Purchased brand new commercial property with tenant in Adelaide,now more than 1 month’s rent unpaid

Change your solicitor and find a clause by which you can terminate your PM agreement and then do your best to educate yourself about commercial property, both generally and in your local area. You really need to pull together a team of advisors around you that you can trust.

If you decide to kick the tenant out, think about what you are going to do next.
What is the $/m2 that other tenancies in the area are achieving? Is what the current tenant is asking reasonable given other rents in the area? Are you going to have to drop the rent significantly to get a new tenant in? You will almost certainly have to offer some more rent free / reduced rent, and you will be up for a leasing commission and legal costs for preparing a new lease.

If you are comfortable, I would try and speak to the tenant your self (or get someone you trust to do it for you). Your current PM doesn't sound like their very on the ball. You said you would be more understanding the tenant "negotiated actively", but you really only have the PM's say-so on how the tenant has been behaving - maybe he has been trying negotiate actively??

Stepping up from a mobile trolley/cart to a bricks and mortar establishment is a big step. It will take time for him to increase his customer base sufficiently to just be breaking even. It sounds like he was did not have enough capital to cover his fit out costs and the additional costs of running a bricks and mortar store. I expect that he would now be needing to employ staff which would also be a big change. From his perspective I can understand that concentrating on the kart that is a proven income generator does make some sense (although does not excuse at all not meeting his other financial commitments).

It may be that the best outcome for you may be giving the tenant a bit more rent relief while he gets the new shop established and can then start paying full rent. Alternatively if the current tenant can't make a go of it by himself, he may be able to bring another partner in, or even sell the business to another operator.

We have about 35 commercial tenancies and even though we do have a property manager, we do take a pretty hands on approach with our tenants and find it really worthwhile to try and understand their businesses and where their challenges are. We frequently find that supporting a quality tenant through a fragile period of their business (typically at start up), can be really rewarding in the long term.

 

Thanks a lot for your advise. Your experience is very valuable. The tenant is going to meet up with my PM and I’ll see how it goes. There are a lot of things I need to learn about this industry. All the replies that I have received have been so helpful. This is a great forum! Thanks everybody!

 

The guy is behaving like a twat,

his precious feelings or whether he has fitted it out are none of your concern, if its so important to him, hed pay hims damn rent
you have a mortgage to pay,

do exactly what is best for you and you only, his precious feelings come a very distant LAST

 

whats a pump and dump?

 

They can be fake, almost fake or just extremely poor tenants that are put in at a high yield and used as marketing to an investor that wants a high yield investment. Soon after the sale the tenant defaults due to crapness or dodginess.
The new owner then tries to rent it out again and finds out that the yield is not replicatable and they didn't do their homework on how much it was actually worth just looked at the yield on the current lease.

 

You’ve got a point. At any time, my rights and benefits should not be compensated. It is an investment and it should generate profit, not problems.

 

Whilst I don't disagree with everyone else's comments, you are going to want to seriously consider the implications if you do terminate the lease with the tenant. How easy is it going to be to find another tenant, is the rent for the current lease market rate or is it inflated a some have suggested it may be.

From a commercial point of view, maybe you would be better resigning with the tenant at $10k less per year, possibly on a periodic lease or something more flexible for you. What will be the cost/loss in rent if the property is vacant for 6/9/12 months? Alot of commercial properties are vacant around Adelaide at the moment and lots of the CBD properties are offering big lease incentives to get tenants in.

Having said all that, you don't want to find yourself in the same problem in 6-12 months when they are struggling again.

 

The tenant's the only one with any sense! He's desperately focusing on what's making money. The three property amigos, the PM, the Owner and the Owner's Solicitor certainly can't be helping.

Agree its a sticky situation

 

So not paying rent from day one, is sensible to you?

Rent is not an option or a pay when you feel like it thing