Promptly Respond to Tenant Delinquencies.
Landlords who take prompt action in sending default notices and commencing eviction actions will maximize their opportunity to recover tenant debts. Prompt action includes, but is not limited to, demanding payment, issuing a default notice, providing hard deadlines for payment and commencing an eviction proceeding.
Read the Lease.
The terms of the lease govern landlords’ remedies for obtaining payment from tenants. The lease will also determine when a tenant is in default and subject to eviction. Non-payment of rent or some other breach of the lease is not, in most instances, enough for the tenant to be in default. Landlords often have to take an affirmative step of providing the tenant with a notice of the default and wait for any cure period to expire. Failing to satisfy certain preconditions in the lease, such as sending a default notice, may inhibit landlords from evicting and/or collecting from tenants.
Always Send a Default Notice.
Even if the lease does not require a default notice, judges and housing court referees that preside over eviction actions often demand proof the tenant knew of and failed to cure its default. Default notices should be delivered to the correct address and in the manner required by the lease. Proof of delivery of the default notice is always recommended (i.e., certified or registered mail receipt). The notice should clearly identify the tenant’s default and any applicable “right to cure” period. The notice should also reserve the right to exercise any and all remedies for default under the lease should the tenant fail to cure its default.
Don’t Waive a Tenant’s Breach.
A tenant is usually able to cure any default until eviction is ordered (e.g., by fully paying past due rent, interest and late fees). However, tenants commonly attempt to partially cure the breach that caused the default (e.g., by making less than full payment of rent). Landlords may unintentionally forgive a breach and be precluded from evicting tenants if partial payment of rent is accepted. Similarly, a landlord who accepts the tenant’s keys prior to the termination of the lease and without any other written agreement may be precluded from collecting future rent from the tenant.
Commence a Collection Action.
Landlords often forget they can collect future unpaid rent when a tenant vacates (or is evicted) prior to the expiration of the lease. Other damages such as interest, late fees, attorneys’ fees and damage to property may also be collectible. Collection efforts against delinquent tenants may not always result in traditional litigation. Sophisticated landlords who proactively stay abreast of problem tenants may negotiate and obtain a promissory note, confession of judgment, personal guaranty, security deposit or other forms of collateral as protection when a tenant defaults. However, should collection litigation be necessary to enforce a tenant’s rent obligation, it may result in the landlord’s recovery of at least a portion of the tenant’s debts. Landlords should consult their attorney and analyze the value of the potential judgment and the prospects of collection before proceeding with collection work.
Effectively Utilize Your Attorney.
Landlords often are capable of directly interacting with tenants on a host of lease related issues; however, there are at least four situations where even the most sophisticated landlords and property managers should seek assistance from a real estate lawyer. First, consider engaging your attorney at the outset of any landlord-tenant relationship. Your attorney should be able to draft provisions in the lease that increase your ability to collect against tenants in the event of a future default. Second, if negotiating with a tenant for an early termination of the lease or a reduction of rent, consult your attorney to properly document the transaction and understand the consequences such action may have on your ability to collect future rent.
Effectively Utilize Your Attorney (cont.)
Third, seek legal advice regarding your rights and responsibilities as landlord before commencing an eviction action. Your attorney may be able to minimize your future legal costs, maximize your future rent recovery and prevent an eviction action altogether. Fourth, seek legal advice if you need to evict a tenant. In some situations, such as incorporated entities, an attorney is needed to draft and argue the eviction complaint in court. Even if an attorney is not mandated by law, eviction proceedings contain somewhat complex procedures for ensuring proper service and filing of the eviction complaint.
Landlords that take the above-listed six steps are generally in better positions to obtain payments from delinquent tenants.