Downturn, Protecting the Landlords Interests

March 11, 2009 7:48 am Published by

Downturn, Protecting the Landlords Interests

In a down turn in the economy, there are a number of ways for a landlord to minimise the risk arising from defaulting tenants.  However, the final terms agreed will ultimately be determined by the bargaining strength of the respective parties.

From the outset of negotiations the following should be considered:

Guarantors

A requirement that the directors of a company stand as personal guarantors for the company’s performance under the lease or, in the case of an individual, that a business partner or referee stand as guarantor. If there is more than one guarantor, ensure that each guarantor is potentially liable for the full amount due.

References

Make sure that the grant of the lease is subject to receiving suitable and substantial references for the tenant from trustworthy referees, including bank and accountant.

Rent Deposit Deed

A rent deposit is a sum paid to the landlord at the beginning of a lease, as a ‘cushion’  against default by the tenant.  The amount of the deposit is usually determined by reference to say, 3 or 6 months rent payable under the lease. If the rent deposit deed is entered into by a tenant which is a company, it must be registered as a charge at Companies House if it is to have priority over other creditors.

Alienation

Under the Landlord and Tenant Act 1927, unless there is an absolute prohibition in the lease, it is unlawful for a landlord to unreasonably withhold his consent to sale or under letting of a lease. To prevent an unsuitable new tenant or under tenant coming into occupation, the landlord should impose appropriate conditions on any sale or subletting, including a requirement that the outgoing tenant will enter into an authorised guarantee agreement  guaranteeing the incoming tenant’s performance of the covenants in the lease.  A draft authorised guarantee agreement is often annexed to a lease so its terms are clear and agreed from the outset.

Dilapidations

When a tenancy is coming to an end, always ensure that a schedule of dilapidations is prepared and served on a tenant prior to the termination of the lease so that necessary works are carried out while the tenant is still in situ.  It is much harder obtaining payment once the tenant has vacated the property.

Fixtures and Fittings left at the Property

It is worth checking that the lease contains a clause permitting you to clear the property of any tenant’s fixtures and fittings, once they have vacated.  This should be accompanied with a right of sale if the goods are not collected promptly.

Other legal issues

You should also consider excluding the protection afforded to business tenants under the Landlord and Tenant Act 1954, maximising the frequency of rent reviews and ensuring that an appropriate forfeiture clause is included.

At the end of the day, some of these landlord advantages may not be achievable in an economic backdrop favouring the tenants, but they should at least be considered.

For more detailed information or for advice please contact Julie Hoy

e-mail: jah@blockslegal.co.uk

Telephone: 01473 230033

www.blockslegal.co.uk/

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