When a commercial tenant breaks their lease, the landlord has rights to enforce the rental agreement, often by evicting the tenant. Paying rent is nearly always the most important obligation that a commercial tenant has to their landlord. Failing to pay it is perhaps the most common commercial lease dispute that the landlord can have with their tenant.
NOT PAYING RENT BREAKS A COMMERCIAL LEASE
A commercial lease is a binding contract between the owner of the property – the landlord – and the party who wants to rent it, also known as the “lessor.” The lease sets out all of the obligations that the landlord and the lessor have, from the landlord's duty to fix things that break to the lessor's duty to comply with building codes.
But the most important obligation that the lessor has is to pay the landlord rent.
These payments are made regularly, usually every month, though the lease can make alternative arrangements, like every quarter, year, or even every week. The lease also has to state when the rent has to be received – often this is the first of the month – and what happens if it is not received by then. In many commercial leases, there is a clause that allows the landlord to begin assessing late fees if the rent is not paid before a certain day or has become past due. Another common provision is to allow the landlord to demand attorneys' fees if the account becomes so past due that it does to collections.
Coronavirus Moratoriums No Longer a Protection for Commercial Tenants
The coronavirus has been especially tough for bars and restaurants, as well as for small businesses. Establishments like these have faced a steep decline in their income, with some of them even closing for business, entirely. This has caused many of them to fall behind on their rent payments.
Early on in the pandemic, both the federal government and the commonwealth of Massachusetts stepped in to protect tenants who were struggling to pay rent by issuing a moratorium on evictions.
Those moratoriums no longer protect commercial tenants.
The federal moratorium was declared unconstitutional by the U.S. Supreme Court on August 26, 2021, as a violation of the separation of powers of government.
The Massachusetts eviction moratorium, passed in House Bill 4647, applied to some businesses. However, those protections have since lapsed for commercial tenants.
As a result, commercial tenants in Massachusetts can no longer use the coronavirus to legally protect them from eviction for failure to pay rent.
A LANDLORD'S OPTIONS IF RENT IS NOT PAID
A tenant's failure to pay rent is a serious issue. Landlords rely on this money. If the tenant is not paying rent, it is a breach of the commercial lease agreement. That breach entitles the landlord to take appropriate legal action.
In many cases, that legal action is an eviction. That eviction has to be done lawfully and according to the terms of the commercial lease. Landlords who perform “self-help” evictions by, for example, changing the locks of the premises, can face serious repercussions.
However, while landlords have a right to evict a non-paying tenant right away, there are often several very good reasons for taking a less severe approach.
Especially important for commercial landlords is the fact that many business premises are designed for some very specific purposes. This limits the potential market for the property, which can make it more difficult to fill with a new tenant once the existing one is evicted. How unique the property is can make a big difference in how patient a commercial landlord should be with a non-paying tenant.
Also important is the tenant's past. If they have been paying on time for a while, a missed payment may be an anomaly or even a mistake. If rent is not paid on time and it is because of a downturn in business, landlords may also want to consider mediation or arbitration to come up with another solution rather than evicting the tenant and going through the trouble of finding a new one.
One potential solution is to let the commercial tenant assign or sublet the lease to another business. This can bring in a new tenant without going through the eviction process.
FUTURE RENT PAYMENTS AND A LANDLORD'S DUTY TO MITIGATE DAMAGES
If a commercial tenant does not pay their rent and the landlord evicts them, the landlord is still entitled to the rent that would have been paid during the term of the lease. For example, if the lease is $1,000 per month and the term is for one year, but the tenant only pays rent for eight months and then gets evicted, then the landlord can sue the tenant and recover the $4,000 in rent that would have been paid, had the tenant finished the lease.
However, this is subject to the landlord's duty to mitigate damages. Landlords who have evicted a commercial tenant for not paying rent cannot sit back, relax, let the property sit empty, and then sue the old tenant to recover the missed rent payments. Instead, the landlord has to make reasonable efforts to get a new tenant to replace the one that has been evicted.
MASSACHUSETTS REAL ESTATE LITIGATION LAWYERS AT THE KATZ LAW GROUP
The decision to evict a commercial tenant for not paying rent is not always easy. Once made, executing an eviction can be tricky, and will be time consuming if not done right.
Call real estate litigation lawyers at the Katz Law Group for help at (508) 480-8202 or contact them online. They serve commercial landlords in Massachusetts, including in Worcester, Framingham, and Marlborough, as well as in Middlesex County and Norfolk County.