Removing Problem Tenants

willister · 12th Sep, 2012

Was wondering if anyone can offer any help/viewpoints....

We have a consistently bad tenant. Payments are almost always late, he has on occasions deliberately damaged some of our fixtures and fittings. I suspect his business is not really going well and so it looks like it's going to be the same slow payments etc and causing grief with numerous complaints.

He has a renewal option coming up next September - one for a 5 year option. Frankly, we live too far away to be dealing with this crap and need time to do our day jobs. We've seriously considered selling the place and its a little too hard to manage and get a decent tenant...but we'd be losing heaps in this market.

Our new Managing Agent frankly told us this is a problem child tenant and it would be best we get rid of him, he's had 2 "solutions":

1. Increase the new rental rate by $10,000 next September during review time to hopefully scare him off and he won't take up his option.

2. See out this initial term, be frank with him upfront saying the landlords don't really wish to continue this relationship and give him option of leaving without penalising him...that is, he leaves, we don't chase him for breaking the lease and we find new tenants.

Thanks.

Bird Dog · 12th Sep, 2012

willister said:
Was wondering if anyone can offer any help/viewpoints....

We have a consistently bad tenant. Payments are almost always late, he has on occasions deliberately damaged some of our fixtures and fittings. I suspect his business is not really going well and so it looks like it's going to be the same slow payments etc and causing grief with numerous complaints.

He has a renewal option coming up next September - one for a 5 year option. Frankly, we live too far away to be dealing with this crap and need time to do our day jobs. We've seriously considered selling the place and its a little too hard to manage and get a decent tenant...but we'd be losing heaps in this market.

Our new Managing Agent frankly told us this is a problem child tenant and it would be best we get rid of him, he's had 2 "solutions":

1. Increase the new rental rate by $10,000 next September during review time to hopefully scare him off and he won't take up his option.

2. See out this initial term, be frank with him upfront saying the landlords don't really wish to continue this relationship and give him option of leaving without penalising him...that is, he leaves, we don't chase him for breaking the lease and we find new tenants.

Thanks.

Hi Will.
It sounds like the CIP journey has not been kind to you over the years as you've certainly had your fair share of problem tenants and issues.
Can I ask if all/most of the previous issues are linked to this one property?

Whilst I would always suggest you get the advice of your P.M on their view and experience, I would also temper their comments with the fact that both those options will result in them receiving a new letting fee. As stated, still seek their professional advice but work of your own gut instinct as well.

Regarding option 1, the golden rule in CIP is "always refer to the original lease" so I'd be checking first to see if the terms will allow you to raise the rent by such an amount. At a bare minimum if you want the tenant out then upping the rent within the lease parameters is certainly a mandatory step.

One other action I would do regardless of what happens down the track is for you to start tracking late payment events etc and to document them into an official warning of "breach of lease terms " to the tenant. Document all breaches and notifying them via the official channels so it’s on record.
Without seeing your lease, you may be able to remove the option to renew simply by stating that the original terms have been breached and thus forfeiting any further options.

Once you have all this documented and he is aware of the breach and the forfeiture, maybe then you can approach him with option 2 but on your terms, not his!

Another suggestion would be to call some other agents in the area and get their thoughts on how long it might take you to re-let the place as this will most certainly influence your final decision.

If the SANF is not balancing for you and your lifestyle, maybe you should consider moving it on.
If you decide to move it on though, once the tenant is out make sure you advertise it as both "for sale / lease" as you may very well find an owner occupier straight away.

If it leases instead of selling, as soon as the ink has dried on the lease whack it on the market and flog it off.

Good luck and do let us know how you get on...

Cheers
B.D

willister · 12th Sep, 2012

Bird Dog said:
Hi Will.
It sounds like the CIP journey has not been kind to you over the years as you've certainly had your fair share of problem tenants and issues.
Can I ask if all/most of the previous issues are linked to this one property?

Whilst I would always suggest you get the advice of your P.M on their view and experience, I would also temper their comments with the fact that both those options will result in them receiving a new letting fee. As stated, still seek their professional advice but work of your own gut instinct as well.

Regarding option 1, the golden rule in CIP is "always refer to the original lease" so I'd be checking first to see if the terms will allow you to raise the rent by such an amount. At a bare minimum if you want the tenant out then upping the rent within the lease parameters is certainly a mandatory step.

One other action I would do regardless of what happens down the track is for you to start tracking late payment events etc and to document them into an official warning of "breach of lease terms " to the tenant. Document all breaches and notifying them via the official channels so it’s on record.
Without seeing your lease, you may be able to remove the option to renew simply by stating that the original terms have been breached and thus forfeiting any further options.

Once you have all this documented and he is aware of the breach and the forfeiture, maybe then you can approach him with option 2 but on your terms, not his!

Another suggestion would be to call some other agents in the area and get their thoughts on how long it might take you to re-let the place as this will most certainly influence your final decision.

If the SANF is not balancing for you and your lifestyle, maybe you should consider moving it on.
If you decide to move it on though, once the tenant is out make sure you advertise it as both "for sale / lease" as you may very well find an owner occupier straight away.

If it leases instead of selling, as soon as the ink has dried on the lease whack it on the market and flog it off.

Good luck and do let us know how you get on...

Cheers
B.D

Hey BD,

Nice to hear from you again. Yeah, it's been a hellish ride, sometimes I just cringe at the thought of opportunity costs we've missed out on because of this "investment", the sleepless nights endured, from hell tenant's we've had to put up with.

All of these issues have been linked to this one property, some were partially our own fault, but most came down to very inflexible/just downright unmanageable tenants that weren't properly screened by our prior (add your own expletive here) agent.

Yes, we're at the cross-roads now, seriously pondering whether to give up on the CIP at this stage or press on. This game is way too risky/difficult for us...
I guess we are at the stage considering if it's worth it to stick it out for another 1-2 years to recoup losses then flog it off at a decent price in a decent market.

Good points made about the issuing of warnings that enables us in an "exit" clause effectively...

Scott No Mates · 12th Sep, 2012

If the tenant exercises the option whilst in arrears it is invalid unless they remedy the breach.

That's your right to hold out until one month prior to expiry or put a for lease sign up/webvert in the last 3 months of the lease.

Removing Problem Tenants

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