late payment of rent, or if the landlord agrees to release the tenant from the lease. In certain situations, tenants may have to continue to pay rent on the property after they have terminated the contract.

Right of re-entry on non-payment of rent

If the rent remains unpaid for a specific length of time, usually 14 or 28 days, the landlord – or the assigned property manager – can go to the premises and lock the defaulting tenant out.

But this right of ‘re-entry’ or forfeiture must be preceded by a formal demand for the rent as stipulated by law. Although laws vary from state to state, Section 124 of the Queensland Property Act Law 1974 requires that the right of re-entry not be enforced unless the lessor has served on the lessee a notice:

(a) specifying the particular breach complained of; and

(b) if the breach is capable of remedy, requiring the lessee to remedy the breach; and

(c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same.

The tenant must also be given enough time to remedy the breach. Should a landlord not give the tenant the correct notification, the tenant can take the landlord to court, where compensation for illegal re-rentry may be awarded, plus an injunction on further such actions by the landlord. So it pays to be extremely careful when it comes to commercial rental management – and to hire a property manager who has experience of dealing with the law in your particular state or territory.

Problems arising from non-compliance with breach notice

If the notice to remedy the breach of lease (e.g. for non-payment of rent) is found to be deficient in any way, the court may throw the case out and the landlord will be required to start again.

Errors in the notice can include failure to correctly identify the lease, failure to include an incorrect date, failure to indicate which section of the lease has been breached, and failure to include a statutory requirement in the wording of the notice.

In NSW, for example, the following must be included:

“Note: the lessor will be entitled re-enter or forfeit the lease in the event of the lessee failing to comply with the notice within a reasonable time. See Section 129 of the Conveyancing Act 1919.”

How a property manager can help protect landlords

Of course, the ideal situation is not to get to this stage. A good property manager not only has experience in representing landlords in court, but makes a living out of the diplomatic handling of tenants and making an accurate property appraisal to properly match tenants with premises. They should be able to negotiate terms with a tenant who is undergoing a temporary income dearth, and recognise specifics of the problem of which the landlord might be unaware – such as a health and safety issue in the building that has escaped the management committee’s notice.

An experienced property manager not only handles the day-to-day running of your investment, they are a diplomat, counsellor, and may even have to represent you at a tribunal or court. A property manager is the key to a continuous supply of satisfied, non-litigious tenants, who in turn provide you with a steady income stream.

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