Holding a Commercial Deposit and Rent Arrears

by Readers Question

14:45 PM, 23rd October 2017
About A year ago

Holding a Commercial Deposit and Rent Arrears

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Holding a Commercial Deposit and Rent Arrears

I complete on my first commercial property purchase tomorrow which has 2 shops let out on leases. One is fine with no arrears, but equally no security deposit held. However the second has 3 months security deposit which has being assigned to myself along with a raft of arrears which has also being assigned to myself (circa £8,750.00).

Very fortunately for me, whilst the arrears have been assigned to myself, we have managed to negotiate that I keep all the monies should I manage to collect them. I believe they have agreed this so that they can close the estate of the deceased owner as opposed to them believing they have no chance in collecting. As a result, I have two questions please:

1. Should I hold/secure their deposit with a third party? I know that I am duty bound to pass on any interest accrued. As this is a security deposit, I suppose I can keep that money if they do default, but when should I declare that to them?

2. Any recommendations in how I should go about recovering the debt? At the moment, I have a reasonable relationship with the tenant so am considering offering them terms to catch up, but any other suggestions would be welcome.

Thanks for your help

Paul.



Comments

Graham Bowcock

12:46 PM, 24th October 2017
About 12 months ago

Paul

The deposit for a commercial property lease does not have to be protected as for residential and can be simply held by the landlord. You should refer to any conditions in the lease which set out how it is to be held and the terms of any repayment. The lease may also specify who has the interest. Ideally you should put the money in a deposit account so that it is clearly separate from your usual trading money and you don't get tempted to use it.

As for rent arrears you again need to refer to the lease in the first instance to see what this says. It is usually far easier to end a commercial lease than a residential lease and you may be able to forfeit quite quickly. If you choose to then I suggest you get a solicitor to do this for you. However, your idea of speaking to the tenant is sound as you have to be wary of throwing the baby out with the bathwater; if you forfeit the lease, how easy will it be to relet? Having a tenant you (sort of) know paying some rent may be preferable to having the property empty for a year - prone to vandalism whilst you're paying business rates!

Graham

Paul Tarry

20:43 PM, 24th October 2017
About 12 months ago

Dont forget as it is a commercial property, SQUATING is not illegal in commercial properties so a current tenant is worth keeping, I would negotiate full payment of current rent and a second monthly payment to catch up on the arears, even if you have to discuss/agree monthly what that amount is as it is probably linked to the level of trade

Paul Mullally

23:04 PM, 24th October 2017
About 12 months ago

Thanks both.

Opening a special account could prove interesting this day and age as it will probably cost more in charges than earn in interest, but I will give it a go.

I have started speaking with the tenant in arrears and he has agreed to pay the rent going forwards, so at least we have a relationship. I've no intention of serving notice for the reasons you've both mentioned.

Thanks...Paul.


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