New Year cash flow problems causing concern for landlords

NEW Year cash flow problems are causing concern for an increasing number of landlords throughout the region, a Yorkshire lawyer has warned.

Geraint Pinches, a property litigation solicitor at law firm Gordons, has seen a significant increase in the number of landlords seeking advice about what to do when a tenant defaults on their rent since businesses returned to work after the Christmas break.

“In the current economic climate, which shows no immediate prospect of recovery, the non-payment of rent has become a common characteristic of the landlord tenant relationship, especially if the tenant’s business is struggling,” he said.

“In the manufacturing and industrial sectors, where businesses typically shut down for two weeks over the Christmas period, the potential for cash flow problems in January and the subsequent non-payment of rent is exacerbated. We’re dealing with an increased number of enquiries from landlords relating to this issue which, in many cases, could have been avoided.”

Mr Pinches said that the key to managing the landlord tenant relationship is to put in place a professionally drafted lease – signed by both parties at the start of the agreement – and to monitor the situation closely going forwards.

“The last thing a landlord needs is a defaulting tenant but the situation can be prevented, or at least managed to the landlord’s advantage, from the outset, should the worst happen,” he said.

Securing personal guarantors to a lease would add an additional level of protection for the landlord, Mr Pinches advised.

“As corporate insolvencies rise, it is becoming increasingly difficult to recover rents from limited company tenants,” he said. “But while personal insolvency isn’t out of the question, a personal guarantor on the receiving end of a bankruptcy petition is more likely to pay because the alternative – for example, disqualification from acting as a director – is, for many, less than palatable.”

He advised that landlords should monitor payments due from clients and if necessary take action to try and nip problems in the bud.

“If a tenant is even just one day late with their rent payment, promptly sending a seven-day reminder letter should spur them into action,” he said.

“If payment is not made by the expiry of the seven-day reminder letter, a landlord may consider their options under the lease. These may be levying distress for rent, whereby a bailiff attends the premises and takes ‘walk in possession’ of any assets owned by the tenant and sells them to realise payment, effecting – or threatening to effect – forfeiture of the lease for non-payment, and possibly even claiming against a former tenant if the lease was executed prior to January 1, 1996.”