For the commercial property landlord, uncertain times call for decisive action. In the current climate, the spectre of insolvency is one that tenants – and landlords – need to face. Passive tenant management is a risk few landlords can afford. Close attention needs to be given to tenants who are exposed to the vagaries of the marketplace. Otherwise, the landlord may be left with empty properties and debts which are difficult to recover.
For many businesses, this will be their first experience of a recession, so it is vital that landlords understand what can, and should, be done in the event of a tenant becoming insolvent.
The more diligent landlords can come out of the current downturn better placed to grow their businesses when the commercial property market stabilises – and the prudent landlord will know his tenant, and their business, well.
It is important that any landlord has not only a detailed understanding of the tenant, their lease and the pressures facing their business, but also the sector they work in and the current nuances of the local property market. If problems are afoot, opening dialogue quickly is crucial to exploring all available solutions.
If it is clear that the tenant’s problems are not a temporary blip, and no agreement can be reached to resolve them, the landlord may be forced to pursue action to remove the tenant and recover any monies due. Should removal of the existing tenant become the preferred approach, it is vitally important that the process set out for termination of the lease is followed carefully.
In difficult times, it is doubly important that the landlord understands the consequences of such actions. For example, rates on a vacant unit will have to be paid by the landlord. There are also very few locations where demand is outstripping supply, so it may be some time before another tenant can be found.
This is a complex area of the law, and there is no ‘one size fits all’ approach. A landlord’s knowledge of the tenant and the particular circumstances surrounding the lease is crucial to informing any decisions – and the more he knows, the better placed he will be to make that judgement.
Colin Archibald is an associate specialising in property litigation law with leading UK law firm Shepherd and Wedderburn LLP.