INDUSTRIAL & COMMERCIAL REAL ESTATE BRISBANE QUEENSLAND AUSTRALIA

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Is your Tenant using you as an alternative Bank?

The cashflow within our economy continues to tighten and we have noted an increased pressure by Tenants who continue to push the boundaries with late payment of rent and charges.

If you are managing your own property then you need to look at why the Tenant continues to pay late. Is it as simple as a timing issue with receipt of their Tenant invoice or is it poor accounting/accounts payable processes within their organisations or a serious cashflow issue.

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Until the matter is resolved or moved into the legal arena, you should continue to issue reminder letters and have a regular pattern of follow-up calls for arrears. Also, if you are working on a calendar monthly billing cycle, then you should be serving the Tenant with a Breach notice on the 15th of the month for outstanding charges. This develops a case history if you need to consider rejecting an exercise of option by the Tenant at a future time in favour of a more consistent paying Tenant.

As a good business practice, we also call Tenants around day 5 of the new month following up with the letter. We ask the hard questions including: Why is it late? When is it going to be paid in full?

If they are uncertain, we ask to speak to the director and ask the serious question: Are you trading insolvent? If not, then why have you not gone to the bank to borrow the funds to pay the rent?

After you have had this conversation, you then need to document what was said and make sure the Tenant keeps to the agreement. Don’t forget to calculate the default interest and on-charge to the Tenant.

Two weeks very quickly grows into two months outstanding and it becomes a psychological barrier for the Tenant to overcome as much as a financial one.

Obviously, the constant short payment of rent it is costing Landlords because of the lost income and interest in the short term. In the long term it is also affecting the value of your property. Typically an astute investor wants to see the payment history of Tenants for the previous twelve months. Even if the rent is up-to-date at the time of selling, the history presents a different story and will impact on the value because the income stream is less certain.

From an agency perspective, we are driven to keep arrears to a minimum as our fees are based on income. We want the money into the Landlord’s account as soon as possible and that is good for the client. Typically, our portfolio runs at less than 5% arrears monthly with the exception of a few defaulting tenants. In the current economic climate, that is extremely good.

If you are experiencing problems within your managed properties related to arrears management or any other matters, please feel free to contact Daryl in the office on 3216 6666 for no obligation assistance.