Landlord Remedies for Tenant Default of Lease
When a tenant defaults on a residential or commercial lease, it can be difficult to know how best to respond. There are however a multitude of legal remedies that a landlord can pursue. Which remedy landlord pursues is determined by the unique circumstances of the default. In exploring various landlord remedies, the best place to start is with the nature of the tenant default. Was the tenant default due to unpaid rent (monetary) or abandonment of premises (non-monetary)?
Remedies for monetary default of a lease agreement are broader than those for non-monetary default.
Remedies for Unpaid Rent
The following are the remedies available to a landord upon monetary default of a lease agreement by a tenant:
- The landlord has the option to negotiate an agreeable solution with the tenant. Working out a solution with the tenant does not terminate any obligations of the tenant or landlord under the lease, unless agreed upon by both parties in writing.
- The landlord can request from the defaulted tenant a security for the rent in arrears. This remedy also does not terminate the current lease agreement between the landlord and tenant.
- The landlord can request that the tenant perform the terms of the lease as agreed upon and sue the tenant for rent as it becomes due.
- In a few states, landlords are permitted to seize a tenant’s personal property when a tenant falls behind on rent or the tenant’s security deposit becomes insufficient to cover the cost of damages to the rental unit. This is known as a “landlord’s lien”. Such a lien typically requires a court order before it can be enforced.
- The landlord can terminate the lease by providing the tenant proper notice, evict the tenant, sue the tenant for rent arrears and also seek monetary damages for losing the benefit of the balance of the lease term. This remedy, unlike other, terminates the lease between the landlord and the tenant.
Remedy No.5 listed above is usually the remedy of choice for landlords who wish to re-let the rental premises, as it allows the landlord to re-let the premises to a new tenant while pursuing monetary damages from the tenant in default.
The most basic damages a landlord may incur when a tenant defaults on a lease are fairly obvious. Most lease defaults occur when the landlord stops making rent payments to the landlord. Under this scenario, the first question is equally as obvious — how does the landlord get paid the amounts that have accrued, including base rent, as well as any payments for operating expenses, taxes or similar charges due under the lease?
How the landlord is entitled to collect monetary damages is dictated in large part by the terms set forth in the lease agreement. Absent any provision to the contrary, a landlord is entitled to collect base rent and any additional amounts that accrue under the lease as those amounts come due. However, once a tenant is in default of the lease agreement for non-payment of rent, most landlords would prefer to collect the balance of the rent and other charges owned under the lease for the remainder of the lease immediately. While this would be ideal, it often doesn’t happen this way — especially if it isn’t stipulated in the lease. Commercial leases may include a “rent acceleration” clause that permit the landlard to declare all amounts due under the lease for the balance of the lease term due and payable immediately if and when a tenant is found to be in default under the lease. Unfortunately, when tenant default is a result of non-payment of rent, it’s usually a sign the tenant is facing financial difficulties. Collecting monetary damages from a tenant who is struggling financially can be problematic.
Understandably, tenants often try to negotiate rent acceleration clauses out of the lease or at minimum mitigate their effects. In lieu of accelerating the rent for the balance of the term, leases may provide that the landlord can elect to continue collecting the rent and other charges as they become due, while transferring possession of the leased premises to the landlord for re-letting. An acceleration clause will typically hold the defaulted tenant liable for re-letting expenses and any loss in rent amounts under the new lease. In essense, it is as if the landlord is leasing the premises to a new tenant on behalf of the defaulted tenant.
As a result of tenant default, a landlord may also suffer monetary damages in addition to the accrued and unaccrued rent and other charges owed under the lease. A good lease will stipulate that the landlord is entitled to collect all costs that he or she incurs in obtaining possession of the premises and re-letting the premises to a new party as a result of tenant default. Such additional damages may include attorneys’ fees, necessary leasehold improvements, cleaning and similar charges that the landlord would not have incurred if the tenant had not defaulted on the lease.
At the end of the day, a landlord’s ability to collect monetary damages is going to be based on the credit-worthiness of the tenant. If a tenant, whether an individual or a business, is not credit-worthy, a landlord should obtain a guaranty of the lease obligations from a credit-worthy guarantor that has money and assets. The guarantor should be directly liable for the obligations of the tenant under the lease. The guarantor should be a co-obligor with the tenant — not just a “backstop”. When renting an apartment to a non credit-worthy individual via a residential lease agreement, having a credit-worthy guarantor (co-signer) is particularly important. It is also important that the guarantor for a residential lease agreement reside in the same state as the leasehold.
In some states, a commercial lease can include a “confessions of judgment” for monetary damages clause. This clause allows the landlord, upon default of the tenant, to obtain an actual judgment against the defaulted tenant in court for the amount of damages permitted under the lease. This process permits the landlord to obtain a judgment for monetary damages without going through a lengthy trial. This remedy for monetary damages is only available in certain states.
So what is the key to collecting monetary damages in the event of tenant default for non-payment of rent? A good lease. A properly drafted lease provides a landlord the ability to collect the full amount of monetary damages to which the landlord is entitled from both the defaulted tenant and the co-obligor under the lease.
Remedies on a Tenant’s Abandonment of the Premises
When a tenant has abandoned the rental premises, the landlord has the following remedies:
- Demand performance of the lease terms and treat the lease as valid and in force. This requires that the landlord leave the premises vacant for the duration of the lease term. Under this scenario the landlord may sue the tenant for all unpaid rent and other expenses under the lease as they become due. This remedy does not terminate the lease. The risk this remedy presents is that under this scenario the landlord is unable to re-let the premises to a new tenant.
- Inform the defaulted tenant of the taking and repossession of the premises in order to re-let the premises on behalf of the defaulted tenant to a new tenant. This remedy does not terminate the lease and permits the landlord to sue the defaulted tenant for rent arrears, re-letting expenses and any difference between the original rent amount and rent received from the new tenant.
- Seek injuctive relief from the courts ordering the defaulted tenant to re-enter the premises and conitue operating it’s business therein as outlined under the terms of the lease. This remedy may make sense under certain commercial lease default scenarios but does not serve as a viable remedy for abandonment of a rental home or apartment under a residential lease agreement.
- Initiate legal proceedings seeking damages for losses caused by the tenant’s abandonment of the premises, including loss of rents from other tenants who leave as a result of the abondonment or losses caused by a decline in the property’s value. This remedy is usually only persued under commercial lease agreements where a large, well-known tenant defaults on a lease agreement through abondonment of the premises.
- Upon abandonment the premises, terminate the lease, take possession of the premises and sue the defaulted tenant for rent arrears and for monetary damages associated with the lost benefit of the remainder of the lease term. This remedy terminates the lease but allows the landlord to re-let the abandoned premises.
In most states, when seeking relief on the basis of non-monetary tenant default, termination of the lease cannot legally be effected without first providing written notice to the tenant. In the case of abondonment, where a tenant leaves property in the abandoned premises, the landlord may also have the right to take possession of the abandoned property or sell the property. However, this is not the case in all states.
Disclaimer: The information on the page is intended for informational purposes only. Each state has its own landlord-tenant laws that dictate the remedies for a landlord in the event of tenant default under a commercial or residential lease agreement. You should contact a licensed attorney in your jurisdiction if you have any questions regarding the laws in your state and how they apply to your particular situation.