Can Commercial Landlords Retain Tenants Property For Unpaid Rent?

James Turner

Many people think that when you invest in real estate and especially in commercial property, the only job you have to do as a landlord is smile all the way to the bank. Unfortunately it is not that easy and the life of a commercial landlord is a little more complicated than that. The most difficult part is dealing with tenants especially collecting rent that is due. Some unscrupulous tenants do not pay and even cause damage to the property which could leave landlords with big losses from unpaid rent and bills to restore the premises. However, the big question that most landlords ask is: Is it possible to retain a client’s property due to unpaid rent? Well, here are a few tips to help you figure out what to do.

To start with, the most commercial property leases in Auckland are based on the Auckland District Law Society standard lease agreement. This states that a tenant must pay the rent within ten working days of the due date. If it is not paid by that date then the landlord can issue a “notice of intention to cancel” the lease. A landlord or their legal representative can issue the notice which is required to have ten working days notice so in effect the tenant has 20 working days to pay the rent arrears.

However, if after that time, a landlord might feel that they can enter the premises and seize or in the legal jargon, “distrain” assets or property for the value of the outstanding rent. This used to be the case and may even be stated in some older tenancy agreements and leases. However, the Property Law Act of 2007 abolished this option. So the simple answer is “No”; a landlord cannot enter a tenant’s business and seize property to cover the rent arrears.

Prevention is better than cure

The best way to deal with difficult clients is, first of all, making a very water tight tenancy agreement that they have to sign before they gain access to your property. Assuming that the ADSL lease document will be used, then one precaution that a landlord can take is to have the tenant or someone else to give a Personal Guarantee for the rent payments due. Another option is having the tenant give security over some asset for the rent payments. In either of these cases, if the tenant defaults on the rent payment, then the landlord has legal remedy to recover the unpaid rent.

The other option available to you is filing a small claims lawsuit. If the tenant is still within reach, you can file a lawsuit and have the court order the defaulter to pay what is due. This process is relatively easy most of the time and settlements can even be made out of court. However, there are stubborn clients that will look for loopholes in the contract or make spurious claims to delay their obligation. This is frustrating but is the legal process to follow in New Zealand.

If you have commercial tenants in arrears with their rent or are in dispute with them, then the best option is to contact your lawyer. A good dispute lawyer in Auckland to talk to is McVeagh Fleming (http://www.mcveaghfleming.co.nz) who has a team of lawyers with plenty of experience in commercial rent arrears and how to handle delinquent tenants.