having problems with tenant paying lease increase on commercial property.

[maps61]

Hello!
I am looking for information on a problem i am having with a tenant who leases a commercial building from me. On july 1/ 09 her lease increased and she has not been able to come up with the funds. She is also behind in property taxes. What she keeps telling me is that because the economy has been so slow she has lost customers. Every time i try and talk with her it seems like she tries to get the upper hand on me by saying if i take any action she will just pull out of the building. Can anyone give me some good advice on what i should do. I do not want to lose her because it will be hard to find a new tenant. Thank you.

 

[invst4profit]

You are dealing with a common situation in the rental business. Your tenant is avoiding the reality that at some point in time, in the near future, they will be going out of business. Yours is not the only bill not being paid.
Soon they will miss a entire rent payment and shortly after close shop. In the mean time they owe you money which if you do not collect now you will never collect.
You need to be diligently looking for a new tenant and begin the process of evicting your present tenant.
Or you could lower the rent back down to where it was previously and give them a 6 month lease.

Ultimately you will need to find a new tenant. The writing is on the wall and the longer you wait the more money you will lose unfortunately.

 

[jseib]

Depending on the situation and how difficult it is to rent your property I would suggest you start looking for a new tenant... I`m not suggesting you slap signage all over the property and make it obvious, but call your realtor and let him know you have something coming available, maybe list it on the MLS... Smaller tenants can usually put things back together pretty quickly larger small businesses often can`t pull themselves out of the rut if they aren`t well managed..

If things work out with the current tenant then great, but if the new tenant is willing to pay more then you can use it as leverage to get the current tenant to pay more if you feel the need to.. At the very least you eliminate some of the power they have over you when they threaten to move and if they do move then your not scrambling to play catchup... Fall is a great time to rent, winter and summer not so much...

 

[maps61]

QUOTE (invst4profit @ Sep 12 2009, 06:24 AM) You are dealing with a common situation in the rental business. Your tenant is avoiding the reality that at some point in time, in the near future, they will be going out of business. Yours is not the only bill not being paid.
Soon they will miss a entire rent payment and shortly after close shop. In the mean time they owe you money which if you do not collect now you will never collect.
You need to be diligently looking for a new tenant and begin the process of evicting your present tenant.
Or you could lower the rent back down to where it was previously and give them a 6 month lease.

Ultimately you will need to find a new tenant. The writing is on the wall and the longer you wait the more money you will lose unfortunately.

 

[Thomas Beyer]

QUOTE (invst4profit @ Sep 12 2009, 07:24 AM) You are dealing with a common situation in the rental business. Your tenant is avoiding the reality that at some point in time, in the near future, they will be going out of business. Yours is not the only bill not being paid.
Soon they will miss a entire rent payment and shortly after close shop. In the mean time they owe you money which if you do not collect now you will never collect.
You need to be diligently looking for a new tenant and begin the process of evicting your present tenant.
Or you could lower the rent back down to where it was previously and give them a 6 month lease.

Ultimately you will need to find a new tenant. The writing is on the wall and the longer you wait the more money you will lose unfortunately.
maybe .. or maybe the rent is too high for the economic realities for ANY similar tenant.

Why force the tenant out if any new one would pay 30% less anyway !

Do some research on true competitive lease rates for a similar property .. and adjust your lease downwards .. perhaps for a year or 2 !

Having said that, in commercial leases, you have to be willing and able to evict tenants and enforce the terms of your lease. The terms usually allow you to lock the door, seize equipment immediately without warning and/or execute on a personal guarantee, i.e. tow their personal car away. (depends on the lease obviously, but this is not uncommon !!) You also have to have a staying power fund that is at least 6 months as the bank and the tax man requires payment even without a tenant in place .. or better a year as it may take that long to find a decent new ones plus you may have to pay for tenant improvements (TI) for the new tenant.

Locking the door is a good first step, with a posting that this store is now closed as the rent has not been paid .. coupled perhaps with a re-negotiation of the new lease terms down to realistic levels .. and that maybe down 30% or even 50% !!.

 

[Dan_Eisenhauer]

Thomas` advice is good advice. Rents do not always continue to go upward, as many of us in the AB market have discovered.

Find a good commerical Realtor whom specializes in that area and type of property. Find out what the current rental and market situation is. You may be lucky and discover that rents and demand have increased. But, the opposite may also have happened.

Depending what you research says, it may be better to get half a loaf than to go with no loaf at all, and have the premises sit vacant for months while you search for a new tenant, at who knows how much rent?

 

[luckyluciano]

If she`s threatening to pull out then her business in your location is not that important to her for some reason. Either your location is easily replaceable for her type of business or she is bluffing you. You need to determine which one. That`s why I prefer to own real estate in prime, prime locations and in prime condition. In a terrible economic time like we experienced in th early 90`s, the prime real estate is always a gem to own. I prefer to own real estate that I am proud to own and tenants are proud to be tenants in. It`s worth the premium! This way I am always negotiating with the tenants from of position of strength and not desperation. If your space is such a location then perhaps it is over rented or it`s time to replace the tenant. Do you due diligence! I am sure you know already.

In the early 90`s we had to accept slightly lower rents from even the best of tenants however we kept the leases the same for when things recovered so the rent rolls did not change.