Top Ten Mistakes Made by Commercial Landlords When Dealing with Defaulting Tenants
Apr 17, 2016 Top Ten Download PDF
By Jonah W. Lock, Sader Law Firm, LLC (Kansas City, Missouri), a Primerus Member
This list summarizes some of the most common errors made by commercial Landlords and their property managers when they find themselves dealing with a defaulting Tenant.
1. LOCKING THE DOORS WHEN THE TENANT FAILS TO PAY
While locking the Tenant out of the space may seem like a desirable and reasonable response when the Tenant is failing to keep up with his/her rental obligations, doing so may open up the Landlord to liability for “constructive eviction” under state laws. Generally speaking, gaining possession of a leased space can only be achieved through court order and execution by the appropriate law enforcement authorities.
2. TURNING OFF UTILITIES
Landlords may also be held liable for constructive eviction under state laws if they choose to cut off services to the leased premises, including turning off the water or electricity serving the space. This error commonly occurs when the Tenant is responsible under the lease agreement for certain utility bills being charged to the Landlord. Failing to provide necessary utilities to the space, rendering it uninhabitable and/or unfit for the leased purpose, can be considered akin to locking the Tenant out of the space.
3. NOT FOLLOWING STATUTORY NOTICE LAWS PRIOR TO FILING FOR AN EVICTION
Certain States require that a written notice (often with specific statutory language and providing a certain time period) be provided to the Tenant prior to your bringing a lawsuit to evict them from the premises. Often times, failure to provide this notice can be fatal to your ability to obtain a judgment for possession of the premises after filing a lawsuit. This can be costly as you may have to refile after following the required notice provisions. Even worse, uncontested lawsuits leading to possession judgments may be able to be set aside at a later date by the Tenant for lack of following the proper steps.
4. NOT FOLLOWING LEASE LANGUAGE WITH REGARD TO DEFAULT NOTICE REQUIREMENTS
Similar to ensuring that statutory eviction notices are properly sent, it is important that Landlords review the default language in their lease as well. Often, leases will grant expanded rights to Tenants (i.e. requiring longer default notice periods, rights to cure prior to filing suit, etc.). Not following the strict language of the lease with regard to preconditions prior to defaulting a Tenant can needlessly give Tenants defenses to your eviction case.
5. ACCEPTING PARTIAL RENTAL PAYMENTS AFTER FILING AN EVICTION CASE
After an eviction case is filed in court, Tenants often will attempt to throw partial payments of the balance at the Landlord in hopes that it will salvage their right to possession. While it is certainly tempting for the Landlord to take any money they can get their hands on from a defaulting Tenant, it is important to understand that a Judge could interpret this as condoning the default and therefore waiving one’s right to further pursue the eviction. It is most likely best practice to refuse to accept any payments at all, however if you are willing to take the risk, the Landlord should at the very least provide a written reservation of rights to the Tenant prior to accepting the payment, stating that acceptance does not waive the right to further pursue the eviction.
6. RELYING ON THE POSSESSION JUDGMENT AS AUTHORITY TO DISPOSSESS WITHOUT RESORT TO EXECUTION OF THE JUDGMENT BY THE PROPER LAW ENFORCEMENT AUTHORITY
Achieving a victory in your eviction case at trial and obtaining a signed order from the Judge granting you possession of the space does not automatically give you the authority to lock the Tenant out of the space or take other dispossessory actions. Only the Sheriff or other proper law enforcement authority has the power turn over possession of the space. It is important that Landlords take the next step of executing their possession judgment through the Court system, in lieu of taking matters into their own hands relying on the wording of the judgment alone. This being said, generally speaking there may be situations when a law enforcement authority does not need to get involved, including instances when the Tenant affirmatively and voluntarily turns the space over to the Landlord, including the keys therefore, and/or when the space is completely abandoned and cleaned-out with no instance of an intent to possess the space (i.e. no equipment or possessions left therein).
7. DISPOSING OF TENANT PROPERTY
While laws differ from state to state, certain states have stricter guidelines with regard to how to dispose of Tenant property after you receive possession of the space. State law could provide that it is the Landlord’s responsibility to move and store the Tenant’s property and provide the Tenant with a reasonable opportunity to reclaim the property. Failure to follow these rules could result in liability to the Landlord for conversion of the Tenant’s property.
8. DISPOSING OF PROPERTY LEASED FROM THIRD PARTIES
When dealing with commercial Tenants, it is not uncommon that certain equipment within the space is actually leased from/owned by a third-party company. While it is tempting for a Landlord to dispose of all items within the space to allow for replacement Tenants, the Landlord could open itself up to liability for conversion if it disposes of expensive equipment being rented by the Tenant from a third-party. In this instance, it may be best practice to search the equipment to ascertain the contact information of the owners and allow them the opportunity to take possession.
9. FAILING TO ACCOUNT FOR ATTORNEY’S FEES PROVISIONS IN A LEASE
Landlords may be reluctant to engage in litigation with a defaulting Tenant for fear of the expense of attorney’s fees in pursuing the case. However, many commercial leases have a provision within them allowing for the Landlord to recoup its attorney’s fees from the Tenant whenever an attorney is engaged to deal with a Tenant default. This is an important tool that should not be overlooked and can lessen the cost impact of litigation, in addition to its use as a bargaining chip and leverage in negotiations with the Tenant to resolve the issues at hand.
10. FAILING TO DEAL PROPERLY WITH A TENANT IN BANKRUPTCY
The rules can change for a Landlord when it is discovered that the Tenant has filed for bankruptcy protection. It is important that collection actions not be taken against Tenants in bankruptcy, as such actions may be interpreted as violating the automatic stay on creditors imposed by the bankruptcy code, which can lead to harsh penalties. The Landlord may have to file an appropriate motion with the bankruptcy court requesting relief from the automatic stay in order to pursue an eviction action against the Tenant to dispossess him/her from the space.
The general information contained herein is intended for informational purposes only. It is not intended to be and should not be construed as legal advice or legal opinion on any specific facts or circumstances.
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