KEY POINTS:
Q. I own a commercial rental property in Auckland. My tenants are behind in rent. What can I do to recover this money?
A. You have several options to recover the outstanding rent and should contact your solicitor to discuss these. Your lawyer will want to see all relevant material including the written rental agreement (if one exists) or lease documentation, any guarantees, payment records and any file notes and/or correspondence regarding the issue of non-payment.
After assessing this information, your solicitor may recommend issuing a letter of demand. Even where your repeated requests for payment have proved fruitless, a letter of demand issued on a solicitor's letterhead may be enough to prompt payment.
In the event that this action does not procure payment and, depending on the amount of rental outstanding and whether the tenant disputes that amount, your options may include: filing a claim with the Disputes Tribunal; issuing a statutory demand; filing legal proceedings; and/or you may want to consider taking steps to cancel the lease.
In the event that the tenant disputes the outstanding rental, and that it is under $7500 (or up to $12,000 with your tenants' consent), you can apply to the Disputes Tribunal. This is a relatively inexpensive self-help remedy. While your solicitors cannot appear on your behalf, they can assist you in formulating your claim.
With an undisputed debt, your options may include issuing a statutory demand (if your tenant is a company), or issuing legal proceedings seeking summary judgment on your claim.
You may serve a statutory demand upon a tenant company for the outstanding rental provided the amount is over $1000, the demand is in the form prescribed by the Companies Act and is served in accordance with that act. The tenant company has 15 working days from the date of service to comply with that demand or 10 working days in which to apply to the High Court to set aside the demand.
If the statutory demand is not disputed and not complied with within 15 working days, a "presumption of insolvency" is raised and you may file liquidation proceedings in the High Court.
If there is no arguable defence to the outstanding rent (your solicitor can assess this with you), you may want to consider issuing legal proceedings, applying for summary judgment on the outstanding rent. Summary judgment is considered to be a relatively timely and cost-effective procedure. Evidence is given by affidavit, rather than orally, and the parties are not required to undertake formal discovery of relevant documents.
A tenant must file and serve any opposition and/or defence at least three days before the date for the hearing of the application. If no opposition is filed, judgment can be entered at the hearing date of the application. If your solicitor considers there may be an arguable defence or factual dispute, or if you apply for summary judgment and the court decides that the defendant has an arguable defence, the matter will need to go to a full hearing.
If you are successful in obtaining judgment but the tenant fails to satisfy the judgment, there are a number of enforcement options available to you. If the tenant is an individual, this may include: a court examination of the tenant's finances; a charging order over the tenant's property (if they own any); and/or an attachment order over the tenant's income. If the judgment is over $200 you could file bankruptcy proceedings in the High Court. As with liquidation, bankruptcy does not necessarily mean you will recover the debt due to you.
If it appears that the tenant is not going to be able to pay, you may also want to consider cancelling the lease. You would need to discuss this option with your solicitor as you may only cancel your lease in accordance with the procedures set out in the new Property Law Act 2007.
* Each week, national law firm Simpson Grierson answers commercial property questions which can be emailed and headed "prime asset question". This week's question is answered by senior associate Sarah Devoy and associate Corrie Wilkinson who can be contacted at sarah.devoy@simpsongrierson.com and corrie.wilkinson@simpsongrierson.com
* The information contained in Prime Assets is intended to provide general information in summary form current at the time of printing. The contents do not constitute legal advice and should not be relied on as such. Specialist advice should be sought in particular matters.
