Follow Two-Step Lease Enforcement Plan for Imminent Eviction
Nonpayment of rent is the most common breach of a tenant’s lease—and can be a major signal that trouble is on the horizon. That trouble could come in many forms: A tenant becomes bankrupt or has financial issues, it withholds its rent because of a perceived problem that you’ll have to hash out, or it has found a better space and is preparing to move out despite its lease.
If you think that the tenant’s missed or partial rent payment means that it’s on the verge of a default—regardless of the reason—you’ll have to tread lightly when taking measures to evict it. Handling an eviction poorly may create a contentious situation for you and your property manager, or even result in a lawsuit for wrongful eviction. At the same time, you need to make sure the tenant continues to stick to its lease obligations, or you’ll be left on the hook for its shortcomings. So how can you enforce the lease of a tenant on the verge of eviction?
Step #1: Protect Your Interests
It’s possible that a partial rent payment or missed rent payment is simply an oversight. So confirm with the tenant that that isn’t the case. Then, if the tenant is having financial problems, but you want or need to retain the tenant, first try to create and implement a plan that will help it continue to operate in your strip mall, shopping center, or office building until its business improves.
When determining whether it’s feasible or in the best interest of your center or building to try to keep a tenant that’s breaching its obligation to pay rent, don’t forget to enforce its lease terms at every point in the process. To do this, consider taking these measures:
Affirm lease. Affirming the lease is a good first move. That’s because, regardless of how important your tenant is to the building or center, you should worry about yourself 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. Prevent this by immediately meeting with the tenant to affirm the terms of its lease as soon as it makes a late or partial payment. Like our Model Notice: Don’t Let Tenant’s Actions Modify Lease, your affirmation notice should make it clear that rent will continue to be due on the day of the month specified in the lease, but that you are accepting the late or partial rent payment as a one-time consideration.
It’s very important to affirm the lease so that it doesn’t become modified, particularly if the tenant thinks that it can pay one week’s rent at a time throughout the course of the month. Don’t let it turn your deal into a week-to-week tenancy.
Look at “big picture.” It’s also crucial to base your enforcement on cotenancies that already exist. In some cases, 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. You should base your decision to enforce your struggling tenant’s lease (even though you know that it cannot pay), help it, or let it out of its obligations altogether on the outlook of your whole property. This is especially important at retail properties that have tenants with cotenancy clauses or other occupancy requirements in their leases. Create a tenant strategy manual with your property manager that includes information about cotenancy clauses that tie the struggling tenant to the overall occupancy of the center.
If you look at a tenant in isolation, you may not realize that by letting it go dark it might be tripping up another tenant’s cotenancy clause. 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.
Practical Pointer: Don’t talk to tenants about an eviction that is or may be happening in your center or building. You and your property manager are under no obligation to talk about what is happening with another tenant’s lease. Even if a tenant’s cotenancy clause may be affected by the eviction, it is the tenant’s responsibility to enact the clause—not yours.
Step #2: Stick to Lease Terms, Local Law
If you ultimately have to let your struggling tenant go dark, it may become contentious. Protect yourself by enforcing all of the tenant’s lease terms during the eviction process and following eviction requirements in your jurisdiction—and document every transaction. Require your tenant to sign for hand-delivered notification with a proof of service form, like our Model Form: Meticulously Document Eviction Process. You should also:
Discuss move-out provisions. Prior to its eviction, meet with your tenant to discuss move-out requirements, most of which should be dictated by the lease. The removal of the tenant’s chattels (that is, inventory and equipment) is a major issue. Find out what equipment is leased or under a sales contract so its owners don’t accuse you of aiding and abetting in the unlawful removal of their property. Keep in mind that, generally, equipment like cash registers or photocopiers is encumbered in some way.
During the meeting, determine what chattels must stay and provide your tenant with notification that anything that has been left on the premises will be “deemed to have been abandoned” by it and that you will be “free and clear to dispose of it however the owner sees fit.” This language frees you from having to apply the value of any remaining chattels to liquidated damages or penalties that might be accruing.
Don’t forget to review all other provisions in the lease that pertain to the tenant’s move-out. Make it clear that moving out under eviction circumstances doesn’t change the terms in the lease governing chattels, fixtures, the condition of the space, security deposits, or other end-of-lease obligations.
Comply with tenant’s legal options. You should always comply with legal requirements and consult with your attorney about anything that’s causing confusion. Protect yourself with written documentation, because a tenant can always turn around and say that it was unfairly evicted from the premises—and local laws may be on its side. Certain jurisdictions have relief from forfeiture, allowing your tenant to go to a court after you’ve given it notice of the breach of its lease and argue that you’re being unfair or that the breach isn’t deserving of a default. If the court agrees, it will grant relief from forfeiture that puts the default in abeyance for only that instance and that particular type of breach, such as nonpayment of rent.
For example, as long as your tenant resolves its breach for nonpayment of rent by paying the balance that it owes, it can’t go into default—but it can’t ask for relief from forfeiture for nonpayment of rent again. The tenant could try to get relief from forfeiture for only other types of breach from that point on.
Practical Pointer: If your tenant is breaching its lease in more than one way, include them all in a single notice of breach of lease. That way, you don’t have to send separate notices and then deal with the tenant’s election of relief from forfeiture for every breach, prolonging the pain. While your tenant may get relief from forfeiture for all of the breaches in that notice, the tenant won’t have any remedy for repeating them in the future.
Remain Calm and Cautious
Be effective and efficient when enforcing your troubled tenant’s lease throughout the eviction process. Understand that an evicted tenant loses its investment and its employees lose their jobs, and the tenant might be a victim of circumstances that are out of its control. Be as pleasant and professional as possible when performing the actual eviction, and instruct your property manager to do the same. However, don’t let your guard down; continue to document whether the tenant has complied with the move-out provisions in its lease and any further steps that you may have to take.
Utilize Property Manager for Process
Because it’s providing financial information to you, a third-party property manager is obligated to report to you at least monthly regarding financial issues and any other predetermined topics. However, if your property manager works directly for you, it probably has a tendency to check in more often. But both types of property managers should communicate more frequently if there’s an impending default, and you should set specific guidelines for reporting in that situation in addition to customary reporting requirements.
Review with your property manager your general rule that he should talk to you immediately upon any substantial change to the tenancy and then going forward as each step of the eviction process is contemplated or finished. Make it clear to a third-party property manager that it should and can act only on your instructions—not unilaterally—and that your written approval is necessary to authorize issuing a default notice, which would change the cash flow and tenancy of the property.
Remember when setting reporting guidelines for both types of property managers that you can choose the issues that you want information about and the intervals for updates, and require them to formally document all reports.