It's almost automatic. A tenant misses his
rent payment, and the landlord gives written notice demanding
payment. If the tenant still does not pay, the landlord then
tells the tenant his lease is terminated, and demands that
he vacate the premises.
What happens if the landlord is unable to find a new tenant,
or if he does, the rent is less than the previous tenant was
paying? Often the landlord calls his lawyer and tells him
he wants to sue his prior tenant for the difference.
Unfortunately, there's a problem. A landlord cannot sue for
any rent accruing after he "terminates" a lease,
even if the termination occurs because of the tenant's default.
He can sue, however, for unpaid rent accruing prior to termination
and for his expenses in terminating the lease, but this is
rarely adequate compensation for a landlord with an empty
Happily, there is a solution if the landlord handles the situation
correctly to begin with. As odd as it may seem, the landlord
can evict the tenant and preserve his right to future rent
if, instead of terminating the lease, he merely terminates
the tenant's “right to possession.” Incredibly,
the landlord's choice of a few words can make the difference
between no claim at all and one that may be worth thousands
of dollars or more.
Of course, the landlord still has a duty to mitigate his
damages even if he doesn't "terminate" the lease--
that is, he must make reasonable efforts to lease the premises
to someone else, and must give the old tenant credit for any
rent received. However, he can assert a claim for rent accruing
while the building is empty, for the difference between the
rent the old tenant was paying and the rent the new tenant
will pay once he leases to a new tenant, for brokerage commissions,
and probably for leasehold improvements and alterations paid
for by the landlord in order to sign the new tenant, so long
as he made reasonable efforts to relet the building on the
best terms possible. On the other hand, if the tenant (and
guarantor, if there is one) is broke, it may be better to
terminate the lease and be done with it.
There is one additional issue to consider. If you believe
the tenant may file bankruptcy to avoid eviction, you may
be in a better position in bankruptcy court if you have actually
terminated the lease and evicted the tenant prior to the bankruptcy
filing, rather than merely terminating the tenant's right
to possession. This is because the bankruptcy court is supposed
to honor the termination of any lease that occurs before the
bankruptcy filing. As for leases that have not been terminated,
the trustee or debtor in possession has 60 days to decide
whether to accept or reject the lease, although rent must
be paid during this period of time. However, if you have another
tenant standing by, or if the space can be re-let at a higher
rent, you may prefer to have the lease terminated. Under these
circumstances, the issues can become quite complex and consultation
with legal counsel may be advisable to best protect your position.
If your tenant defaults, take prompt action. But if you decide
it is time to get rid of him, be very careful with your choice
of words. A "termination" of the lease can cut off
your right to collect future damages, but a failure to "terminate"
may prejudice your rights if the tenant files bankruptcy.
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