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I have a tenant in an office premises whose tenancy started in October 2018. I have received the monthly rent (which should be monthly in advance) mostly a few days late each month.
This month I have had to chase several times and have only just received funds today which was due by May 31st. I feel I have been patient enough and would like to now write to the tenant and advise that interest will be charged moving forwards on late payments as per the clause in the underlease. Problem is I am struggling to understand how this interest should be calculated! the clause in the contracts reads:
"If any Annual Rent or any other money payable under this lease has not been paid bythe date it is due, whether it has been formally demanded or not, the Tenant shall paythe Landlord interest on that amount at the Default Interest Rate (both before andafter any judgment). Such interest shall accrue on a daily basis for the periodbeginning on the due date to and including the date of payment."
Default interest is stipulated as 4% over the base rate so currently 4.75%. Monthly rent is £1,250 + VAT.
Can anyone advise how this should be calculated?
thanks in advance
My thoughts - As a completely unqualified person in this area would be:
The 4.75% is an annual percentage.
So as your terms state that interest will be charged daily, my calculation would be ((Amount outstanding * Yearly Interest rate) divided by number of days in the year)
That works out for 1 month (including VAT) as (£1,500 * 0.0475) / 365 = 19.5 pence per day
I could be wrong, but that's how I read it - And is 19.5p per day going to affect their behaviour at all?
Chartered Accountant, Tax Advisor and Mortgage broker
(and BTL portfolio owner)
Rural Practice Chartered Surveyor. Experienced in estate management, residential investments, planning and development and rights for utility apparatus. All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.
Also ask the person who wrote the contract for you as to why they included such an ineffective clause as opposed to something with teeth.
A specified admin fee + interest for every late payment would be more effective when it comes time to re-issue of said contract.
Or mandate a direct debit.
agree with your points, the contract does seem far too flimsy in that respect
the rent is late again this month and after discussing with the tenant they have explained they are having significant cashflow problems and have asked me to be understanding whilst they work through it. I have read through the lease which has a clause that reads:
RE-ENTRY AND FORFEITURE
The Landlord may re-enter the Property (or any part of the Property in the name of the whole) at any time after any of the following occurs:
(a) any rent is unpaid 21 days after becoming payable whether it has been
formally demanded or not; (b) any breach of any condition of, or tenant covenant in, this lease; © an Act of Insolvency.
If the Landlord re-enters the Property (or any part of the Property in the name of the whole) pursuant to this clause, this lease shall immediately end, but without prejudice to any right or remedy of the Landlord in respect of any breach of covenant by the Tenant or any guarantor.
I see my options are:
- exercise this right after 21 days, enter the property and change the locks
- be understanding and hope it gets paid
Essentially, being understanding is asking me to dip into my pocket and pay the mortgage, I don't think it is unreasonable to ask the company directors to do the same?
What would you do?
Advice very greatly appreciated as always