Arrears Best Practice in Commercial Property Management

When you manage commercial or retail property, arrears will come and go from the portfolio or property, and you will need to be prepared for that.  The greater the number of tenants located in the property, the larger the potential arrears problem for you to address accurately.  On that basis you should develop a specific arrears management process to keep things under control.  Time is of the essence in responding to this issue.

As a general rule, the role of the property manager is to identify the arrears potential and to act on the problem before it becomes overly large or out of control.  Here are some ideas to help you manage the process:

  1. Some tenants will be susceptible to the arrears problem due to the type of business and or their location.  Fluctuations in seasonal sales and business activity can also create business pressure.  For this reason it is necessary to monitor the arrears and rental payment activity across your portfolio on a daily basis.  Regular communication with your tenants, together with frequent property inspections will help you see and identify rental arrears problems.
  2. When you can see that the tenant has not paid their rental, it is time to find out why.  A personal approach to the tenant is always required with written notes being taken from the conversation and or meeting.  Sometimes there may be a simple reason for non-payment of rental that can be easily rectified.  In other cases you will need to take immediate action for the recovery of rental.  Responses are important when it comes to arrears action and rental recovery.  Compliance to property laws and legislation will also be required as part of the process.
  3. In every rental default situation the lease document should be referred to.  It will define the factors of a rental default and the actions required.  You should also be aware of the property laws that apply to rental recovery in your town or city.  They will be quite specific and will need to be adhered to.
  4. To stay ahead of this problem, it pays to look for weaknesses in tenant activity and business cash flow.  Some businesses will be more susceptible to the rental problem than others.  Some businesses now operate in a declining market due to the pressures Internet shopping and the changes in customer demographics.  This is certainly the case in retail shopping centres where the buying patterns of customers have changed and will continue to do so.  When it comes to a retail tenant, you can also monitor the levels of stock that appear within the shop.  Declines in the levels of stock will usually indicate a struggling business; that is then quite likely the precursor to an arrears problem.
  5. When the rental payment default occurs, it is best to serve notice on the tenant using the services of the landlord’s solicitor.  In this way the accuracy of the process can be maintained given the laws applying to the property type, and the lease situation.  The solicitor will usually seek the instructions of their client given the terms and conditions of the current lease document.
  6. Given the state of your property market when it comes to prevailing vacancies, it is sometimes preferable to strike an arrears agreement and payment plan with the tenant.

So the message here is quite clear.  Closely monitor the payment of rental within your property portfolio.  Ensure that all rental payments are made on time and in full.  When an arrears situation occurs act on it immediately.  Seek the instructions of your client and involve their solicitor as part of the rental recovery process.

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