How to Manage Late Payments on Commercial Properties
This is a shout-out to those hardworking and diligent commercial property managers.
We recognize that managing a commercial property requires more than cleaning, maintenance, and upkeep duties. Your owners and investors are counting on their property managers to protect their investments, to keep cash flowing , and to make sure the properties stay profitable. This means they rely on you to help attract viable business tenants and keep them happy.
Communicating regularly with the tenants has a huge positive impact. This includes cultivating an open, honest, professional business relationship (emphasis on the professional!!) and letting them know you care about them. Today’s commercial tenant faces fluctuating customer needs, global competition, and now, increased insecurity due to the impacts of COVID-19. This can sometimes negatively affect the tenant and their ability to pay rent regularly and on time. A property manager must be aware of these trends and threats, since by affecting the tenant, they will also impact the property owners.
Caution: while customer service and customer care are significant parts of the relationship with tenants, it’s always important to avoid becoming a “buddy” to a tenant, since this leads to errors in judgment and false expectations, and will not serve anyone well if things go bad for them.
Steps To Tackle Late Payments:
1. Establish A Collection Policy
It is important that property managers and owners establish, follow, and communicate a collection policy that treats all tenants equally, complies with specific lease requirements (such as written notification periods) and exemplifies the landlord’s wishes. Tenants need to be informed of these policies from the very start. Their minds will be focused on business success. They don’t want to consider failure. But this is business, and policies like these must be clearly understood and accepted.
2. Watch Tenant Arrears Closely
Watch tenant arrears closely and establish processes that make sure you are made aware of payments or non-payments as soon as possible. If you are responsible for maintaining accurate and timely records, then make this a top priority. If the owner’s bookkeeping department does this, then make sure they notify you immediately when there is a “Late Payment Issue.” REMEMBER: even though it might be the bookkeeper’s responsibility to do this, it is up to you to remind them if you don’t hear anything from them by the rental due date.
If a tenant starts going into arrears, do something about it immediately. Find out from the tenant what is happening and why. Pass the information on to the owners or refer to the policies they may have already put in place.
3. In-Person Resolution
Collection is not the most pleasant of your duties, but it is one of the most critical. Obviously getting tenants to pay their rent is central to their entire contractual agreement with the owners. Generally, delinquencies sort themselves out in a few days. Tenants can have cash flow issues, of course.
But if things go beyond a reasonable delay (something that might be defined in the contract or lease), then you will have to approach the tenant, face-to-face if necessary. This is why it helps to cultivate a professional business relationship with the tenant from the very start – it makes conversations like these less threatening and more cooperative.
Your dual priorities are to deliver great customer service to the tenants, but at the same time, protect and enforce the interests of the owners. Many problems - including emotions like fear and anger on the part of the tenant – can be resolved through professional and friendly conversation. But remember to always identify and tackle any attempts to involve you in their monetary issues. Listen and sympathize but do not leave without a firm and acceptable provisional payment plan, complete with dates and amounts.
Don’t let yourself feel guilty or bad about this. It is important to establish and maintain boundaries of acceptable behaviour within the landlord/tenant relationship. You and the landlord are doing your part, it’s important they do theirs.
One final point. In most cases, these types of situations are rare in the life of a tenant’s relationship with you. Once it is cleared up, the tenant will likely remember how well and fairly they were treated by you, and this often leads to stronger, more reliable relationships in the long-term.
When To Call In The Bailiffs
If your tenant misses the deadline or terms of the agreement they recently made with you – then they have defaulted twice. The first time was when they didn’t pay the rent on time. The second was when they reneged on the provisional agreement.
This is enough to justify calling in your favourite bailiff.
When a tenant defaults, there are two alternatives available to any commercial landlord:
- After three days in default, the landlord can distrain on goods. This means the bailiff attends (shows up) and, without locking the door or preventing the tenant from conducting business, removes goods and chattels (items that have value and that can be moved from one place to another) sufficient to cover the rent plus costs.
- Or, after 16 days in arrears, the landlord can terminate the lease. The bailiff attends with a locksmith, changes the locks, and takes control of the premises.
Either of these remedies still allows the opportunity for you to work with the tenant to resolve their situation if they are willing. An experienced bailiff can help make the situation a win/win for all the parties.
A Bonus: By working together in this way, respectfully but forcefully, the property manager and the landlord are able to prove to the tenant that they are responsible for ensuring the safety and viability of the property that the tenant wishes to do business upon. This in turn, should help encourage prompt, timely payment and a relationship of communication and collaboration going forward.
WHAT IS AN ONTARIO BAILIFF?
There are two types of bailiffs in Ontario
- Provincial Correctional Service Bailiffs who escort prisoners, and
- private sector bailiffs.
Napier Bailiffs Ltd. is a private corporate Civil Enforcement Agency appointed by the Ontario Government to act on behalf of business, individuals, or municipalities to seize or repossess property and Commercial Landlords to evict Tenants. Pursuant to regulations within the Personal Property Security Act, Repair Storage Lien Act, Commercial Tenancies Act and Municipal Tax Act.
DISCLAIMER: We are not a law firm, the information provided is not intended to substitute for legal advice. Always seek appropriate legal counsel for your unique circumstances.