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 an agreement 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.
A Growing Problem During the Coronavirus Pandemic
Commercial tenants failing to pay their rent has become worryingly common as the coronavirus continues to put companies out of business. 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.
For property owners and landlords, though, this poses a threat to their livelihood. Without the rental income from their property, landlords can struggle to maintain the property and uphold their obligations under the lease. They can also lose the ability to make necessary payments on the property, like property taxes or even any utility bills that they are responsible for under the lease. The reduction in rental income can also have trickle down effects, forcing the landlord to lay off property management workers and impacting the landlord's personal finances.
Massachusetts' Eviction Moratorium Covers Some Businesses
To protect renters during the coronavirus, both the state and federal government passed eviction moratoriums to keep landlords from throwing out-of-work renters on the streets for failure to pay rent.
The Massachusetts eviction moratorium, passed in House Bill 4647, applies to some businesses. The bill prevents commercial landlords from evicting their tenants for failure to pay rent if:
- The owner of the business does not operate in multiple states or countries,
- The business is not publicly traded, or
- The business has 150 or fewer employees.
It also forbids commercial landlords from sending their non-paying tenants a notice to quit.
This means that a good portion of the commercial tenants that are struggling to pay their rent are protected from being evicted while the moratorium is in place. However, commercial landlords can still evict their tenants if the tenant broke the lease before March 10, 2020, when Massachusetts declared a state of emergency over the pandemic, or if the term of the lease has expired.
Rent Still Accrues
While the moratorium prevents landlords from evicting commercial tenants for failure to pay their rent, though, that does not mean that the rent is not due. Instead, landlords have the right to merely let it accrue and become past due.
No Late Fees
Commercial landlords are also forbidden from assessing late fees on unpaid rent under Massachusetts' eviction moratorium if, and only if, the tenant notifies the landlord within 30 days that the missed payment was due to the Covid-19 pandemic. This notification also prevents landlords from reporting the missed payment to credit reporting agencies.
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. 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.
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.