Tenant in industrial unit not paying rent

[gareth h]

I have 50% of an industrial unit in my pension fund (my company occupied it until I sold the business), it is managed by CBRE, who have never been very effective at collecting rent, which normally falls to me.
Since COVID the tenant has said he is struggling to make payments, and I sympathise, however I am at a loss as to know how long to let it go before taking some kind of action, any thoughts?

[Jazoli]

What does your agreement with the tenant say?

[gareth h]

Not sure, I’d have to check the lease, but in these times I was more interested in what people thought was reasonable behaviour

[Simpo Two]

If it is 'managed' by a third party, who is liable, them or the tenant? How much is due and how long is it overdue?

[cts1975]

I've got 2 units together which I rent. When lockdown started our landlord sent an email the next day saying that he would not be offering payment holidays on the rent. He advised us to head over to the .gov website and apply for grants etc.
I thought it was reasonable to inform us straight away so that he gets paid first and all our other creditors can wait!

I would consider what type of business the tenants are in before making a decision. If they are in an industry that is likely to recover or even grow then it may be worth working with them a little. If you get them out of the unit and re let it what type of tenant are you likely to end up with during the current crisis?

[Steve H]

I would start by binning any management service that isn’t pulling its weight.

Then have a conversation with the tenant and consider how long overdue he is.

I have been through this and while it’s a stress, there’s no point hanging on waiting for payments that aren’t coming.

[loafer123]

Talk to the tenant.

You can’t take court action until the new year anyway, and then there will be a huge backlog, so working out whether the issue is manageable or not would be the best first step.

[Steve H]

Depending on the lease and how far overdue it is, the OP may well be able to close it down without recourse to the courts.

Not suggesting it’s the best course of action but if it reaches that point all he needs is a bailiff.

[Hashtaggggg]

loafer123 said:

Talk to the tenant.

You can’t take court action until the new year anyway, and then there will be a huge backlog, so working out whether the issue is manageable or not would be the best first step.

That is for residential, is it the same for a commercial lease?

[Stay in Bed Instead]

There is currently a moratorium on evicting commercial tenants who cannot pay rent due to Covod-19. This was originally for three months, then was extended a further three months then another three months. I expect to be extended again.

Landlords have been stuffed by the government. There is no financial support available to you.

[foliedouce]

In terms of reasonable behaviour, my view is:-

Agree with the poster above, ditch the management fees, unless they include some sort of insurance to cover this eventually. We use an agent to source tenants, but never to collect rent,and have never had an issue.

Understand by working with the tenant, how bad the problem is, then maybe offer a discounted rent for 3 months to something that is affordable to the tenant, so at least you get some income.

Or

Defer rent for 3 months, possibly 6 if the situation continues, with the understanding that it needs to be made up in the future.

Clearly there’s risk in doing the latter if the problem is terminal, however you can’t evict them anyway right now.

Do you have a PG in the lease? This could ensure that you do eventually get paid depending on the tenants personal financial position.

[foliedouce]

To add to the above, you will need to engage the SIPP provider in anything you want to do as they will need to agree to it, under the arms length, commercial rules.

[Steve H]

^^^^ interesting info ref the covid protection, I wonder if the banks are required to give similar consideration for landlords that can’t pay their mortgages .

[jamescodriver]

Whilst you cant evict them you can still issue a claim against them for the rent, some of the large commercial landlords are doing this as a workaround the eviction process.

But, how easy will it be to fill the units if they leave?

If you defer the rent, how likely are they to be able to pay the increase in the near future? are you just kicking the can down the road?

We've taken the view that, its better to have our units occupied, look after the tenants and (hopefully) it will all come good in the end, i see so many landlords local to us thinking its a one way street with tenants...

[monkfish1]

Steve H said:

^^^^ interesting info ref the covid protection, I wonder if the banks are required to give similar consideration for landlords that can’t pay their mortgages .

As i understand it, no.

The only glimmer, is that if they take from you, they cant sell it to recoup their losses, as they cant evict the tennants either.

[surveyor]

I'd suggest talking to your agent - amongst the stuff advised above you have got complete rubbish.

I'm pretty sure SIPP rules will stop you managing the property yourself, and certainly the ban on evictions takes most of your bite away.

I would see if your agent is sending invoices with late interest on it. If the tenant is a chancer they may realise that it is cheaper to pay.

If they are genuinely in trouble due to Covid, then temporary rent reductions may get some payments coming in, but that is going to be difficult to manage as will need to run through the SIPP provider.

[soxboy]

Stay in Bed Instead said:

There is currently a moratorium on evicting commercial tenants who cannot pay rent due to Covod-19. This was originally for three months, then was extended a further three months then another three months. I expect to be extended again.

Landlords have been stuffed by the government. There is no financial support available to you.

This is the correct advice on here, ignore most of the rest. Pre-Covid, if a tenant wasn’t paying you could change the locks, but as above there is a moratorium on evictions at the moment.

The managing agents may not be great, but their hands are tied. Also they are employed by your SIPP provider (Standard Life?), not you, so you have little say.

Wait until the moratorium is over then review the situation.

[Oi_Oi_Savaloy]

Do your units have re-development potential? (is there a clause in the tenancy that allows you to break their leases for re-development is what I'm thinking).

That's a bit nuclear of an option I know but if they aren't paying, now could be a good time to look at alternatives.

Can't help you with the current situation without seeing the tenancy agreement. I'd want to see the CBRE agreement too - if they aren't collecting rent what exactly are they doing (keeping the estate clean or something)?

I realise it's not as simple as that - they could be helping you manage time spent on dealing with minutiae issues to do with the 2 units but there comes a point where you have to ask yourself - are they giving me a service I value?

[blueg33]

Oi_Oi_Savaloy said:

Do your units have re-development potential? (is there a clause in the tenancy that allows you to break their leases for re-development is what I'm thinking).

It would need to have been excluded from the Act for that. IIRC the landlord also needs to demonstrate that re-development is likely, ie when I have exercised such clauses I have waited until I have a planning application running or a positive pre-app

[soxboy]

I don’t know where the unit is, but on the whole in the industrial sector demand for units has remained high, even through the last 6 months.

There are some tenants out there who are genuinely struggling, there are others who are taking the piss because they know that they can’t be evicted at the moment. Some of the latter group genuinely also think that the rent owed is being written off rather than becoming an increasing backlog which needs to be sorted in the future.

If you are able to have a word direct with CBRE find out how much is owed, what conversations have been had and what they intend doing moving forward to collect the back rent.