Options After a Tenant Has Defaulted
Landlords, like everyone else, are facing pressure as the COVID-19 pandemic drags on. Businesses and individuals are seeing fewer customers, less revenue, and their ability to pay their rent is diminishing day by day. The number of tenants that have defaulted has increased. This can leave landlords without income and may mean that landlords are unable to pay their own obligations.
While rent relief may be a viable path in some cases, it may not be an option in others. In cases where rent relief or modification doesn’t make sense, the landlord may need to explore their options for collecting the remaining payments under the terms of the lease. This could include tools such as holding guarantors responsible for missed rent payments or attempting to find a new tenant for the property if an existing tenant is no longer viable.
Guarantors
In some cases, a lease may be supported by a guaranty. In those instances, a third party has agreed to take on responsibility for lease amounts should the tenant fail to make payment. Guarantors may include individuals, a parent company, or investors and partners in an organization. Many times, a guarantor is in a stronger financial person than the tenant and may be better prepared to handle the cost of a lease. If a guarantor is present in the lease, the guaranty language may be a viable path towards collecting any money tenants owe to landlords.
However, it’s important to understand that not all guaranties are the same. A guaranty may cover some tenant obligations while others are outside its scope. A review of the lease can clarify the nature and extent of any guaranty that you may need to rely on.
In these uncertain times, lease guaranties may be one of the more effective ways of getting payments. Still, they are not one hundred percent reliable. Guarantors may be feeling financial pressure or may even be undergoing their own bankruptcy. COVID has put pressure on everyone. If the time has come to enforce a guaranty, it’s important to find out as much information as possible about the Guarantor and their financial position ahead of time.
Using Security Deposits
Another potential option for landlords who are trying to recover lease payments from tenants that have defaulted is to apply any security deposit to lease payments if this is allowed under the terms of the lease. Deposit amounts and any restrictions will, of course, depend upon the terms of the lease. Although this option may provide landlords some relief, it may not cover the full amount due under a lease.
Landlord’s Responsibility to Mitigate Damages
Although landlords have options to collect lease payments, landlords also have duties to mitigate the damages of a tenant that defaults on a lease. Landlords typically can’t let rent accrue on a property, and they must take reasonable steps to reduce the harm to a defaulting tenant. This may include measures such as seeking new renters, listing the property for lease, or taking other similar steps. Further, if a landlord attempts to mitigate damages, but they cannot do so, the tenant may still owe the full amount due under the lease.
Crawford & Von Keller, LLC Can Help You See Solutions
If you’re a landlord, and you’re searching for options after a tenant has defaulted, contact Crawford & Von Keller, LLC today. We can review your situation, advise you on how you could collect remaining lease payments, and handle a tenant default. With over 70 years of legal experience, we’re proud to provide every client with the personal service and attention they deserve.
Get in touch with us to discuss how we can help. Call (803) 790-2626 or reach out online using our contact form.
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