Stan Mullin specializes in the sales and leasing of industrial land and buildings in southern Orange County, California. His areas of expertise include: entitlement, contract language, construction schedules, development, assessment district and community facility district bond financing.  

Eviction, a Landlord’s Best Friend

Author: Stan Mullin, CCIM, SIOR

Eviction, in and of itself, is a matter of last resort, but the landlord’s right to evict, with his real estate holdings, could be looked upon as “his best friend”. As our economy cools, many tenants are having difficulty meeting their lease obligations, so I thought this article would be timely and useful.

As a rule, courts throughout the country tend to favor tenants in litigation because the landlord is perceived to be more knowledgeable, sophisticated and have greater financial capacity to pursue a lawsuit, than is a tenant (if you have ever gone to trial 
with a Fortune 1000 firm, you will know that this premise is not universally true). In the balance of this article, I have listed the primary steps to take to avoid disputes over the terms of your lease initially, and the steps required (at least in California) 
to evict and subsequently collect on any funds due to the landlord, by a defaulting tenant.

Drafting the Agreement

Initially, a landlord should take care in the drafting of the lease agreement. Too often, landlords are reluctant to spend the nominal cost to have a lawyer, who specializes in commercial real estate, review, negotiate and modify the non-business terms of the document. The lease should clearly outline what constitutes a default or breach of the terms of the agreement and list the remedies allowed to the party in compliance. 

The two most common types of breaches that lead to eviction are:

1. non payment of financial obligations (i.e. base rent, operating expenses, etc.) and
2. violations of any of the covenants and conditions outlined in the lease (i.e. storage of hazardous materials, using the property for something other than its intended purpose or abandoning the premises).

Tip - Insure that the tenant has a financial incentive to pay the full amount due, on time, each time it is due. My leases stipulate that rent is considered late, and a penalty is due, if payment is received by the landlord after the 5th of the month (commonly it is the 10th). 

Why the 5th? Often the landlord’s payment on his promissory note is due on the 10th or 15th. Landlords don’t want to be in the position to have their loan payment returned NSF because the tenant’s check bounced. Landlords should charge the highest late fee allowed by law for payments which are past due. 

As well, if the tenant pays late, offer him an incentive to pay the full amount due as soon as possible after the due date. If there is no additional cost, regardless of whether the payment is made on the 11th or 30th of the month, it is unlikely the landlord will receive payment before the next month’s due date. 

If a tenant has a history (one or more payments) of payments returned for insufficient funds, I think that the landlord should require that all subsequent payments be made by money order or cashier’s check. 

Tip - Avoid cash payments - If the cash is determined to be counterfeit by your commercial bank, they will not credit your account the amount of that deposit. The landlord in that instance is unlikely to obtain a 2nd rental payment from his tenant (the tenant will likely claim the cash was payment to him for services he rendered to a customer), so the landlord is left without any income, from that tenancy, for the month. As well, most states allow landlords the right to charge their tenants an additional amount for checks returned for insufficient funds.

When The Tenant Is In Default

Begin the documentation process. Start noting any communication you have with the tenant or others regarding their default of the terms of the lease. Take pictures of or note anything that may constitute a default of the agreement (This requires that you read and understand the lease). Thorough documentation will help verify the claims made by the landlord and assist the court in ruling in the landlord’s favor. In addition, it will help the landlord recall past events that may come up in a deposition, arbitration or court appearance. 

Ultimately, landlords should do everything possible to motivate the tenant to pay his or her obligations. Landlords should avoid litigation unless all other means of settlement have been exhausted. In most cases, both the plaintiff and the defendant end up losing to some degree.

Path To Eviction

OK, they don’t want abide by the terms of the agreement. Now it’s time to evict the tenant from the Premises (as a rule, I think that once the landlord decides to evict, he or she should not change his mind, even if the tenant states that he or she will come current and comply with all of the outstanding issues). If you engage a law firm that specializes in eviction services, they will likely save you a great deal time and money. 

Following are some of the key steps required in the eviction process, in California:

1. Notice to Quit - The first step is to serve the tenant with a notice to cure the breach or quit. The type and length of the notice depends upon the nature of the breach. Most standard industrial leases (including AIR) have provisions that state what type of notice should be served in various circumstances. The lease should also provide the manner in which the notice must be served. A landlord is not required to employ the services of a professional process server or a marshal to serve the initial notice to quit, but it may be a useful, time saving alternative because some tenants “make themselves difficult to find”, in order to receive the 3-day notice.
   
   Serving the tenant personally is always acceptable and often the lease allows for service via mail (certified or registered may be required). A copy of the notice should always be posted in a conspicuous place on the property when using service by mail.
   
2. If the default is not cured by the expiration date in the Notice, the next day a Unlawful Detainer suit (the legal procedure for eviction) may be filed in the form of a Summons and Complaint with the court of local jurisdiction. The Summons and Complaint is then served on the tenant giving notice that the suit has been filed and what the basis of the suit is. Service of the Unlawful Detainer should be done by a professional process server or marshal. In any case, service may not be done by anyone who is a party to the action (i.e. owner, manager, agent, etc) and the tenant must be served personally with the summons and complaint. If, after several documented attempts, if the tenant cannot be served personally, the court, upon petition, will usually allow service by the post and mail method.
   
3. If the defendant (tenant) wishes to contest the summons, he must answer the Summons to the Court within five (5) days of personal service (delivery). Note that if the Summons is not personally served to each Defendant, the Defendant has 15 days from the date of being served to respond to the Summons in front of the local court.
   
4. If the tenant does not answer the Summons, the court will award a Default Judgment for Possession and a Writ of Possession, from the clerk of the court will be delivered to the tenant by the marshal (or sheriff). At this point the tenant’s right to remain has expired. If the tenant does answer the Summons, then a hearing date at the court is scheduled for the parties to argue their respective cases before the local magistrate.
   
5. Assuming that either a) the landlord is successful in his court hearing or b) the tenant does not answer the Summons, then the marshal posts a five (5) day warning notice on the door of the tenant’s business to allow him to vacate the property (it’s likely the marshal will make sure that the tenant is aware that if he (the tenant) is on the premises at the time of lockout, he can be jailed by the marshal).
   
6. The marshal or your attorney will notify the landlord of the lockout date. The landlord should schedule a locksmith to meet him and the marshal at the property to change the locks on the day of the lockout. (the marshal is present to insure that conflicts do not occur at the time of eviction.)

Once The Tenant Has Been Evicted

If the tenant has left personal property on the 
premises, as a rule, initially the landlord cannot use it, because the property is not the landlord’s. Usually the law requires that:

1. The landlord must store the property, at the tenant’s expense, for at least 15 days following the lockout. (Note - The property may be removed from the premises and put into storage if it serves the interests of the landlord (i.e. to accommodate a replacement tenant)). The landlord should arrange times which are mutually convenient to the landlord and tenant so that the tenant may retrieve the property.
   
2. If the tenant leaves personal property on the Premises after the 15th day, and it is determined that the property is collectively worth more than $300.00, then the landlord must arrange for the items to be stored until such time as the landlord can hold an auction to sell them off. (In cases where the personal property is worth less that $300.00, the law will allow the landlord, after the 15th day, to take ownership, use it, dispose of the personal property, or sell it and keep the proceeds).

Also, remember that the landlord must notify the tenant within 21 calendar days unless the lease states otherwise) of the lockout, regarding how the Security Deposit will be used (applied to late fees, past due rent, legal costs, costs for cleaning the building, etc.) and return any unused portion. Note - Failure to provide the tenant with an accounting of the Security Deposit may result in a forfeiture of the entire amount of the deposit back the tenant, and in some cases, additional monetary damages may be imposed on the landlord.