Commercial tenant wants out!

[justaboutsane]

We have a tenant who signed a 3 year lease 18th July 2005. The property has been extensivly refurbished over the last 12 months with the new tenant helping from day one and rent becoming payable once the lease was signed. To date the tenant has 3 months arrears (due to issues with builders the refurbishment was delayed and we agreed to her withholding 1 months rent to be paid on completion of the works). We have now heard from various sources that the tenant is moving! The tenant has also stopped griping about minor issues and has stopped in her requests for a fireplace to be re-opened which suggests to us that this rumour has some truth.

We fear the reason for this move is the term in the lease which states that the rent is low for the first 6 months to allow her to build the business and then it is to increase, the date for this increase is 18th January 2006!!

Our question is this: As she has a 3 year lease she cannot just walk out. therefore what sort of compensation should we be looking for. The lease does state that she cannot assign or sub let, in residential law I know this to be an unfair term but is it the same in commercial??

To be honest this tenant has not been brilliant and she has upset several workmen which led to delays and the project manager having to be onsite all the time! BUT we need some form of compensation if she does walk, we purchased this property for the tenant to rent and much of the renovation has been to her specifications! (although easily altered)

Sorry for the long post all answers greatfully recieved.

[Editor]

The thing is you have a signed 3-year lease so the tenant is contractually bound to pay the rent for three years regardless of whether she occupies or not.
However, you cannot unreasonably prevent the tenant from minimising her losses by assigning the lease to someone else, providing the replacement meets reasonable letting criteria.
In practice you must decide - can she pay the rent? Is she a woman of substance or a woman of straw - you need to find out quickly if you don't already know?
If she can, then you simply sit back and let her carry on.
If you feel she will be unable to pay even after taking legal action then you may be sensible to offer to release her early from the lease, perhaps, as you say, with some compensation figure agreed between you. This way you will get some compensation for the works and loss of rent and will be able to re-let to another tenant.

[yeahbutno]

In these circs I would think very strongly about the possibility of a sub-let or assignment if it is proposed by the tenant. It should mean the avoidance of a void and all the aggro that goes with it (finding new tenant, empty building attracting vandals etc). At the end of the day, as long as you're getting your rent, and the buildiong is being looked after, it doesn't matter who it is.

Unfortunately, it is very possible that your tenant may move out, and while in theory she would still owe you the balance of 3 years' rent, she may not be in a position to pay you that money, or perhaps more pertinently she may be able to persuade the County Court that she can' afford to :rolleyes: ....the result being that she ends up paying you £1 per month ad infinitum. Worse still she may vanish in a puff of smoke.

I would therefore suggest that you tackle this head on - ask her about her intentions, and if necessary, I'd be inclined to accept a fairly modest settlement, particularly if you feel confident of letting again fairly easily.

Then chalk one off to experience. :(

[justaboutsane]

Thanks guys for your responses.. We have been bouncing emails back and forth with the tenant.. She is paying rent on the flat and not the shop... but the flat has issues! .. Anyway .. long and short of it is we have asked for an extensive list of issues and told her that as most of them are to do with the flat she should pay rent on the shop or else face legal proceedings!

She has now said she will pay rent on the shop but will not back date it until the works are finished!

When she took on the property it was to run an electrical/satelite shop.. she has now changed this to a grocery store and in an email to us today has informed us she is applying to be an off licence but as the shop front is "insecure" they wont allow it! ... Surley this is a change of use and we have some comeback on her as owners/leaseholders of the building?

Answers on a postcard please!!!

[yeahbutno]

Your lease should stipulate what type of business can be run from the premises, but it may not be particularly specific, often referring to "retail operation" or something similar. However, if your lease specifically states "electrical retail" and she wants to run an offy, then you could prevent her from doing so, although TBH I'd probably be willing to let her go ahead myself.

It sounds as though there is a massive smokescreen going on here - the real reason you're not getting your rent is that the business is struggling - why else would it change use twice in such a short time?

I'd recommend thinking very carefully about whether you want to continue with this tenant at all, and if the answer is "no" then I think you may well have adequate grounds to evict.

[justaboutsane]

She never started up as her first choice in these premisies! .. She was running the business elsewhere... a bit of background... Our property manager is married to the ex wife of the tenants husband!!.. They approached him and asked if we had any commercial or if we were intrested in buying a commercial for them to rent... So thats how this all came about.. the story is that their existing landlord was selling up at the end of their lease and despite looking they could not find anything else suitable... so we jumped in to the breach.

This was always supposed to be a joint venture, we have a small space in the building enabling us to be "owner occupiers" while leasing the shop to the tenant and also the flat above on an AST. When we took over the place we knew it needed some work but it turned out that it literally had to be pulled back to a skeleton! and so took longer to get it sorted than the month we had planned! Eventually she moved in Mid July 6 months after work had started with the intention that final works would carry on around her as she was assisting in the redevelopment...

As you say it looks like a smoke screen... the thing is,, this place is soo nearly sorted.. and she wants to go 2 doors down and pay for that building to be gutted and start from scratch?? We are still waiting on transco for a quote for new pipes to be laid and this is the only valid reason she can have for withholding rent... but she has heating and a kettle to boil hot water etc..in the kitchen at the back...

[yeahbutno]

Experience tells me that even when all the "issues" have been rectified by you, there will be other problems that the tenant will invent.

Good luck!