How to protect yourself against business tenants who won’t pay their rent

25 October 2016

I own a commercial unit that I want to let out — how can I protect myself from a tenant who won’t pay his rent?

How to protect yourself against business tenants who won’t pay their rent

The short answer to this question is that all too often, there is little you can do to protect yourself from such tenants.

Many people find themselves in a situation where they have a lease signed by a tenant, the tenant is in occupation and is conducting business from the unit, but no rent is being paid.

Unfortunately, this is a risk that you must weigh up at the time of entering into the lease.

While the lease should include provisions to deal with this situation should it arise, prevention is often better than the cure, as the old saying goes.

There are a number of things that you can do to try and protect yourself before entering into the lease.

A solicitor will always advise that you obtain a bankruptcy search (in the case of an individual) or a company winding-up search (in the case of a company) against the proposed tenant.

This will alert you to any current bankruptcy or any bankruptcy petitions against the tenant.

Likewise, the company search will show whether the company has been wound up, or if a petition for winding up has been presented. Obviously, if these searches show any entries, you should be wary and should ask the proposed tenant to explain any entries.

It would also be a good idea to obtain an enforcement of judgments office search against the proposed tenant, which would show any court judgments made against them — this will show if there is a history of non-payment of bills.

Another way to protect yourself is to seek a guarantor under the terms of the lease.

This is something that in the current market is becoming increasingly common and any prospective tenant should not be put off by the fact that a guarantor has been requested (if necessary).

A guarantor can guarantee payment of the rent and compliance with the obligations under the lease — and can even be obliged to take a lease of the unit for the remaining term of the original lease, should the original tenant default.

Of course, the guarantee is only as good as the person giving it, so you should make sure that they will be able to meet their obligations under the guarantee if they are required to.

Similar searches to those made against the proposed tenant can also be made against the guarantor — for a full belt and braces approach.

Sara McGaughey is a solicitor in Worthingtons commercial department and specialises in commercial property transactions. She can be contacted on 028 9043 4015.

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