Good riddance! Commercial eviction made easy
Delehunt, Michael E
Any commercial landlord or property manager who has ever had to evict a tenant for failing to pay rent knows an eviction can be not only frustratingly slow but also expensive. Mistakes in form or timing can drag things out even longer. But if a landlord knows the basics of the eviction process and follows the rules, much of the frustration can be eliminated. This article discusses the fundamental steps a non-lawyer landlord or property manager can take to establish a sound foundation for a successful eviction. Readers should note, however, that this article is based on California law. Evictions in other states will be subject to laws and rules which differ in some or many ways. Consult an attorney on the specifics of evictions in your state.
First, Make a Business Decision
The symptoms of “problem” tenancies manifest themselves in different ways. For example, one tenant may contact the landlord in advance of a rent default to discuss reduction of the rent. Another will pay some of the rent owed with a promise to make up the delinquency, and then fail to do so as delinquency escalates. Still others simply stop paying any rent, with or without an explanation.
Successfully dealing with nonpaying tenants in the legal system depends in large part on the business decisions you make at the first sign of payment delinquency. You maximize your chances of having an eviction proceed smoothly and relatively cheaply if you objectively evaluate the situation at the first sign of trouble, adopt a course of action early on, and stick to the plan.
The plan you adopt depends on many factors, which you, as a commercial property manager or landlord, are in a unique position to evaluate. The first and most important factor to take into account is also the most self-evident: Most commercial tenants who fail to pay their full rent do so because their business is encountering difficulties. Therefore, to determine if eviction is appropriate, it is useful to determine the likelihood that the tenant’s business will experience a turnaround. In making this assessment, consider such factors as the commercial viability of the space, the facts you know about the tenant’s finances, and the need for the product or service that the tenant offers.
Begin by evaluating the economic realities underlying the property and its use. For example, where it may be difficult to re-rent the space and the tenant has a good chance of recovering financially, negotiating a rent reduction or payment plan may make more sense than eviction. Be careful, however, to memorialize any such negotiations-and any resulting agreement-in writing. If problems develop later on and eviction appears more attractive, having a record of who said what to whom and when, will expedite the eviction process.
While there are certainly cases in which negotiation is an appropriate course of action, eviction is, in almost all cases, the economically preferable response to rent delinquencies that you believe will never be cured.
If eviction is the answer, cut your losses by acting quickly. In today’s rental market, time is money, and delaying an eviction almost inevitably results in increased landlord losses and a tenant “tab” that may be difficult, if not impossible, to collect. Acting quickly, of course, does not mean going outside the legal process.
Preparing the Three-Day Notice
All eviction actions for non-payment of rent start with a three-day notice. This written document served on the tenant must state the total amount due and give the tenant three days to pay the full amount due or be subject to eviction. The three days start with the day after service of the notice. The landlord may then file a complaint for unlawful detainer if the tenant fails to pay the amount requested. Thus, if the notice is served on Monday, a complaint cannot be filed before Friday.
Many landlords prepare and serve their own three-day notices, which helps to reduce legal fees; others have their attorneys prepare and serve the notice. If you decide to prepare your own notice, it is wise to obtain a generic form of notice from an attorney, which you can then use any time the need for a three-day notice crops up. While there are “fine point” requirements for the content of such notices, which are outside the scope of this article, some of the more general aspects of three-day notices follow.
A three-day notice for non-payment of rent may request only those amounts that the lease defines as “rent” or “additional rent.” In the “miscellaneous” section of most commercial leases is a clause providing that all sums due under the lease are “rent”; and some leases define specific charges, such as common area maintenance, as “rent” in those sections of the lease dealing with such charges. If you prepare your own notice, it is important to check the lease to ascertain what charges are “rent.”
If your tenant’s lease does not classify “all sums due” as rent, it is advisable to send separate notices for the rent and non-rent items owing, specifying in the non-rent notice that amounts requested are for breaches of obligations other than the obligation to pay rent. The rent and non-rent notices should further specify that each notice identifies separate breaches of the rental agreement and that all breaches must be cured.
In California, there are two types of three-day notices for non-payment of rent: those that ask for an amount of rent that is exactly calculated; and those that ask for “estimated” rent. The principle behind exact-amount notices is simple: tenants who fail to pay the full amount due can be evicted after judgment on the landlord’s complaint for eviction. The downside of such notices is that the landlord’s ability to prevail in the eviction action will be destroyed if the court finds that the amount of rent requested in the notice was overstated.
Three-day notices estimating rent are useful in situations in which it is difficult to determine the exact amount of delinquent rent. If you make a small mistake in calculation of the rent in an “estimated” notice, you can still successfully evict.
The downside of such notices is that if the tenant pays what the judge considers to be a reasonable portion of the amount owed during the threeday notice period, the tenant has a chance to avoid eviction by making up the difference after judgment in the eviction case. Further, if the tenant pays rent within three days after receiving the notice and the court finds that the rent paid meets or exceeds the amount of rent actually due at the time of payment, the tenant will prevail in the eviction action and you may be liable for the tenant’s court costs and legal fees.
Regardless of whether you use an exact-amount notice or an estimatedrent notice, it is vital that the notice identify everyone with a rental interest in the property. This means that if your tenant has sublet the space, both the tenant and the subtenant need to be identified in the notice. At our law firm, we go one step further, and also state that the notice is directed to “all persons or entities who claim an interest” in the property.
It is equally essential that the notice identify the exact street address of the space and that this address for the property be used consistently in all documents that pertain to the eviction. Any confusion as to the address of the property may destroy your chance to successfully evict a problem tenant.
Serving the Three-Day Notice
Once you have prepared the threeday notice, it must be served on the tenant. Many landlords, in an effort to cut down on legal fees, serve their own notices. There are a few simple steps to take to accomplish legally effective service.
Three-day notices can be served personally or by alternate methods. If the tenant is an individual, personal service means simply giving the notice to the tenant. If the tenant is a corporation, personal service means giving the notice to a corporate officer, general manager, or designated agent for service. If the tenant is a general or limited partnership, service can be made on a designated agent for service, general manager, or general partner.
Generally, service can be made on an unincorporated association by serving its officers or any other person authorized to accept service. In cases where the tenant is not an individual, the lease will, in almost all cases, state what type of entity the tenant is for purposes of service. Further, the lease may specify the name of the person to be served.
If it is impossible to serve the tenant personally, a three-day notice can be served either by giving the notice to someone of “suitable age and discretion” at the tenant’s usual place of business or residence or by mailing a copy of the notice to the tenant at the tenants place of residence. If you cannot find someone of “suitable age or discretion” or if the tenant’s usual place of business or residence cannot be ascertained, service can be accomplished by posting a copy of the notice on the premises in a conspicuous place, usually the front door; mailing a copy to the tenant at the premises address; or giving the notice to any person at the property.
If you are in doubt about the adequacy of your service, simply do all of the above. For example, we mail and post notices, even in cases where it appears there has been successful personal service.
A mailed notice should be addressed to all persons named on the notice. Many commercial leases also require service to a particular place in a particular manner, for example by registered or certified mail. Any such requirements in the lease should be followed.
Once you have served your threeday notice, you should memorialize the method of service in writing on what is called a “proof of service.” You should obtain forms for the proof from an attorney.
Tenant Responses to the Three-Day Notice
Three-day notices get tenants’ attention; and the landlord can usually expect some type of prompt response. These responses are usually in the form of payment of some or all of the rent owed, often accompanied by an offer to “cut a deal.”
One of the most common questions we are asked by commercial landlords is whether they can accept partial payments of rent after serving a three-day notice and still evict. The answer is “yes.” Unlike many residential evictions, commercial evictions are not impeded by a landlord accepting partial rent after service of a three-day notice, even if such rent comes in after the three days have passed. However, it is a good idea after service of a notice, and required after filing of a complaint for eviction, to notify the tenant that partial payments will not result in a waiver of the landlord’s rights to evict and to seek recovery of all amounts owed by the tenant. This notice should be given promptly, in writing, when you accept partial payment. It is a good idea to ask an attorney to provide you with a generic form for giving this notice of non-waiver.
Sometimes, you may want to evict the tenant even when the full amount of rent is offered. However, the offer of all rent owing is a very different situation than the offer of partial rent. If the tenant pays the full amount of rent owing within the three-day notice period, the commercial landlord loses the right to evict, and the landlord’s refusal of payment will not save the eviction if the tenant proves payment was offered. If the tenant offers the full amount after three days, the landlord has two choices: accept the full payment and waive the right to evict, or refuse to accept payment and proceed with the eviction. The important point to remember here is that if your real goal is evicting the tenant, not accepting money, you should not accept the full amount of rent after the three-day notice period expires.
Similarly if the tenant tries to negotiate a payment plan, remember our warning: changing your mind about eviction usually leads to increased cost. However, there is no hard and fast rule, as the tenant may be able to provide you with new information indicating that a payment plan is feasible.
Seeking Legal Assistance
Once a three-day notice has been served and the three days pass without payment of the full amount owed, you are entitled to file an unlawful detainer (i.e., eviction) complaint and seek a judgment for eviction and back rent. At this point, you should hire an attorney, as the legal requirements to prosecute an unlawful detainer action are numerous and precise.
Whether to seek professional assistance at an earlier point is entirely up to you. Many landlords feel comfortable handling the process up to the point of preparing the complaint, and many others find it more economical and less stressful to seek legal advice right away. If you feel uncomfortable at any stage of an eviction, that is the point when you should find an attorney. Incurring legal expense is often preferable to frustration, delay, and loss of lease revenue.
Regardless of when you seek an attorney, you will likely be happier with the outcome if you hire a legal professional experienced with commercial evictions. Do not be reluctant to ask attorneys about their experience. Lawyers expect such questions, and your informed legal shopping will save you from paying an attorney to learn about this highly specialized area of the law.
Michael E. Delehunt, a partner at Crosby, Heafey, Roach & May, specializes in real estate and commercial litigation.
Philip L. Tudor, a partner at Crosby, Heafey, Roach & May, specializes in commercial landlord/tenant issues and commercial fraud in relation to property transactions.
Crosby, Heafey, Roach & May has offices in San Francisco, Oakland, Los Angeles, and Century City.
Copyright Institute of Real Estate Management Sep/Oct 1998
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