By Phillip Leaman

3 July 2018

When the economy gets weaker tenants start to default in the payment of rent and outgoings. Landlords are left with the burden of receiving little or no income and have to chase up rent on a continual basis.

So what are the tips to get paid?

  • Make sure your lease is valid. Has there been a renewal since the lease was entered into and has that renewal been documented and signed by all parties including any guarantor?
  • Have you ensured that you have the correct security deposit? Some leases provide that the security deposit is based on a number of months rent. As the rent increases each year, so should the security deposit.
  • If the lease has expired and you are agreeing to a new lease (rather than a renewal of options) have you rechecked the financial status of the tenant and guarantors and ascertained whether the guarantees and security deposit is still sufficient?
  • Get a bank guarantee instead of a cash security deposit. If you have a security deposit make sure you register a security interest to avoid a liquidator taking it off you.
  • Make sure you act on defaults and issue a formal notice of default prepared by a solicitor.
  • Don’t let a default in payment of rent run beyond a month. The longer you leave it the less security deposit you will have.
  • Make sure you comply with the Retail Leases Act if the lease is a retail premises lease.

Case Study

We had a client who had a lease prepared by an agent. The lease had last minute amendments made to it and a special condition was included to provide that outgoings were payable by the tenant. Substantial arrears of outgoings were payable. The tenant went into liquidation and the landlord pursued the guarantor.

Unfortunately for the landlord, the amendment which was hand written on the lease was not initialled by the guarantor. This meant that the guarantor had not agreed to the guarantee the obligation to pay outgoings and the landlord lost out. It is important that all amendments are signed off by all parties to avoid a dispute later than some or all of the lease is enforceable.

It is important that a lease is prepared by an experienced property lawyer to avoid you having problems recovering rent if a tenant defaults.

 

Contact Phillip Leaman or a member of our Property Team to discuss your leasing requirements or for assistance with bad paying tenants.

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