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Our Thai tenants have just asked for a rent reduction


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We rented out our building to a nice couple (who are not married) and they signed a 3 yr contract. Facts:

 

- Due to covid / poor economy we gave the first 2 months free when signing the contract in Jan this yr.

- Actually back in Jan they said they didnt want the building until March/April and I thought it was good to sign them up right away on the proviso of getting the first 2 months free. 

- They have thus far only paid 1 months rent to us. The next payment is due on the 1st May. 

- They have made considerable alterations to our building- all of which we agreed to in the contract. 

- They are both quite well off if one takes into account the cars they drive, clothes and other business they run. 

- They said they closed their 4 other business (1 in bangkok and 1 in our city)

- Our city is not in a red zone (yet) for the covid crisis

- We have a mortgage on the building which is higher than the current rent. I suspect they think we own the building outright.

- The interest we are paying on the loan is not so high to be honest. 

- We have a profitable business which is still going strong now and can afford a rent reduction.

- We were in 2 minds as to whether we should even rent out the building as our business easily pays the mortgage. I really liked going there and saw it as my man cave. I was a bit sad to hand the keys over to be honest. 

 

So my wife takes a call from one of them (the Thai lady) and she asks if we can reduce the rent. She said she will talk to me and we will let them know. The wife made the point to me that maybe we pushed them into taking the building early by offering 2 months free. I didnt hold a gun to their head with a pen in the other hand at the time of signing the contract. 

 

I was a landlord back in the mother country for 20 yrs and wouldnt take this <deleted> at all. But this is Thailand and of course my wife feels sorry for them. 

 

If we dont give reduce the rent and they give 2 months notice to vacate and put everything back the way it was.....its not the best situation for us. But personally I suppose I would be ok because I get to go back there all the time but annoying to lose the 3 yrs rental income. 

 

Anything is possible in Thailand and the contract is not registered at the land office and thus is as worthless as toilet paper. Thus if they stop paying rent and abandon the building, we are left with the deposit which I calculate will just cover the alterations they have made. In retrospect I probably didnt ask for enough deposit. 

 

Its a hard decision to make and my gut feeling is that I say no way. I drive past the building all the time and noticed they even had workers putting in benches for their proposed restaurant. They recently put up a huge steel structure for a sign. They have improved the outside area with lattice etc.  They put new lights inside and out. They put up a brick walls for their kitchen area in the back. 

 

Or should we make them sign an agreement to give them x % reduction on the proviso that in year 2 of the contract they increase the rent a bit more than the current contract states. 

 

Any suggestions are appreciated...

 

 

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Its a business not a charity, if they cant honor the agreement. Shut it down ! Dont make their problem your problem. If this has come up at the 1st payment whats next more free time, lower i

Awkward situation but it won't get any better. By being considerate previously, you have created a scenario in which you will be on the hook for any further deterioration of the economic situation. It

Be creative and also think about your chances of finding new tenants if these move out.   I think that rent should not cover interest + mortgage amortization, it's a sign that the rent is a

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13 minutes ago, BangkokAlan said:

You could also consider reducing their rent now until they open to help them while they have no income but get a confirmed opening date and tell them this is a deferral and this reduction will be added back in year 2 and 3 of trading but if they leave they must pay back the reduction . But if they stay you may the full term you would consider to write off the short term rental reduction as you had 3 years. My experience managing large commercial retail building if they cant make it work before opening it will never work and they will leave early leaving you with rent arrears, re-instatement costs, and utilities unpaid that the deposit wont cover.

Thanks so much for your 2 comments. 

 

Having thought about them more... back in Jan I was thinking they were very astute business people and are negotiating with us now. When they split the monthly rent between them I dont think its the end of their world. They said that they have closed all their other businesses but have salaries to pay. Probably B.S

 

Your questions:

1. Is your rental fee at a fair market level?

Its high end fair value based on being the best position in town. 

 

2. Is there any impact to their proposed trade from covid that was not apparent in Jan when they signed the lease?

No, same covid situation. We are not in a red zone or anything and no lockdown.

 

 

3. Are they behind in preparing the opening so expect you to cover the shortfall in their income while they finish there fit-out and open? In this case i would not give a reduction.

Its possible but I dont know. A good point you make though

 

4. Did they get their feasibility assumptions on construction cost wrong and spent too much and again want you to support their mistake?

Its possible but again I dont know. They made some quite big changes to my building which I agreed to in the contract. The biggest being that they took out 4 big new windows that we previously installed and knocked out the brickwork under the window frame area. We agreed to it spefically in the contract. After they did this we got a message from them asking if we can store the glass and the frames at our place.... ha ha. A big no to that one. 

 

I think Im going to say to them that they must pay the rent in a few days at the agreed amount and that I will discuss with my attorney and let them know. 

 

What Ive learnt from 20yrs of tenants is that if you give them too much they will expect more down the line. 

 

23 minutes ago, BangkokAlan said:

You could also consider reducing their rent now until they open to help them while they have no income but get a confirmed opening date and tell them this is a deferral and this reduction will be added back in year 2 and 3 of trading but if they leave they must pay back the reduction

Your idea is excellent and this is what I want to discuss with my attorney. 

 

I do worry about our deposit being so low. I wonder if we could ask for more if we agree to reduce the rent??

 

Thanks so much for your comments

 

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10 minutes ago, Poet said:

Only by being absolutely firm now can you relieve them of the continual fear that there is some additional concession they could get from you. If you cede even one satang now, the prospect of more concessions will keep rattling around in their heads for the next 3 years.

I totally agree with this. 

 

Interesting that the nice kind thai lady calls my wife. Not the thai guy calling me.... He knows Im quite hard.

 

13 minutes ago, Poet said:

tenants who are shameless in taking advantage of your wife's decency.

yes

 

Im going to have to think it over for a few more days. 

 

Thanks for your ideas on this

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I think that as soon as you give them anything they will soon be asking for more.

If you say you lower their rent by x% in the first year, but will add this x% in the second year, this would just give them an incentive to make a runner after the first year, so I don't think this is a good idea.

Make up some excuse why you need the money and can't lower the rent and just stick with it.

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11 minutes ago, richard_smith237 said:

Who paid for the alterations ????

They did. 

 

As mentioned above in another reply we allowed them to take out the new windows and the brickwork below it. Not structural change as such - purely cosmetic but kind of expensive to put back especially if they dont return the windows...

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I would just renegotiate the whole thing.  Sounds like that is pretty much what is going on anyway.

 

If the rent does not service the debt it's not going to work out.  Less rent money now is OK but increasing

rent in years two and three.

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45 minutes ago, CharlieH said:

Its a business not a charity, if they cant honor the agreement. Shut it down !

Dont make their problem your problem.

If this has come up at the 1st payment whats next more free time, lower it more, give a mouse a cookie and he"ll be back for glass of milk !

I think it depends how bad the economy is going within the area.

 

Here in Samui many commercial landlords who tried to play hardball are now sitting on empty decaying properties with little chance of finding a tenant in the coming few years...and if they do find one, the rent would be way lower than the one they tried to take before the covid.

 

The business of my gf is shut down and she pays 15% of the rent on paper, and I know many other business owners with temporarily shut down businesses who don't pay rent at all.

 

If the tenant now estimates that the business would run at a loss due to the current circumstances,  they either need to reduce the  rent, or walk out.  And commercial rental agreements are not as enforceable as in the West - a small business will just walk out if it runs at a loss.

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1 hour ago, CharlieH said:

Its a business not a charity, if they cant honor the agreement. Shut it down !

Dont make their problem your problem.

If this has come up at the 1st payment whats next more free time, lower it more, give a mouse a cookie and he"ll be back for glass of milk !

And to add to this, I find that the following is quite true...

 

https://en.wikipedia.org/wiki/No_good_deed_goes_unpunished


 

 

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7 minutes ago, kingofthemountain said:

i was the bum farang tenant of a condo. a good tenant, paying rent in time and taking care of the condo. not asking about anything.


To be fair, that makes you a pretty great tenant, not a bum tenant.

We may be bums in other aspects of our life, but all a landlord cares about is that he gets the agreed rent on time every month and remains blissfully unaware of you at all other times. Most of us farangs have, at least, mastered that life skill.
 

11 minutes ago, kingofthemountain said:

No problem, i moved to another location and ended paying half of the price i was paying

 

The Thai owner? He is now siting on his empty condo since 2 years with his rent indexed on  his monthly paiement to the bank,

At some point maybe he will realise something is better than 0?

Or maybe not?


Yes, your landlord made a business mistake. Like many small business people, he was emotionally unable to deal with the reality of his competitive enviroment.

The OP's situation is different. Your request to your landlord was reasonable and, because you were at the end of your contract, did not break an existing agreement. His tenant is seeking to renegotiate an existing and very recent agreement. He has no way of knowing that it won't keep happening. Any way you slice it, these tenants are unlikely to be the low-stress, low-maintenance tenants that every landlord wants.

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On 4/29/2021 at 10:04 PM, BangkokAlan said:

You could also consider reducing their rent now until they open to help them while they have no income but get a confirmed opening date and tell them this is a deferral and this reduction will be added back in year 2 and 3 of trading but if they leave they must pay back the reduction . But if they stay you may the full term you would consider to write off the short term rental reduction as you had 3 years. My experience managing large commercial retail building if they cant make it work before opening it will never work and they will leave early leaving you with rent arrears, re-instatement costs, and utilities unpaid that the deposit wont cover.

Never heard of a business making money before they open. 

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The way that I see it is that the agreement was made before this UK mutation of the Covid-19 hit plus well before Songkran and now many businesses are in trouble. The customers are just not going to many businesses because of the unsurety of this bloody virus. I know my wife's business has dropped and the customers are just not coming because of this virus, her business has been operating for over 2 years but we are seriously thinking of closing it because we cannot continue to pay the rent, electricity and water now because the income is just not there now. Unless her landlord is willing to do something about the rent then we will close and then the landlord will lose that income. They did not want to sign the agreement and move in until April/May but you coerced them by giving them 2 months free rent. If they had of continued with their plans of April/May they probably would not sign the agreement because of the changes in the situation with Covid-19.

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37 minutes ago, Scouse123 said:

What kind of business people are they to agree a rent, commence alterations and seek a reduction before opening the business?

 

It says they haven't done their sums properly! Covid19 does not enter into this because it was January 2021 not 2020 when they agreed the deal. Your misgivings about renting it out do not come into the equation here and have no relevance except for you personally.

 

Thais usually drive a hard bargain and if they are pulling on your wife's heartstrings means they have identified her as the weakest link. You say it doesn't affect you and you can afford to reduce the rent as it is easily affordable through your other business.

 

I would sit in on the conversation, offer a rent reduction on a charitable basis or ' good heart ' as they like to phrase it, making sure your wife gets the message across loud and clear, it is a one time deal.

 

Make sure you get across that you know how difficult it is for people right now with the economy and you want to help them but you can only do it this one time. Believe me, after 25 years experience in business in Thailand, they get this and they get being spoken to like this as you come across as fair minded.

 

That way, you stay the good guy, you look good to your wife as reasonable and not uncharitable. You have given them a break. Your wife will remember that you have done this for them and it gives her ample ammunition in the ' face ' stakes if they try to come again.

 

I would not pretend all is rosy in the garden, I would tell them I have to pay the bank and I have repayments too. That way if they are trying it on, they will think twice before asking again.

 

I would draw up a new contract, whether it is valid in court or not because they have shown their colours and they are wanting it to succeed by what they are putting in right now in terms of capital.

 

I doubt they will increase their deposit as it is probably already committed or spent on alterations.

 

I never take notice about what people are driving, even in the UK, my sons mate drives a nice Mercedes on lease finance and he's a plumber.

 

Good luck. In these times you can afford to bend as it states in your OP, and you are giving a bit back and a helping hand but ensuring you are not taken for a ride.

 

I have a German mate leasing a small resort on Samui, his Thai landlord has reduced his rent from 80K THB a month to 25K THB a month up near fisherman's village in Bophut. I say that just so you know, the Thais understand the hard times people are facing as well as us.

Sorry but this new strain of virus does enter into it because many things were starting to pick up until the new mutation hit and now many people are a lot worse off than they were since the end of March this year.

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28 minutes ago, GreasyFingers said:

Depends if you want to think like a Thai landlord verses a farang landlord. Both ways you will have empty premises if you listen to some of the posters on here. You wonder if they have ever run a business or been a landlord.

As a previous commercial tenant, landlord and managing agent I would think of that old English saying: "a bird in the hand is worth two in the bush"

So what would you do in this situation if you were in my shoes?

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