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Commercial Property Lease - Suing Tenant

Discussion in 'Legal Issues' started by thesuperman, 21st Jan, 2016.

  1. thesuperman

    thesuperman Well-Known Member

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    We have a commercial property tenant who owns a Daycare centre which is managed by a rental agent. The tenant is behind on their rent payment & also haven't reimbursed us for one water rates notice which is 2 months overdue. They also don't answer calls or emails from the agent.

    The agent is suggesting going to the premise to advise the staff (the owners are passive investors not staying there) that they will be taking over the premises & closing down the business. Is this a good thing to do? If the business is closed then there won't be a daycare business to take over if needing to sue the tenant. The tenant is a company with husband & wife and the lease has both of them personally guaranteeing the lease.

    What would people do in this situation? Is it best for the agent to keep trying to recover the rent & outgoings as we have an insurance policy that covers up to 52 weeks rent & 3 months bank guarantee & if the tenant doesn't pay then sue them?

    If you sue them would you be suing them both personally and also the company that owns the daycare business, therefore all their personal assets on the line and also the company assets, meaning that we would take over ownership of the business if they don't pay up?

    Would it be a good idea to get a lawyer to do a search of assets owned by the husband & wife and the company as well as any mortgages they have on any of the assets?
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    Go and change the locks.

    I miss Dazz :(
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Who is the contract with? Any personal guarantees? You will find it hard to sue someone that hasn't contracted with you, but could possibly do so in limited circumstances.

    It would only be good to search the assets of the individuals if they have given a personal guarantee.
     
  4. thesuperman

    thesuperman Well-Known Member

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    Contract is with the company that owns the daycare centre with both husband & wife as directors of that company and also husband and wife giving personal guarantees. Would you only do a search of the individuals only or also of the company? Since the company owns the business could you take over the business if they don't pay the money owing?

    If the agent changes the locks, then the daycare business won't be able to operate therefore you couldn't take it over in the future, if that is a possibility down the track. The business would become worthless later on.
     
  5. jrc

    jrc Well-Known Member

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    Read the lease and see what you can do.
     
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  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The company is the legal entity you would sue, but the business is an asset of the company. If the debt is large enough you may be able to appoint receivers to the company (eventually) which could then sell the business to pay the debts.
     
  7. Shady

    Shady Well-Known Member

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    This one ^^^^^

    Get your solicitor to read over the lease just in cases but this one ^^^

    Keep in mind that changing the locks on daycare business will have serious implications for the business and their clients.

    I've done it a few times, stick a notice on the inside of the front door saying that the Lessor has reentered the premises, for access please contact bla bla bla.....If they try and get a locksmith to change the locks again, no locksmith will touch it if they see a sign like this....at least the honest ones wont..
     
  8. JDM

    JDM Well-Known Member

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    You should review the lease and preferably seek legal advice before you re-enter the premises. Your powers of re-entry may be restricted in some way (eg must give a notice to remedy breach or rent must be in arrears for a certain period).

    Recovery of the debt will not allow you to 'take over' their business. You will have to go through the normal debt recovery channels (subject to any provisions in the lease regarding unpaid monies).
     
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  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Seek legal advice. You could become one creditor of many with an unsecured debt or it may be preferential based on contract. The guarantee etc will all impact. Staff would have entitlements such as wages, leave, super etc While the premises may be of paramount importance for trading it does not give you right to preferred payment. A liquidator could later clawback rent paid under duress if it is paid preferentially.

    The liquidator would likely only be capable of firesale of hard assets at low prices. The business wont exist to sell. No customers, no staff etc. An administrator may allow it to trade and then may find its saleable as a going concern and that may enhance value for creditors. ie 50 cents in dollar v's nothing.

    Do you have a bank guarantee in lieu of a bond ? That's the normal commercial way to enforce lease defaults. You call it in and lock the doors after legal advice. Guarantees are dependent upon asset position. If bankrupt its worthless. You again may be a unsecured creditor.
     
    Last edited: 22nd Jan, 2016
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  10. RPI

    RPI Property Lawyer, Town Planner Business Member

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    you can probably call on bank guarantee now. Otherwise you may need to write to them first.
    Is the business profitable? Do you think you could make it so? Take it over, as in serve them at 4.55pm, taking possession, change the locks. Start trading under a new entity the next day. Sue both the company and the personal guarantors at the same time.

    BUT
    You need to make sure that you can do all of the above and it will depend on the lease and, to a lesser extent, the state the property is in. See a lawyer and you will probably find you can go to the bank today, get the guarantee paid to you and then will need to give them notice to replace the bank guarantee.
     
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  11. Scott No Mates

    Scott No Mates Well-Known Member

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    @thesuperman - is the agent a gumby? They're the expert property managers and should be advising the client. Why have an agent if they're incapable of enforcing the lease?

    • How far behind in the rent are they?
    • If they are not contactable why haven't they been to the premises?
    • What action have the agents taken to date? Arrears Letter? Application of interest? Mail?
     
  12. jrc

    jrc Well-Known Member

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    Sue the company and theguarantors for the unpaid rent. Difficullty with taking possessionof the premises would bethe time required for someone to get a licence to operate a daycare business there
     
  13. thesuperman

    thesuperman Well-Known Member

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    Correct, 3 month's worth of rent as a bank guarantee. We also have an insurance policy that will cover up to 52 weeks of rent.
     
  14. thesuperman

    thesuperman Well-Known Member

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    After what period of arrears can you call in the bank guarantee?

    Have no idea if the business is profitable, but if they have issues paying the rent on time maybe the business is on the edge of profitability, not sure.
     
  15. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    You won't be able to touch the insurance money if the proper steps have not been taken by your PM to remedy the arrears
    I'm assuming breach notices have been submitted at due periods and in the proper manner. The next step would be to take them to court
     
  16. RPI

    RPI Property Lawyer, Town Planner Business Member

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    It will depend on the terms of the lease, could be after as little as being 14 days late in rent.

    Businesses are often profitable but cash flow is what hits them and sends them under.
    When walking in and taking over you won't have to deal with the cash flow draining:
    -repayments on capital costs/ fitout
    -catching up on the early days when business was growing but not profitable
    -often the original lease was too expensive to make it work and landlord may take a lower rent as opposed to vacancy (obv different in this case)
    -no outstanding GST, PAYG or super obligations

    among many others


    Then again it could just be plainly unprofitable also. But given that childcare income is more predictable on a daily basis then at lease it will be easy to work out.
     
  17. Ian Macleod

    Ian Macleod Active Member Premium Member

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    Proceed with caution. Depending upon which state you are in, (NSW, QLD, Vic etc) the lease may be subject to the retail tenancy act that applies in that particular state or territory. If the lease is subject to the act, you will have specific procedures to follow concerning issuing the proper notice which may need to be in a particular form and subject to specific time periods for issuing the notices.
     
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  18. Scott No Mates

    Scott No Mates Well-Known Member

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    Unless the building is in a shopping centre (group of 7 or more shops), it would be unlikely to be caught as a RTA.
    Edit - group of 5 or more premises used for retail purposes
     
    Last edited: 24th Jan, 2016
  19. Ian Macleod

    Ian Macleod Active Member Premium Member

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    Its probably unlikely in most states and territories except Victoria, where Section 4 of the Act defines ‘retail premises’ as premises used or to be used wholly or predominantly for ‘the sale or hire of goods by retail or the retail provision of services’.
    Recent case law in Victoria has widened the scope of the Retail Leases Act and now it would appear that most tenants, who provide any sort of service to an ultimate end-user, engage in the ‘retail provision of services’, would require a retail lease.

    The basic understanding is that retailing requires a product or service to be provided ‘to an ultimate consumer for a fee or reward’. If it is a premises in Victoria it would most certainly be caught by the act.
     
    Last edited: 24th Jan, 2016
  20. Scott No Mates

    Scott No Mates Well-Known Member

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    However the rent must also be on the whole or in part determined by the use of a turnover clause which is not applicable to most commercial leases. Ref cl 4 (1)(2) (a) & 4 (1)(3)