Property Management Q&A: Dealing with late-paying tenants & Selling rental property while tenanted

By YIP | 14 Jun 2014
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Q: I have a range of financial commitments in addition to my property investment and cannot afford late payments from my tenants. What can I do to minimise the risk of this becoming a problem? What are my rights if my tenants claim there are mitigating circumstances preventing payment?

Not surprisingly, late payment is one of the most common issues in the landlord-tenant relationship, but there are ways you can prevent it from becoming an issue for you. The best place to start is when you are creating your rental agreement, before any tenancy papers are signed.

Your agreement should clearly outline the payment requirements, including strict guidelines for timing and what (if any) tolerance levels you have for late payment. It may even be worth discussing these terms with your tenant before they sign, therefore ensuring they can comply. As with all legal documents, this step should leave you with more than just verbal guarantees or promises from your tenant and therefore be your only fallback should issues arise. Advise your tenant you will be following this procedure regardless of any payment challenges they may be facing.

Importantly, after the agreement is signed you should be prepared to keep a close eye on the payments and strictly enforce the guidelines from when the very first payment is due. This is one of the biggest challenges you will face as a landlord, but by being firm and enforcing the terms of the agreement, you are protecting your own financial future. In my experience, it only takes one slipup and the payment situation can become a nightmare for the landlord.

Should a payment be missed or any concerns come to the fore, be sure to issue your reminders and notices accordingly. It is important to be fair but very firm with your tenant, as the last thing you need is a trail of broken promises and missed deadlines creating financial headaches for you.

I have received an extremely attractive offer from a developer to purchase one of my investment properties. I would love to sell the property but I currently have tenants on a fixed-term agreement which does not expire for another six months. I don’t want to miss this opportunity but really don’t know what my options are. Are there any circumstances in which I can still make the sale?

This is certainly a challenging situation in which you find yourself! Unfortunately, in most cases, if you have a tenant in a fixed-term lease agreement, terminating their lease before time is out of the question unless there are mitigating circumstances. For example, if your tenants are behind in their payments or have somehow breached the terms of their rental agreement, you could possibly move to termination as an outcome; however, this must be governed by the terms of the agreement.

I would suggest you take this opportunity to communicate with your tenants and try to reach a mutually beneficial outcome. Just by talking to them, you may find that they are also seeking to end the lease early for one reason or another. If you are not this fortunate, you can always look to negotiate an outcome that works for both parties. If both tenant and landlord agree to terminate a fixed-term lease early, then this is not a problem. Now it is important to understand the potential value of the sale to you in order to establish the terms of your negotiation. 

Perhaps a period of discounted or free rent would be enough to gain their agreement? Maybe they are great tenants and you are comfortable that you can release their bond early, allowing them to move on sooner? Again, it is important that you understand the potential impact that any inducement may have on your financial situation and that you base all of your decisions on common sense.

At the end of the day, if you reach a mutual agreement with your tenant, you are well on the way to completing your sale , so consider your decisions carefully. By taking your time and going through careful negotiation you are giving yourself the best chance of success. Remember, if your tenant does not agree to terminate the lease, then you are unfortunately left with no choice but to wait until the lease reaches the end of its term.

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