After the events of the last few months in Washington DC you might think that I’m suggesting we throw out all the inept politicians, however, while I’d certainly like to voice my feelings regarding spending and taxes I’ll leave that debate to the “talking heads” that make a living through biased reporting of the facts. Instead, today I’m writing about the enforcement of commercial property leases.
In the last couple of years I’ve seen a growing tendency of property owners being reluctant to enforce their leases because they fear the potential loss of revenue in the event such action leads to an eviction. This is hardly new ground for most
owner/investors as vacancy is just one of the many costs of doing business. Lease enforcement falls into two distinct categories, 1) payment of financial obligations and 2) rules of operational behavior.
The first category, payment of financial obligations, seems like a straight forward issue but in an economic environment where even the best businesses are struggling there are no easy answers. It usually starts with a good tenant being
slow in paying their rent and other fees due. The due date goes by and the owner’s representative posts the delinquent party with a demand for current obligations plus late fees. It is obvious that unless something extraordinary occurs the next month’s financial obligations will be as late or later. Over a series of months the leasing party gets further and further behind until payment of the month’s financial obligations is made at the very end of the month or not at all. The owner’s representative is ready to enforce the lease and process for eviction but the owner is reluctant to proceed. The owner reasons that perhaps if the leasing party is given a little time they will be able to get caught up and because it is easier to maintain an existing tenant then to obtain a new on the owner decides to delay lease enforcement. Several months without the tenant’s payment starts to place a burden on the property as other tenants hear through the “grape vine” that the tenant isn’t paying rent and no action is being taken. Slowly other tenants begin to make their payments later in the month, possibly because they are also having financial issues but likely also that they are aware that the owner is reluctant to enforce payment. The owner has placed the property’s operation into a very precarious position. As a property owner and property manager my opinion has always been to throw the bums out if they don’t pay. By doing so you make a statement to the other tenants but you also maintain the integrity of the property’s lease document.
The second category, rules of operational behavior, isn’t as easy to administer as there are varying levels of non-compliance. Some are as simple as store hours of operation but others are more complex such as selling merchandise that another
tenant has an exclusive right to sell or failure to continually operate the store, “going dark” as we say in the industry. The violation occurs and the owner’s representative posts a demand for compliance to the violating party. The party persists in the illicit activity and the owner’s representative wants to take further action but the owner is again reluctant as a tenant paying rent is better than a vacant space. As the rouge tenants activities become known by other tenants there is a change in attitude from other tenants who feel they are also entitled to stray from the lease rules. Again, as a property owner and property manager my opinion has always been to throw the bums out if they won’t honor the rules of operational behavior.
I recognize that high vacancy makes it difficult to operate
a commercial property; however, tenants who don’t pay rent or follow the rules
have no respect for the property, other tenants or customers and are a
detriment to leasing vacant spaces. It
is far better to throw the bums out and look for a new tenant than to try to salvage
a bad one. As my mom use to say, “One
bad apple spoils the whole barrel”.
