Have a less-than-stellar tenant? Here’s what you can do.

Have a less-than-stellar tenant? Here’s what you can do.

2017-08-09

Leases are a lot like marriages—for better or worse, two entities become tied together in a serious commitment. Just as marriages can go south, so can leases, and in both instances, how you handle the relationship in a stressful time can impact both entities’ futures. Whatever you do, the relationship must improve or dissolve with as little pain as possible. When commercial real estate professionals deal with a less-than-stellar tenant, navigate to the other side with caution and in accordance with your lease terms.

Directly address the specific issues at hand with the tenant, in person and followed up with written correspondence. The best way to resolve issues is person-to-person. It may be that the tenant has overlooked an issue. With or without intention, the tenant should be made aware of the issue and given a chance to resolve it, of course.

“If you can’t make amends and resolve things informally, which you should always attempt first, then you have legal rights that you should not be afraid to exercise,” says Todd Wenzel, a partner at Ropers Majeski Kohn & Bentley PC.

A less-than-stellar tenant may not be swift to address issues even when given ample opportunity and compelling reasons. When tenants fail to resolve issues, then an owner can send a formal letter, certified mail return-receipt requested, to tenant indicating specific lease violation(s). This letter also would request immediate or timely resolve of the breach to avoid further legal action. It is important to retain proof of delivery in the event legal action is required to resolve the issue further down the road.

CAUTION: At this point, it is beneficial for owners to weigh carefully their desired end goal and whether they might consider compromise if losing a tenant, even a not-so-stellar one, is worth staying the course of the lease. For example, if a tenant has only recently shown signs of trouble paying utilities but are still paying rent on time, it may be that new terms can be explored that could give the tenant time to recover a financial strain and get back on track. Each case may need consideration based on an owner’s portfolio status.

In the event, a tenant relationship continues down an ugly path, then legal action may be required to force the tenant into compliance or remedy the breach of lease by lease termination and/or eviction.

The best plan, of course, is prevention. To this end, owners can improve their portfolio by drafting an ironclad lease and using a reliable, effective, and thorough lease screening tool like (RE)meter. Less-than-stellar tenants to avoid during the lease underwriting phase include sham companies, tenants with poor utility payment histories, tenants who resist personal guarantees, and tenants with less-than-stellar references.