We leased out a shop to a business that ultimately didn't work out and have time remaining on their initial contract period. Contractually, we have full claim to the remaining amount on the lease (formally prepared contract).
What would you do, if you have obligations of your own you had to pay using said lease money? Discount? Let them out early? Sic the lawyers on them?
They are giving up the lease completely. They've shut up the shop already but haven't fully vacated the premises (made good).
What about ecollect , I think they take 20% of any monies that are recovered . https://www.ecollect.com.au
lol.. on their homepage
asterisk = Some Terms & Conditions Apply
This is enough to tell me how honest or dishonest a business is.
I couldn't find those terms and conditions, but I don't have time to go through the whole website.
This is not even considering debt collectors operate on borderline of legality/illegality, and often go across what would be considered illegal if taken to court.
Are they trying to get out of the lease or are you just wondering what you could do in good faith to help them out?
If you can get someone else in the property early, only make them pay until then? But if you don’t need the full lease amount, you can discount up to what you actually need to cover your own losses?
Good faith. In a residential/personal situation, we'd likely be on the sympathetic side but given it's a commercial arrangement, we're wondering if we should just claim what is ours.
We've mentioned to them that we're happy to let their lease go if we/they find someone to take it over.
The costs are mainly interest on the building. So would the 'cost' be the interest of the whole building or just the proportion of that shop's?
Start by claiming what is yours.
Negotiate from there.
Take them for the full amount until the space is leased. Business is business.
At least where practical, ie them going bankrupt and not paying you isn't an ideal scenario.
Depending on how they’re set up can’t they just declare bankruptcy?
Entirely possible. I'm not aware of how their business is structured, but they have other businesses.
A lot of small businesses run as sole traders, not all that uncommon.
Does sole reader mean it’s simpler or more difficult to declare bankruptcy?
@parsimonious one: I think it means they have to personally declare bankruptcy because they aren't incorporated as a business entity, they are just a person. But I've worked with loads of small food businesses that seem fine running as a sole trader. I would have thought there would be more benefits being a limited liability business but if you have good insurance and run a good business then why not. When you die or retire the business disappears anyway because it doesn't exist without you, all you've done is made a good location. You sell your business name for a few thousand dollars and give over your lease and the new "owner" and the business falls apart within 12 months.
the business falls apart withing 12 months
Does it always? I wonder about this. There's a lot of restaurants that I see change hands, often changing names, and they make decent food but then a few months later they shut or change over again. I don't know why epople go to the effort of changing signage etc when they are just going to shut in 12 months (thinking in particular about an Indian restaurant in my area)
@Jackson: Common problems for small businesses are cash flow and partner/silent partners.
Customers don't realise that there are more than one owner. Can be lots of disagreements between partners with equal division of labour, equal profits, equal repayment of debts, etc.
If terrible partner or permanent cashflow issues then definitely easier to walk away from the business and start again.
Yes, you have your rights under the lease, but it also depends on the recovery process. Throwing good money to chase bad money is a common saying when pursuing what you are entitled to. For me, I'd speak to them and see what their situation is. If you believe they might have the money (and this depends on who is the leasee?) If there might be some fruit at the end of the tree, then gently push them to payout $x with the thought that full recovery might be possible.
That's a good point. I've been sending them the invoices with gentle reminders but no other communication. They haven't responded in the last couple months. They have paid some amount since they gave up the lease but it's dragging out.
So you're the property manager as well as the owner?
Yes. Since the effort is a bit lighter on commercial than for residential.
@ozbargainsam: This thread would imply otherwise.
Can you withhold the bond on a commercial contract?
@Muzeeb: Commercial properties are a bit easier to manage as the tenants are generally responsible for most outgoing costs (rates, maintenance, insurance).
A good tenant can stick around for a long time as well. Most businesses don't have an interest in owning the property, whereas with residential most people don't want to be renting a place to live long term.
@Harold Halfprice: Thanks for saving me going on a rant about it.
Also commercial contracts are very financially binding unlike residential ones, and they usually aren't taken on lightly. The lessor has a lot of power in the arrangement.
We use a REA for our residential properties and it's much better to outsource that headache.
@ozbargainsam: It may be the case that commercial contracts are binding but if the lessee is a Pty Ltd company which has failed, it likely has no assets. No assets means no money for you.
And if it is a Pty Ltd, you cannot pursue the directors, so you are basically in a "getting blood from a stone" situation.
Move on ASAP - remove all their stuff and get the place presentable so you can re-lease it.
@turbochris: Good lease contract will incorporate personal guarantee from the owner/beneficiary/director (pretty common if you are not an established business) and rental bonds in form of bank guarantee.
@ozbargainsam: I don't use an REA for residential, for lots of reasons:
I would check for damages and any monies to get the problem fixed. Seek new tenant, and if you can find anyone within the time the old tenant meant to still be there, refund them.
That is pretty much our position. Though they're (supposed to be) paying regularly as if they were still there.
They haven't returned their copy of the key yet, or picked up their remaining stuff.
Sounds like they need to wake up and take responsibility. IMO I'd be inclined to discount for them but not if they're even doing the basics they should be doing here. If I was them I'd be setting things up so you can re-lease it as quickly as possible in return for a discount.
I would talk discount once they start to play ball. But put some pressure on them in the meantime.
That's close to what we're going for. We don't want anything ugly, but we don't want to give up without trying.
While we want to be lenient, we like everyone else is feeling the bite of the rate rises, and this would ease the burden.
lawyers cost money, better off just moving on, tell them to get their stuff out and keep sending them invoices (and storage fees if they dont move out)
Or take the goods left in kind for the back rent. Stuff em, business is business. Resi I'd consider but you know the risk when u take on a business…
This thread is before we've even taken the first legal step, which is for them to send them a letter. No one wants legal action.
The stuff itself isn't valuable, just fittings they haven't cleared out.
It the lease in the name of a PTY LTD or sole trader.
If PTY LTD do you have a directors guarantee on the lease agreement?
If it is a sole trader agreement do they have assets you can peruse like a PPOR?
If you haven't been paid in months you'll be in a long line with others that haven't been paid either.
Isn't there a black list creditors website
Get them out ASAP and move on. You’re unlikely to get much coin out of a shut down business, or it’ll be a lot of hassle for little return.
This.
Besides speaking to them first, there's not much to it. It's not worth your time and effort to get them to stick to the contract. The sooner they're out, the sooner someone else is in. If you leave it empty for too long, it's perceived value would also plummet.
Kick them out and take them to the cleaners!!!!
It's Christmas you heartless Scrooge.
Is the lease in their names, or a company/trust? Did you get a personal guarantee?
Get them out, then push them to pay what they owe. In saying that it also comes down to the $ they owe, the likelihood of you getting it and the effort you'll have to go through to get it. But get them out asap. Don't drag it on as it's good for nobody.
If they have multiple other businesses, you could then assume they are seasoned business veterans. Why should their 'cost of business' become your cost of business when one of their businesses fail?
<if they were a first timer, I would personally grant 'some' leniency>
This tends to be the risk of commercial property (and part off the reason it has better returns than other property when it's leased).
Your best option is generally to try and negotiate something they can pay while you find a new tenant and you should try and get the new tenant as quickly as possible. My family has some commercial property, and we've found tenants tend to stop paying entirely if they cant afford the full rent, but will often pay a discounted rate.
We've had situations where we've locked the tenant out and then liquidated their shop fitout, but i don't recall the exact process there - pretty sure they had to be given many chances before it got to that.
Get them out asap if there not open or paying the rent.
I would cut them some slack, especially if you think you will be able to find some new tenants. Remember, if you do nice things like this , it will also make you feel good too. :-)
Ask for 2 to 3 months break fee.
Pends… if you will get someone in there really easily and continue earning on your investment, I would let it go…
If they haven't paid and still haven't fully moved out, it means you can't move forward and to try and rent it out (regardless of asking them to find someon to fill the vacancy).
I would say they are taking you for a ride on this and take financial action.
Bikies
bikkies
I don't like landlords
Can you explain how that would work? Especially for a commercial location… do you expect every business to fork out millions of dollars just to buy a location every time just to be set up?
Paying rent just to see if the business is viable is actually rather great. It is kind of the same "fail fast" idea that IT has… it is rather good.
Surprised this didn't come up sooner but maybe it's because I've spent too much time on /r/AusFinance.
Not legal advice, but generally speaking, you can consider changing the locks and notifying them of their contractual obligations. You can state what is owed specially so they know how much needs to be paid. State their property on your premises are held until rent is paid. Keep in mind you cannot keep any property that exceed your rental owed plus reasonable losses/expenses. Once they have paid, you must release their property and inform them to pick them up. If they fail to collect after a number of requests, then they become classed as abandoned. Selling those equipment or property if abandoned can help recoup your losses should they fail to pay. In addition it may help you find new tenants by leasing property with equipment. I would suggest seeking legal advice.
giving slack to a failed business just means others will pick the meat from bones before you. priority should be what's best for you.
Dont you have to mitigate yout losses?
Disclaimer, this is not a legal advice and you should consult with your lawyer before taking actions.
If you are certain that the tenant is not going to continue their lease, you are trying to find a solution with the best financial outcomes for you.
Follow through with your full claim and negotiate from there. If your lease has personal guarantee, your tenant may be more inclined to respond as they are on the hook personally
Possible outcomes
1 If they have other businesses that are doing ok, you can negotiate that they find someone else to replace them before you release the tenant from lease obligation.
2 If point 1 does not work, you may have to go through lease termination in order to re-let the premise and debt recovery process to see how much you can recover. I am assuming it is a retail lease (you mention shop). Familiarise yourself with retail lease act NSW (based on your location) on the process to terminate a lease. Draw down on their deposit to cover their outstanding debt. If they do not perform make good and leave their items, you may be able to sell some of these items to help cover the cost of their debt or make good cost. As mentioned in previous posts, there are notice periods to terminate a retail lease and to liquidate their asset, your lawyer can advise you on details.
Either way, you may have to engage a lawyer at some point.
Good luck
Remember the old saying, "Time is money". The time shop space is unoccupied is an opportunity cost. Your time to post on OzBargain is money. Your time to negotiate with a failed business is money. Their past rent is in arrears. When your time is valued high enough it's worth handing the issue over to professionals like a lawyer.
Work out how much more time you want to spend and whether the other party is compromising. Otherwise realise you are losing time/money.
Talk to them first and see what they are proposing to do about the lease.