Dealing with Struggling Tenant at Center

Q: I'm dealing with a struggling tenant at my shopping center. The tenant has been late paying rent two months in a row. If I continue to accept late rent each month, could the tenant argue that the lease has been modified by my actions and it’s entitled to pay late? What is the best way to handle this situation?

A: It’s critical to take action as soon as a tenant sends a partial rent payment or misses a rent payment altogether. Nonpayment of rent is the most common breach of a tenant’s lease—and a major signal that it’s on the verge of a default. You’ll have to decide whether you want to help the tenant, but regardless of how the situation plays out, don’t forget to enforce the tenant's lease terms at every point in the process.

First, quickly deal with the issue to prevent the tenant from inadvertently modifying the terms of the lease. For example, if you allow the tenant to pay late every month or accept partial rent payments, it could argue that the lease has been modified by an oral agreement. You can do this by affirming the lease with the tenant. Immediately meet with the tenant to affirm the terms of its lease since it has already made late payments. Tell the tenant that rent will continue to be due on the day of the month specified in the lease; note that you have accepted its two late payments as a consideration, but you won’t in the future.

When determining whether it’s feasible or in the best interest of your center to try to keep a tenant that’s breaching its obligation to pay rent, there’s a major issue that should be a consideration. Sometimes it’s more advantageous to help the tenant to some degree, rather than enforce the lease in its entirety and then evict the tenant for nonpayment, based on the outlook of your whole property. For example, you may need to retain the tenant because it’s important to the synergy at your center or because losing it will violate cotenancy rights of other tenants or other occupancy requirements.

If you look at a tenant in isolation, you may not realize that by letting it go dark you might be tripping up another tenant’s cotenancy clause. In that case, it would be wise to try to create and implement a plan that will help it continue to operate in your center until its business improves. Even if the tenant isn’t paying rent, it might be advantageous to keep the lights on, depending on the wording in certain cotenancy clauses.