Retail Reboot: Common Mistakes to Avoid When Evicting Tenants

When managing commercial real estate, landlords must navigate a complex array of legal, financial and operational challenges to protect their investments and ensure smooth tenant relationships. However, a series of common mistakes can complicate these efforts, leading to costly legal disputes, financial losses and prolonged vacancies. These missteps range from poorly drafted lease agreements and failure to enforce payment terms, to improper handling of tenant property and neglecting state-specific laws.

This article highlights 12 critical mistakes landlords often make in commercial leasing and eviction processes, providing insights into how these errors can be avoided and offering practical strategies for better managing lease agreements, tenant defaults, and legal proceedings. By recognizing and addressing these pitfalls, landlords can safeguard their interests and maintain more effective control over their properties.

Mistake No. 1: Poorly Drafted Lease Agreement

• Don't assume all tenants are the same and all get the same lease.
• Anticipate what issues may arise with use (including common area use) and build in appropriate default/cure periods.
• Anticipate potential issues concerning restoration of the premises (including whether tenant improvements may negatively affect the property's future marketability), and who bears the responsibility for restoration.

Mistake No. 2: Being Too Passive for Too Long

• For example, if you accept rent late for months, it can be very difficult to suddenly use failure to timely pay rent as the basis to evict the tenant. You have to put the tenant on notice that you will no longer be accepting late rent.

Mistake No. 3: Failing to Consider Potential Co-Tenancy Implications

• Make yourself aware of the potential impact that one tenant's eviction can have on other co-tenants, including business operations and flow of traffic, potential disputes about shared costs for common areas and utilities, exclusive use clauses and trigger clauses related to rent adjustments or potential right to terminate.

Mistake No. 4: Failing to Send a Notice of Default Per the Lease Terms

• Must strictly comply with commercial lease default notice and cure periods.
• This includes who you send notice to, where the notice is sent and how it is sent.
• Litigator tips: 1) demand a litigation hold, 2) notice all guarantors, 3) state landlord intent to comply with any bankruptcy stay and 4) initiate talks before cure period expires.

Mistake No. 5: Failing to Also Comply with State Law

• Pay attention to notice requirements and time frames. State law may provide for additional requirements on top of what the lease provides.
• For example, if the state statute refers to service of eviction notices via certified mail, but the lease only requires notice via email … just comply with both.
• Insufficient or incorrect notice periods can invalidate an eviction, resulting in having to restart the notice timelines and refile the suit.

Mistake No. 6: Using Self-Help

• While each state has its own specific landlord-tenant laws, self-help evictions are illegal in most U.S. states.
• Generally, regaining possession of a leased premises can only be achieved through court order and execution by appropriate law enforcement authorities.
• There are some states with carve-outs or exceptions (e.g., Texas law on lockouts), but those laws must be strictly complied with or they can lead to the tenant asserting claims against the landlord.
• Do not misconstrue a signed order from a judge granting you possession as automatically giving you the right to lock out a tenant or take other dispossessory actions. Generally, only a sheriff or other proper law enforcement can take action to physically oust the tenant.

Mistake No. 7: Filing in the Wrong Court

• Self-explanatory. But note that in some jurisdictions, the court with exclusive jurisdiction over evictions does not have jurisdiction over large monetary claims. Pursuit of rent and other monetary damages may require filing a second lawsuit.

Mistake No. 8: Lacking Proof of Damage or Late Rent Payments

• It is critical to maintain well-organized and complete records of executed copies of lease agreements and amendments, communications (including proof of service of default notices) and payment histories.

Mistake No. 9: Accepting Rent After Filing Eviction Case

• Acceptance of rent or partial payment of rent once an eviction case is filed may be interpreted by the court as a waiver.
• Best practice is to refuse to accept any partial payments.
• But if you want to take the risk, provide a reservation of rights to tenant before accepting the payment stating that acceptance does not waive the right to further pursue eviction.

Mistake No. 10: Failing to Recognize That Bankruptcy Is a Game Changer

• In any notice of default, state landlord intent to comply with any bankruptcy stay to avoid allegations that landlord is violating an automatic stay and the associated harsh penalties.

Mistake No. 11: Mishandling Tenant Property

• Strictly comply with state laws concerning dispossession of tenant property (e.g., moving, storage, disposal, etc.) to avoid a tenant claim of conversion.
• This is particularly important with respect to commercial/retail tenants who may have been in possession of equipment that is actually leased from a third party or may be collateral for a bank loan.

Mistake No. 12: Mismanagement of Security Deposits

Notice to tenant must comply with state law concerning how security deposits were applied. Failure to comply can lead to the tenant having an affirmative claim against the landlord, including statutory penalties.