BAD TENANTS

Estate agents, when marketing investment properties to clients, usually make the investment process sound a lot easier than it sometimes is.

Notwithstanding credit checks and the use of references a small proportion of tenants will turn out to be troublesome - for example, by:

• persistently paying rent late
• failing to reimburse outgoings
• deliberately continuing to pay rent at an old rate after a review, by way of protest at a rent increase
• artificially manufacturing disputes
• issuing cheques which are dishonoured and which may or may not be met on representation
• causing minor damage to the premises and/or to the owner's chattels.

A total failure to pay rent is different again. There are several strategies available to the landlord:

• to part ways, to look for a replacement tenant as quickly as possible and to sue the defaulter for any lost income
• to part ways, to look for a replacement tenant as quickly as possible and to write off the bad debt to experience
• to nurse the account in some fashion.

Suing a tenant or ex-tenant can cost money and is likely to be frustrating and time-consuming. Usually a commercial decision has to be made as to whether it is really worth while. Regard would be had to the size of the debt and the prospects of its recovery.

Of course, there is a strong moral reason to sue - debtors should not really be allowed to profit from their own blatant dishonesty. Depriving an owner of money due under a lease is virtually theft - a form of shoplifting. Furthermore, letting a dishonest person off the hook is quite unfair to the many honest tenants who do the right thing. It also sets a bad precedent.

Even if the bad debt is written off by the landlord in his own mind then this would not stop the debt being pursued through correspondence and/or through threats of legal action, and so on.

Nursing an account can be appropriate for tenants who are honest and hardworking, but who are encountering financial problems through no fault of their own, such as industrial disputes or power failures beyond their control, or the collapse of a major customer who in turn owes them money.

Various techniques can be adopted - for example:

• giving the tenant more time to pay, on some mutually acceptable timetable, with or without interest
• introducing the tenant to lending institutions which might be willing to back the tenant's business - for example, by granting a personal loan, a loan on second mortgage, a credit card facility, and so on
• renegotiating the rent, possibly in exchange for a longer lease term and/or a higher rent in the future
• facilitating a sublease, in order to reduce the burden on the headlessee.

It can be pointed out to the defaulter that:

• finance will be more easily obtained before a judgement for debt is on the court record
• the costs of obtaining loan funds are likely to be less than the costs involved in debt enforcement.

Even if a decision to sue has been made negotiations can, of course, always continue, in the hope of achieving a worthwhile settlement.

However, there is no point in holding any further negotiations once a favourable judgement has been obtained. At that stage if the money is not forthcoming then appropriate enforcement proceedings should be instituted immediately.