Tuesday, May 24, 2011

Commercial Lessors: Stop and Think before serving that 3-day “Pay or Quit” Notice

When a commercial lessee becomes unacceptably delinquent, lessors or their counsel most often choose to issue “pay or quit” notices and sue for possession, if the lessee does not voluntarily vacate. Because an unlawful detainer is an expedited procedure designed to quickly obtain possession of the premises, the lessor may recover only delinquent rent and the reasonable rental value for the period after termination of the lease and prior to judgment.

There are circumstances where it is better not to terminate the lease, not to accept lessee’s vacating the premises, but sue for rent as it becomes due. Such circumstances include tenants or guarantors that are financially strong or an economic recession when replacement lessees are difficult to obtain. Be aware, however, that a lessee cannot use this remedy without complying with California Civil Code Section 1951.4, which requires that if a lessee desires to disclaim its duty to mitigate its losses, then the lessor must provide, not only in the lease, but in practice, the lessee with the reasonable ability to sublease and assign. The lessor must be reasonable in any financial or other requirements related to subleasing or assignment and cannot take actions inconsistent with holding the lease open, such as serving “pay or quit” notices, declaring or accepting abandonment, changing locks, etc.

Upon execution of the above remedy, the lessor should send a letter to the lessee clearly setting forth the lessor's intention to legally collect rent from the lessee as it becomes due month after month. This should provide powerful incentive to the lessee to either find an equal or better lessee for the premises or make a settlement offer to the lessor to obtain a written release of lessee’s liability for the entire remaining lease term. An additional financial bonus results for the lessor, if the lessor settles with the current lessee for an extended period of rent, and then promptly finds another lessee to lease the premises.

Important Proviso: The above material does not constitute legal advice and should not be relied on. It does not create an attorney-client relationship. Each locality has differing laws. A legal matter cannot be satisfactorily resolved without a comprehensive review and analysis of all the unique facts and laws at issue by an able attorney. Your matter may result in a loss of rights if you do not timely retain such an attorney.

Contact: If you would like to discuss this matter further in a more private forum, please feel free to contact me directly at the email address provided through my firm’s website located at http://www.BealBusinessLaw.com.

No comments:

Post a Comment