tenants company doesn't exist anymore

[danel]

Hi guys, we own a strata warehouse, tenant been there 4 years in August.
Problem is, the tenants company has been put into liquidation. We continue to receive the rent and have been in this situation for about a year. The tenant has an option of another 4 years in August. We want to sell it but the tenant is paying cheaper rent due to them renovating 4 years ago. So, the properties value is diminished due to the poor yield. They expressed interest in purchasing it over the last few years by saying they would like to buy it. We approached them yesterday, told them our intentions to sell. They said that they would let us know.
If they want to buy it at a reasonable price, its all fine. If they don't, how do I sell a property with a tenant that doesn't exist?
Cheers

 

[Ausprop]

how can a tenant exercise an option if they don't exist? how much bond do you hold? whose bond is it now - the liquidators?? asics??

do you have personal guarantees on this place?

am sure your lease would have a clause that an act of insolvency would auto terminate the lease anyway

 

[danel]

The property is managed by our PM. We hold the standard bond. We were asked to give back the bond by the tenant, we said we would once we received a new bond. We didnt receive one so we didnt give it back. The tenant has been paying on time so we have continued on our merry way.
Not sure of personal guarantees, must check the lease. Im waiting a week for their decision to purchase, then give to an agent should they not want it.

 

[Ausprop]

this is a serious mess... i would encourage you to review your situation completely

 

[danel]

I thought its fair to offer them the property for sale. If they dont want it I should explain that they cannot exercise their option without the lease and that its up to them to negotiate with the new owner should they wish to stay on in the property?

 

[DaveM]

Wouldnt be surprised if the tenant registers a new company and requests a reassignment. What does your lease say about assignment?

 

[Terry_w]

Have you heard from the liquidators? Who is paying the rent?

What does your lease say about the tenant being in liquidation? Probably the tenant being in liquidation is a breach of the terms of the lease.

 

[John M]

When is the window in which they can exercise their right to take up their option period?

Talk to an agent pertaining to the price you can achieve selling as a vacant possession vs selling as an investment. At the moment I am seeing properties achieve higher prices from owner occupiers than investors in my local market. I'm also noticing owner occupiers are more likely to gain access to the necessary finance than investors at the moment. Without knowing where your property is, it's hard to say though of course.

I would advise you to examine recent sales (VPs vs investments) to assess what yields properties in the area are being sold with, and to identify what rates per square metre VP properties are sold at. Looking at properties on the market won't tell you this.

Of course it will depend where your property is, security of tenure (probably not good if they are in liquidation!) etc. and you may see different trends in your local area. Either way you will want to know whether it is best to sell it VP or tenanted before you either push the tenant to take their option, or try find a way to revoke their option.

If they are not taking up their option, and assuming you are best off selling it VP, it may be a good time to sell now. If you sell within the next couple months, the purchaser will buy the property as a going concern so they won't have to come up with the GST. They can then collect 1-2 months worth of rent and then move in.

Good luck with it all!

John

 

[Scott No Mates]

Interesting scenario Danel. How can a tenant who is in receivership, legally exercise an option? (Are they trading insolvent? Managers appointed? Only one minor business entity of the tenant in difficulties? Being wound up by ATO or Workcover because of tax/workers compo debt?).

 

[danel]

There were 3 guys in the company, one got booted out, the company folded
The 2 remaining guys have paid the rent on time for the past year
The lease has been breached in that the lessee doesnt exist?
The 4 year option is in August,
We have allowed it to continue with our fingers crossed
I have approached the owners a week ago and offered it to them for sale, they have not come back to me yet
Im hoping that they will want to buy it, no advertising or commissions, and also that the tenant can continue their business without interference
If they cant buy it, we will explain the situation to the tenant, that we cant sell it with a tenant that doesnt exist and that they can negotiate with new owner if its possible
Thank you all for your input and i will try to use it!

 

[Terry_w]

There were 3 guys in the company, one got booted out, the company folded
The 2 remaining guys have paid the rent on time for the past year
The lease has been breached in that the lessee doesnt exist?
The 4 year option is in August,
We have allowed it to continue with our fingers crossed
I have approached the owners a week ago and offered it to them for sale, they have not come back to me yet
Im hoping that they will want to buy it, no advertising or commissions, and also that the tenant can continue their business without interference
If they cant buy it, we will explain the situation to the tenant, that we cant sell it with a tenant that doesnt exist and that they can negotiate with new owner if its possible
Thank you all for your input and i will try to use it!

You have basically allowed the assignment of the lease from the company to the 2 individuals. Have a careful read of the lease. Is the option assignable and how.

 

[Dazz]

how do I sell a property with a tenant that doesn't exist?

Easy, you get rid of the Tenant using this clause in your Lease.....assuming of course you have this clause in your Lease.

If you don't, then you are snookered.

If:

(a) any part of the Rent shall at any time be in arrears or unpaid for 7 days after the same shall have become due (whether or not any formal or legal demand shall have been made); or

(b) the Tenant assigns, transfers, sub-lets, mortgages, charges, parts with the possession of or otherwise deals with any estate or interest in the Leased Premises created by this Lease or implied at law, or agrees so to do other than in compliance with Clause 9; or

(c) the Tenant shall at any time fail or neglect to duly perform or observe any of the covenants conditions or agreements contained in this Lease or implied herein and such breach or non performance shall continue for 14 days after written notice thereof shall have been given by the Landlord to the Tenant to remedy the same; or

(d) the Tenant is insolvent or enters into Voluntary Administration; or

(e) any execution either by writ or warrant or by appointment of a receiver be levied on or against any of the property or assets of the Tenant; or

(f) the Leased Premises shall be deserted or vacated,

then and in any such case it shall be lawful for the Landlord or any person authorised by the Landlord to re-enter the Leased Premises or any part of it in the name of the whole and upon the re-entry this Lease and the Term shall cease and determine without prejudice to any right of action or remedy of the Landlord in respect of the breach non-performance or non-observance of any covenant or condition hereof by the Tenant and the Landlord shall be released and discharged from any action claim or obligation howsoever arising to the Tenant.


For the purposes of the re-entry the Landlord or the Landlord’s appointed agent or servant shall have power to open by any means any door or fastening for the purpose of resuming possession of the Leased Premises and to expel and remove all persons furniture and other property from the Leased Premises (without being liable for any action for trespass, assault or other proceedings whatsoever for so doing).​

 

[eggnog]

Dazz, you just made my head hurt

 

[RPI]

Dazz, you just made my head hurt

I think Dazz could run workshops for lawyers on commercial leasing. The only problem for him then would be having to be in a room full of lawyers.

D

 

[Dazz]

Yes, we've modified our Leases somewhat over the years, massively improving them from the pathetic ones you purchase from boring lawyers who charge $ 1,500 for some dribble that you can drive a truck through.

The only problem for him then would be having to be in a room full of lawyers.

Give it a few months RPI, I'll let ya know.

 

[Deltaberry]

Your PM is grossly incompetent, like most PMs.

 

[Peterw]

Danel, there is no doubt you need to get a better understanding of your lease, and its terms and conditions. I would be highly surprised if it does not contain a clause at least similar to the one Dazz has listed. Is the lease registered? If so, then in QLD, we should issue breach notices, before we take possession. If not, then I believe it has effectively been terminated, and you are now in a tenancy at will, in which case the option no longer exists. I believe you can at any stage, start to discuss with the occupants, what you consider the current rent should be, and see it they are prepared to pay that. It they do not want to buy the property then the sale process should not be hard. Your agent should be able to promote the property based upon what the rental should be, if they are not prepared to pay that, and it can be advertised as vacant possession, and then it may also appeal to an owner occupier.

 

[Ausprop]

the ownership of the bond is particularly pertinent.

 

[Terry_w]

The problem here is that the tenant has ceased to exist a while back but the landlord has continued to lease the property to a third party as if the lease were in place. The landlord would therefore have an equitable lease with the people who are in there and paying the rent.

Sounds like the landlord wants to keep the tenants, so this lease should be put into legal form and perhaps the terms renegotiated.

There are also issues with the insolvency of the previous tenant which could effect the landlord. e.g. the security bond. Care must be take when considering handing this back as if you give it to the current tenants the liquidators of the company could cause you to pay it again to themselves as the previous company was the owner of that bond.

 

[danel]

Hi guys, it is clear that we must thoroughly check lease. I am waiting a couple more days for tenants decision on whether to buy or other intentions. I have started talking with agent about engaging and getting the ball rolling either way. Thank you for all your valued feedback once again!