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.

He explained: “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.

“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.”

Geraint said that the key to managing the landlord tenant relationship in these uncertain times 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.

He explained: “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.”

Geraint said that securing personal guarantors to a lease would add an additional level or protection for the landlord. “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.”

“We often find that landlords could be more proactive in monitoring the tenant’s circumstances by doing regular credit checks and even arranging for someone to drive by the premises every couple of months to check the tenants are in situ and haven’t upped and left.’

Geraint also advised that landlords should monitor payments due from clients and if necessary take action to try and nip problems in the bud. He explained: “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.”

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.

Geraint concluded: “There are various ways a landlord can recover rent arrears from defaulting tenants. However, the trick is to have a proper agreement in place and keep an eye on the situation, taking action as soon as it is required.”

If you wish to discuss the contents of this article further, please contact Geraint Pinches on 0113 227 0228 or
e-mail geraint.pinches@gordonsllp.com.

Geraint Pinches is a solicitor in the property litigation department at Gordons LLP. He is also a member of the Property Litigation Association, a UK network of lawyers specialising in the field.