Effectively dealing with tenants who don't pay
Joint and several liability of the director as a solution?
As a landlord of commercial property (commercial lease), you face many challenges. One of the most frustrating situations you may face is a defaulting tenant. In some cases, the tenant (the corporation) simply does not have the financial resources to pay the rent, leaving you, the landlord, with a financial hangover.
It is essential to protect yourself as a landlord as best you can against your tenant's insolvency. A powerful means of doing this is to include a joint and several liability clause in your lease. This clause provides that if the tenant is unable to pay, another person - for example, the director of the company renting - is personally responsible for the rent debts.
Why is this clause so important?
- Financial Protection
A joint and several liability clause provides you as a landlord with additional financial protection. If your tenant defaults, you are not automatically saddled with the unpaid bills. You can also sue the person who is jointly and severally liable for the rent. With this clause, you have a legally binding instrument to enforce payment.
- Deterrence of Default
The presence of a joint and several liability clause may discourage potential tenants from defaulting. People will understand that the financial consequences can be personal, which is more incentive to fulfill lease obligations.
What if such clause is not in the contract?
If you do not have a joint and several liability clause in your lease, it is considerably more difficult to recover the rent arrears. After all, directors are not automatically responsible for their company's debts.
Is recovery impossible then?
No, depending on the circumstances, a director's liability procedure can be initiated in that case to try to recover the debts from the director after all, but that procedure takes considerably longer.
Consideration may additionally be given to seizing (conservatory) or enforcing other collateral from the tenant, (even when the contract is already in place, if you expect trouble).
Conclusion: As a landlord, it is vital to protect your interests and guard against potential financial losses due to tenants who fail to pay. Including a joint and several liability clause in your lease is an effective way to do this. It not only provides financial protection, but also acts as a deterrent to non-payment.
It is advisable to seek legal advice and carefully draft your leases to ensure that your interests are protected in every way possible. That way, you can manage your properties and protect your investments with greater peace of mind. Our construction and real estate law specialists will be happy to help.
