Tenant in commercial premises has stopped paying rent

conorhal

I don’t know if this is exactly the right forum, but…

A mate of mine getting pretty stressed out, he owns a small shop and the current tenant leaseholder has become very erratic about paying rent, this month they have paid nothing at all.
The tenant has been in place for about six years and bought over the lease from the previous tenant at the height of the boom.
Over the past 18 months however rent payment has become patchy, paid in part, back paid, paid late and sometimes not at all.
Now may mate recognizes that everybody is struggling with the current financial crisis, especially small businesses, so when the tenant hit some trouble two and a half years ago the rent was reduced by a substantial margin (something like 40%) but even the amount agreed in the reduction is not being met.
I guess the guy needs to know how to address the issue.
The tenant isn’t really communicating with her landlord and any attempt to address what’s going on seems to end with her burying her head in the sand or sobbing (or both).
I suggested that he needs to get a look at the businesses books, though I don’t know wha legal entitlement hemight have to demand that.
He suspects that he’s possibly being treated as a soft touch, there is no question that she is ill equipped to run the business and in financial trouble, but he thinks that a lot of her bills are getting paid before him (from private school fees for her kids etc), so I told him that he needs to get a look at the books to see if it’s a case of can’t pay, won’t pay or even could pay but happens to be so disorganized that she manages the money badly.
Does anybody know what the consequences for him might be if she hasn’t paid her rates either? Does he become liable for unpaid rates?
Can he demand to see the books to determine what she is making and if she is just ripping him off?

D3PO

I don't think he can demand to see the books however evicting a business tenant is a far easier thing than a residential one should he need to go down that route.

The rates problem will be something hes left with though if there are outstanding rates. First step is contact a solicitor with expertise in commercial letting, then he needs to go sit down with the tenant see what the story is, show hes not a soft touch and demand the arrears be cleared or look to evict her from the premises.

Of course that's very simplistic I guess he needs to assess how easy it will be to find a new tenant and make a business decision that's in his best interest having taken all factors into account.

murphaph

If he's satisfied that she is incompetent as a business person and that he could let the place for the current rent or better then he should move to evict her from the premises without delay. If he goes the legal route then it'll still take time to get a court date and the court in question will be decided by the sum owed. Over a certain amount and you have to go to the circuit court rather than the district court. This process will cost your friend in legal fees and he'll likely never see any of the lost rent or the costs associated with the case even if they are awarded against the tenant. There's no PRTB to run to for a commercial tenant if he decides not to go legal and changes the locks etc. but advising someone to engage in illegal activity is not allowed on this forum.

At the end of the day there's no point in looking at her books if he believes he can attain the current or better rent from someone else, so I wouldn't bother with that. It'll just divert attention from the matter at hand.

conorhal

murphaph wrote: »

If he's satisfied that she is incompetent as a business person and that he could let the place for the current rent or better then he should move to evict her from the premises without delay. If he goes the legal route then it'll still take time to get a court date and the court in question will be decided by the sum owed. Over a certain amount and you have to go to the circuit court rather than the district court. This process will cost your friend in legal fees and he'll likely never see any of the lost rent or the costs associated with the case even if they are awarded against the tenant. There's no PRTB to run to for a commercial tenant if he decides not to go legal and changes the locks etc. but advising someone to engage in illegal activity is not allowed on this forum.

At the end of the day there's no point in looking at her books if he believes he can attain the current or better rent from someone else, so I wouldn't bother with that. It'll just divert attention from the matter at hand.

TBH the letting market for small commercial units is piss poor at the moment. If he goes the legal route it could take a long time to let the property, and probably for not a lot more then he's getting at the moment. The current tenent has a year left on the lease so he's considering sticking it out, but he doesn't want to get ripped off in the process. It's a rock and a hard place situation really. That's why I suggested that he should request access to the books, I figured that he as been very understanding and bent over backwards to accomodate her so a little co-operation is not too much to ask. If she refuses to show him the accounts, what does that say?

murphaph

Ok if the local letting market is genuinely weak (other empty units visible in area) which is probably the case outside major cities then he needs to think more carefully alright as some rent is better than no rent (forget principles!) if no rent is the alternative. If the local rental market really is that weak of course then when the lease expires is sort of irrelevant because he won't be chucking her out and replacing her with a paying tenant, so he must resign himself to an empty unit or continuing with this tenancy, poor and all as it is.

In that case I would indeed request her books (for what it's worth). It's not uncommon in commercial lettings to do this when the tenant is pleading inability to pay based on reduced turnover. The relationship your friend has with her is very different from the relationship she has with many/most of her suppliers for example. There is no room for negotiation with her utility companies. Electricity cost x c/kWh and that's the end of it basically. She might be able to negotiate better rates from some of her suppliers but who knows (I'm not sure what sort of business it even is?).

By the sounds of the tenant though I wouldn't be surprised if she has no books or only scatty records. She doesn't sound like a serious business person so I wouldn't expect too much by way of accurate books unfortunately. If she still has enough to send the kids to private schools then she's probably taking the piss however. She is simply withdrawing too much income from a business that can't afford her salary.

Your friend should be keeping a close eye on the rates as well. Tenants like this often stop paying rates because it's "easy" to do so...council just keep sending letters but take years with enforcement action. The rates liability remains with the premises so your friend needs to establish if the rates are up to date and if not to start dialogue with the council to see what their attitude is likely to be (some councils are more pragmatic than others and will write off such rates bills rather than keep chasing the landlord or new tenant, but it needs to be kept on top of!)

wowy

conorhal wrote: »

TBH the letting market for small commercial units is piss poor at the moment. If he goes the legal route it could take a long time to let the property, and probably for not a lot more then he's getting at the moment. The current tenent has a year left on the lease so he's considering sticking it out, but he doesn't want to get ripped off in the process. It's a rock and a hard place situation really. That's why I suggested that he should request access to the books, I figured that he as been very understanding and bent over backwards to accomodate her so a little co-operation is not too much to ask. If she refuses to show him the accounts, what does that say?

Tell your friend to be careful on this; the tenant has been in possession for over 5 years so has an automatic right of renewal to the lease, so he can't just rely on the end of the lease. He's going to need to speak to a solicitor if he wants to ensure that he serves the correct form of notice.

Edit: Of course, the tenant's right to renewal is contingent on her being in substantial compliance with her covenants under the lease, which she's obviously not. Regardless the landlord is still obliged to serve the correct notice for repossession, if he wants to go that route....

The_Conductor

conorhal wrote: »

Does he become liable for unpaid rates?

Legislation went through the Oireachtas earlier this week, to divorce unpaid rates from commercial tenancies- aka, her unpaid rates, remain a debt associated with her, after she vacates the tenancy- and are no longer associated with the property itself.

I'll see if I can find a copy of the bill.

murphaph

The_Conductor wrote: »

Legislation went through the Oireachtas earlier this week, to divorce unpaid rates from commercial tenancies- aka, her unpaid rates, remain a debt associated with her, after she vacates the tenancy- and are no longer associated with the property itself.

I'll see if I can find a copy of the bill.

I would be very interested in that as well please!

wowy

The_Conductor wrote: »

Legislation went through the Oireachtas earlier this week, to divorce unpaid rates from commercial tenancies- aka, her unpaid rates, remain a debt associated with her, after she vacates the tenancy- and are no longer associated with the property itself.

I'll see if I can find a copy of the bill.

http://www.oireachtas.ie/documents/bills28/bills/2013/9813/b98c13d.pdf

That's the Local Government Reform Bill 2013 (passed by both Houses of Oireachtas, but not yet enacted).

Part 5, Section 32 deals with rates. My reading of it is that, as before, an owner will be liable for up to 2 years of unpaid rates accrued by a former occupier. The owner's liability is by way of a charge on the property, and doesn't impact on the former occupier's continued liability.

conorhal

I've given that section of the bill a read and I'm not optimistic, it's pretty deliberatly vague about where responsibility lies, it seems that you will be at the whim of the CoCo to me.
The owner is still liable for the rates, plus if the owner fails to notify the body responsible for the rates within two weeks of a transfer of ownership or tenancy of the property they are liable for any outstanding rates, up to 2 years worth. What if there is no transfer? What if the lease reverts to the owner and the place remains empty for a long period of time? In that case it seems the owner is bollixed. You are entitled, as the owner of an empty property, to a refund of rates, but how much of a refund seems to be in the gift of the CoCo, and as this property is in DunLaoire I suspect the authority would bend im over anyway. They have new 60million euro white elephant library to pay for after all.