Managing Tenant Arrears in an Economic Downturn:

During an economic upturn and strong lettings market relatively few tenants fall behind with their rent payments and compliance with other lease terms. When they do, a landlord and his managing agent is inclined to take decisive action, sometimes with minimal consultation with the tenant. Government legislation may prevent this remedy in the future but the traditional remedy to recover rent arrears has been to instruct bailiffs to levy distress or, if there is no prospect of making a recovery, to forfeit a lease. Landlords know they invite holding costs in these circumstances but during an economic upturn and strong lettings market a swift new letting on possibly enhanced terms and to a more substantial tenant can be anticipated.

During an economic downturn and weaker lettings market there is an increased risk of more substantial holding costs over a longer period. If the outgoing tenant failed to comply with their repairing and decorating obligations some capital expenditure may be required in addition to agent’s and solicitor’s costs to achieve a new letting which may be at a reduced rental. Added to this, since April 2008, a landlord no longer enjoys 100% rate relief on empty industrial property or a 50% rate relief on shop and office premises.

No landlord wants to be faced with the dilemma that applying the remedies available to recover substantial arrears may themselves cause additional losses. To help avoid such dilemmas managing agents must be even more vigilant during inspections and contact with tenants during an economic down turn. Good communication should help a landlord and managing agent to anticipate a struggling tenant failing to meet their leasehold commitments at an early stage. Dealing with arrears before they build up and require more drastic remedies is always preferable and encouraging a tenant to seek an assignment of their lease where they do not anticipate being able to meet their ongoing leasehold commitments can help reduce financial loss to both Landlord and Tenant.

Seeking professional advice is always recommended but in these more challenging times is even more important. Our commercial property management team has the expertise needed to help you steer the right course to protect your property investments and shore up security and income growth for the future. Tim Alden, the partner responsible for commercial property management would be delighted to speak to you, so please give him a call on 01483 504200 (option 4).