Hi everyone.
I have a few legal questions regarding exactly what you are buying when you buy an industrial investment property.
We took over a run down shed complex from trucking operators who ran the show absolutely dreadfully. Rubbish everywhere, slack tenants, verbal wink and a nod agreements etc.
Having purchased the place for less than block value – with many dramas during the actual settlement period – we now find ourselves in the thick of negotiating with tenants who frankly have been let run wild for so long, that reining them back in to a normal written lease arrangement is nie on impossible.
We have had success with one tenant who is now all locked up with a properly documented signed and executed lease and he is now on his way with a 3yr term, with 2 x 1 yr options over the unit.
As for the rest, well everything is done by cash and “carton currency”, and they aren’t interested in any paperwork whatsoever, especially the one who is illiterate.
Anyway, some are saying that they flat refuse to pay me rent and what am I going to do about it…and some say they are going to leave and tear down almost everything in the unit as they installed some fixtures and fittings 6 or 7 years ago.
So….if a tenant puts up verandahs / sheds / partition walls many years ago and then doesn’t want to stay, does he have the right to tear it down, or is there some implicit agreement between myself and the previous owner where I have actually bought it ???
Very confusing and frustrating dealing with people where English isn’t their first language, some are illiterate and some know some heavies.
These are the things that I have tried and definitely do not work ;
1. Sitting down and discussing it with them.
2. Writing them letters – both offers to take up a written lease and when that was ignored letters of notice and finally eviction…The normal framework of legal actions doesn’t seem to work with these guys who do not respond to written communication.
The only thing these guys do respond to is physical intimidation or money threats…but then playing that game for many years, I find they are very good at both.
Converting all of the tenancies onto a written lease shall increase the value of the prop. enormously, with a gross yield of about 16% expected and increasing with CPI as the years tick by, so the headaches are worth it, just need to go thru the pain I guess.
Looks like I’m going to need a property solicitor in Perth – wherever they are – but your thoughts would be appreciated.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Out of curiosity Dazzling, are these additional verrandahs / sheds / partition walls permitted?
Perhaps a bulldozer and a new development might be less hassle and possibly more lucrative.
Cheers
JeffJeff,
As with everything else on the property – it is either dodgy as all hell or old and clapped out. Building inspector found many faults, with many structures erected with no council approval and as usual, a bit of a wink and a nod from the owner, a carton of beer passed for the favour and a “she’ll be right attitude” overall.
A new development would definitely be less hassle, without a doubt, but then what type of return should I expect when for absolutely not a cent I can extract 16% ?? To make it worthwhile it’d have to be up into the 30’s…which I think might be pushing it a bit.
I’m happy to put up with some of the hassles, but I need to know exactly where I stand legally when “sternly chatting” with these guys. I’ve noticed when a wrong assumption has been left to fester for year upon year, it eventually turns into law and fact…this is what I am trying to turn around.
On the bright side, after 9 years of neglect and sloppiness, we’ve turned 1/6th of the property around in 3 weeks…by that timeframe we should have the other 5 stitched up in a couple of months, with a commensurate rise in property value with the locked in executed leases.
I think we’ve taken on one of Steve’s “problems and solutions” type places….
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
The ones that leave id say good riddance to bad rubbish, you’re obviously upsetting the applecart anyway and maybe it’s better to get things sorted from the outset..
keep us posted sounds interesting..[fear][handlebars]
I presume the previous owner was lax on the paperwork…
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorYes Redwing – just a tad.
No paperwork at all, lots of cash under the counter, beer jobs, bartering and verbal agreements.
A few of the smarter ones are just starting to realise that because nothing is written down they can’t prove anything and are now having trouble with me as their Landlord and the ATO with their returns.
The few who flat refuse to pay any rent, and I’ve since learnt weren’t paying rent previously are best to just move on…tonnes of rubbish to shift though, so not as easy done as said.
We’ll get there…., back to the original question, anyone have any idea of what you actually buy when you buy a place, and what the tenant is allowed to tear down, even if they did pay to put it up years ago ???
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
What a challenge. Good luck with it all and keep us posted.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Bit of progress with the ‘problem child’ we purchased two months ago now.
Letters of abandonment have gone up on the 2 units the recalcitrant tenants occupy who’ve refused to pay rent from day 1.
They are having a meeting with the forklift and dump truck next Monday.
We have 2 or 3 tenants lined up ready to go in there, paying 40% more than what these guys were supposed to pay by didn’t….so we had a bit of a win there.
The fourth unit is occupied by a fibreglass chap, who didn’t want to stay under our conditions of a written lease, but is currently paying our increased rent (jumped his from $ 1500 p.c.m. up to $ 2,500 p.c.m.).
The back two most valuable units with the half acre of laydown area that a 40′ semi can turn around in are still unlet at this stage, but we are already extracting more rental from the place than the previous owners and the level of tenants has improved dramatically.
I reckon we are about 40% of the way there with the place now….inching forward slowly…once we have them all wrapped up on 3 yr leases we can sit back and enjoy the 16% gross yield.
Legally we are probably not doing the right thing by forceably kicking out these clowns who won’t pay, but following the legal process, which is pretty vague to me, is frankly complete bollocks.
I fail to see why I should extend the rights they deserve as they are not upholding any of their responsibilities…
Anyway…
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Commercial and retail property requires a tenant leave the property in the state they received it. I went through similar problems with my landlord at my office. They wanted to do a market increase of the rent without repairing any problems that have been ongoing for years. The problem was that their opinion and mine as to market rent was very different.
Considering I re-did the shopfront, walls, the floors, the ceilings, the lights, the plumbing, etc., I threatened to strip the shop down to bare walls, floors and replace the stainless downlights I installed with those ugly huge lights you see in factories. I even threatened to replace the shopfront with an old crappy thing. I also informed him that I would remove the grease trap and hood that were there when my family bought the food business before my office went in so any new tenants would require full Council approval to put a food outlet there again. I was only going to leave basic lighting, a tap and bare walls, floor and ceiling. This was a better condition than that which I received the property.
The landlord sent threatening letters, agents and numerous letters from solicitors. I continued to pay my previous rental amount as agreed but started to do so on the last day allowed each month before legal proceedings could commence. After all, I had the a Retail Lease on my side with 2 years left to run and an option for 5 more.
Anyway, the result was no rental increase, many needed repairs were made to the building and I still pay my rent on the last day possible to prove a point. I have not heard a peep from the landlord or his agents since.
I should also mention that during the dispute, I contacted the health inspectors, Fire Safety Inspectors, Local Council and the Real Estate Institute to organise an expensive impartial rental valuation (never eventuated) to be undertaken by someone recommended by the Commissioner as allowed for in the lease. I think the fire safety breaches and following repairs as well as the expensive clean up and repair of common area facilities cost the landlord about $26,000 so far.
The moral of the story is, do NOT anger your tenants too much by unreasonable requests or huge rental increases as the result can very easily backfire in a huge way!!!
Robert Bou-Hamdan
Mortgage AdviserThanks Rob,
Not sure about your first statement…it was the thrust of my question…most of the situations are covered and governed by the in place lease I thought. I’ve certainly never read on any comm. lease that the tenant has the right to strip the premises bare – in fact I’ve read quite a few where it says any improvements made to the premises are to be left as is for the benefit of the Lessor at the expiration of the lease term.
My difficulty is they are all on a wink and a nod verbal – nothing agreed in writing….one has to be literate to get to that state.
Obviously if written leases are in place, rent increases are agreed upfront – there is no room for argument on eiher side – unless it’s “at market”.
Interesting to hear the other side from the tenant’s perspective. I guess arguments prevail as both sides try and squeeze the best deal for themselves, and literally they are diametrically opposed. In most cases I’ve seen, this Win / Win situation rarely pops up…hard to achieve when the tenant constantly says he wants rock bottom rent regardless of any ‘sweeteners’.
Good chatting with you anyway.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
What I meant in the first part was that in the absence of a written and executed lease to the contrary, the tenant can room all fixtures and fittings that they put in place. They are only required to leave the premises in the state they received it – allowing for normal wear and tear of course.
You will find that a Court will not enforce ownership of fittings paid for by a tenant if there is no contract to the contrary as the landlord receives rent for the ‘bare’ premises and should be left with the ‘bare’ premises.
Robert Bou-Hamdan
Mortgage AdviserGood to hear you’re having a win, albeit slowly dazzling
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorAnother big step forward today…it was forklift day !!! YES [biggrin]
The two tenants are out and the place looks a whole lot better. Locksmith has been and gone and we are now in control finally of our whole property for the first time ever.
The two losers who were occupying the units without paying rent have been turfed out – without involving the lawyers and court circus…and now we simply move on and tenant it out to reputable business people who are prepared to stand by their word (and hopefully can read and write).
Being out of Oz at present, the burden of confrontation fell back to the wife…to which she handled it magnificently !!!
Having done this before, I know this is stressful stuff going toe to toe with losers…I think Bailiffs are underpaid – whatever they make it isn’t enough.
Anyway, a very large step closer to having this IIP ship shape…we are on track with our self imposed deadline to smarten the joint up.
As I posted in this thread earlier, we bought this place knowing full well we’d have these problems…but also realising if we could fix these problems the value of the place would sky rocket. Solutions I’ve found, are way harder to successfully execute than just sit down and think out or plan.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Well done Dazzling. Good luck with the rest of the project. As to the fittings. It would be pretty hard for either party to assert ownership in the absence of an agreement. Would need to aduce evidence from the previous owner and contractors etc. Very expensive and risky. Sounds like your wife is doing a good job anyway.
Cheers
Another update…
One more unit has been tenanted out for 50% more than what the previous tenant who got kicked out was paying…well, it’s hard to compare against someone who refuses to pay you rent, I guess the %age is infinity really.
Also had a chat with the neighbour who mentioned he wanted to rent out the front laydown area…more “stuff” to keep. He’s old school, doesn’t like paperwork so we’ve arranged a little cash deal on the side. Need to take the ol’ paperbag over there once a month. I just love these people with “stuff”…it just overflows everywhere and they need to put it somewhere, all at a cost mind you.
The best part is the recalcitrant tenant’s have gone, and despite threatening legal action over our “forklift eviction”, as expected, they were all puff and wind…nothing happened so the path is clear now to sign up some decent tenants without any of this ‘just a few days more’ caper of no rent and slothful housekeeping practices.
The place is now over 50% tenanted and the self imposed deadline is also at the 50% level, so still on track.
Once the property is fully signed up with executed 3 or 5 year leases…thinking of flogging it off…although the temptation is there to just let it sit and grow, with the tenants paying for it all. Haven’t made our mind up on that one as yet. Anyone have an opinion ??
The biggest problem we find is both the wife and I do not like dealing with these rough characters. They are usually not familiar with contracts and hence even when committed with a written lease, they do not “feel” obligated, which makes the battle just that much harder.
If we do flog it off, it’ll be to some hi faluting Eastern States squirrel who thinks a 5% return is just tickety boo.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
CONGRATULATIONS
Good Effort by your wife also; may have been more beneficial and less confrontational.
-A good baliff used to be “Bluff” a 140kg+ maori, used to work in the Armadale area from Memory
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorDazzling, Congratulations on a great outcome. With regards to your question about opinions, I would be thinking about two things. Firstly, in your initial posts you said things were a bit shabby & run down. Have these items been fixed with the forklift or could there potentially be some large repairs upcoming? Secondly, if the property is now all ship shape, why not just put a PM in place to deal with the riff raff on a monthly basis. If this property is putting a good return in your pocket & you have negotiated all the leases already, the PM only needs to collect the money. Therefore they may be happy to reduce their commission rate & you do not need to deal with the stress of speaking to them monthly. Just a thought[cap]
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