Deciding to Evict a Tenant: Art or Science?

I recently had a client who allowed a commercial tenant to fall behind close to $100,000.00 on rent obligations before contacting my office to file an action for possession (eviction).  It was a classic albeit perhaps extreme case where the tenant's business had taken a bad turn, there was some money coming in on a sporadic basis and the tenant made repeated promises that it was going "to make things right."  (Unfortunately, proving the adage that "no good deed goes unpunished," the tenant has turned the eviction in to a federal case -- literally -- which is still ongoing, but that is a story for another time.) 

For many landlords, commercial and residential, deciding when to evict a tenant is more art than science. The existing tenant is the "devil you know," so to speak, and, like my recent client, many landlords are reluctant to let go.  Moreover, the people on the front lines for the landlord have a feel for the tenant, the current situation and whether the tenant can get up to speed.  However, there often comes a time when the cord must be cut.  The question is when?  A tough call, no question, since there is cost involved in finding a new tenant.

I encourage landlords to develop a hard/fast rule and live by it, e.g., file for eviction once tenant becomes "x" months late.  Take the "art" out of the equation and focus on the "science."  When setting the line before eviction, a landlord should figure out: how long the eviction process usually takes; and, the average length of time for finding a replacement tenant.  The higher that number is in terms of months, the shorter the line should be.

REMEMBER: a space occupied by a non-paying tenant is the same thing as vacant space!  The damage to the value of the property is the same.

 

NJ Assembly May Vote on Sub-Metering Bill

Bill #A1628, which would advance water conservation by allowing sub-metering of water and sewer service in rental housing across the state and has been long supported by the NJAA, has been posted for a vote in the New Jersey General Assembly for Monday, January 11, 2010.  In brief, the Bill would allow for installation of sub-meters and billing of tenants for water and/or sewerage service used by their unit.  Among other requirements, the use of sub-metering would have to be disclosed in the tenant's lease in a "clear and conspicuous" manner" and "in plain language" and the bills sent to the tenant would have to include certain specified information.  As it presently reads, the Bill is fair and comprehensive.  A copy of #A1628 in its present form can be found here. 

The NJ Legislature is currently in what is commonly known as its "lame-duck" session and the Assembly has a number of bills posted for consideration on 1/11/10 so it remains to be seen what, if any, action will take place on #A1628 on 1/11/10.  Yes, there would be an initial cost outlay.  However, passage of this Bill would be a positive thing for apartment owners and managers in the long run, as it would enable them to better monitor, control and recoup costs for water and sewer.  Let's hope that the Assembly gets to it and passes it and then it would be on to the New Jersey Senate.

Tenants and Landlords Working Together; Cats and Dogs Next

A nice piece from the tenant side of the fence by Andrew Zezas at the Corporate Advisor.  Mr. Zezas, who is a tenant advisor, recognizes the perilous state of many landlords and talks about the merits of a "win-win" relationship between landlord and tenant, particularly in today's economy. Amen!  Here's a sample: 

Interestingly, landlords are not perceived as a group that deserves anyone’s pity. However, given current global economic conditions, and those of credit and real estate markets, with many landlords holding on white-knuckled trying not to lose their buildings to lenders, if there ever was a time when landlords were entitled to anyone’s sympathy, now would be that time. The government and business communities must recognize the challenges commercial landlords currently experience, along with the on-going struggles that most of them will endure over the next few years. If not, the tenants we advisors and brokers represent may have fewer stable leasing opportunities, and therefore, they may have much bigger problems!

I could not have said it better myself.  Here's some more well-reasoned insight from Mr. Zezas:

Landlords and tenants would do well to consider their relationship with tenants as one of interdependent partners, instead of transactional opponents. The true recognition of interdependence between landlords and tenants is that without mutual benefit, the relationship simply won’t work. A landlord with no paying tenants achieves nothing. A tenant without a building to rent would have no place to conduct its business, and would likely be forced to divert capital from investment in its own profit generating ventures to real estate ownership.

In short, finding a "win-win" solution to leasing issues is more important than ever as the CRE industry rises slowly from its knees. Amongst landlord clients, this has resulted in a fair amount of soul searching in order distinguish between "wants" and "needs" and get a fair lease signed.  For example, they may "want" a more aggressive calculation or a broader definition of Additional Rent, but do they "need" it, right now?  (Rent rolls are built one tenant at at time, after all.) Hopefully, as suggested by Mr. Zezas, the same thing is taking place on the tenant side and we can start filling some more space.