By Gordon Wikle

In Part I, How to Deal with Problem Tenants in Commercial Leases (Before Litigation), I discussed the initial steps a commercial landlord can take when a tenant is in default. This article addresses what comes next: preparing to recover the premises, whether through a voluntary surrender or, if necessary, summary ejectment if the tenant will not leave voluntarily.

Like the prior article, this is not intended to offer specific legal advice. Rather, it outlines steps a landlord can take before engaging litigation counsel to put itself in the best position to take whatever steps become necessary. There will be at least one more article to follow, discussing the summary ejectment process itself and the timeline for regaining possession of premises through the court system. This article focuses on protecting legal rights and setting up the next steps if they become necessary.

The focus here is on North Carolina commercial landlord-tenant law, although many of these steps apply in other states where you may own property.

What Should a Commercial Landlord Do After Deciding to Terminate a Lease?

In my prior article, I discussed identifying technical breaches and following the notice provisions of the lease, including demanding that all curable defaults be cured within the timeframe allowed by the lease. While this can be done with the assistance of counsel, a good property manager or detail-oriented landlord can typically follow those provisions sufficiently to trigger the landlord’s rights under the lease’s default provisions.

It cannot be emphasized enough that the lease provisions, including specifically the notice provisions, must be followed to a “t.” In particular:

• Send notice to the address designated in the lease, even if the tenant has verbally provided another address.
• Do not assume that email is sufficient unless the lease expressly permits notice by email.
• If the lease requires certified mail, FedEx, or another specific delivery method, comply with that requirement.

For example, if the lease says that notices must be sent to the premises, an email that the tenant actually receives and admits receiving may still not be sufficient, or certified mail to a tenant’s home or corporate address may not be sufficient even if the tenant previously told you verbally to send notices to that address. The same is true of the method of delivery. If the lease requires certified mail or FedEx, the notice should comply with the exact terms of the lease.

These details may seem technical, but they can become critical if the landlord ultimately needs to establish that the lease was properly terminated and that the landlord is entitled to recover possession.

How Should a Landlord Communicate with a Problem Tenant Before Summary Ejectment?

The next key step is message discipline.

In preparation for summary ejectment, as in any litigation, communications, and particularly communications in writing, are potential evidence. Being intentional about what you say and how you say it is therefore vital to preparing for success.

A landlord should:

• ALWAYS treat written communications as potential evidence.
• Avoid making statements that could be interpreted as waiving a default or any right under the lease.
• Avoid statements that could be used to suggest any pretextual reason for termination, even if the termination is solidly supported by the lease.
• Keep communications consistent with the lease, notices, and the landlord’s stated position.

Avoiding representations that a tenant, or ultimately a court, may view as a waiver, or as evidence of an unlawful termination, can save significant headaches and costs down the line. It may even be a deciding factor in whether a lease termination succeeds.

Can Accepting Rent After Lease Termination Affect a Landlord’s Rights?

Likewise, a landlord should carefully consider what happens with rent payments after deciding to terminate a lease and pursue eviction.

Your lease likely addresses the acceptance of rent after a default, either directly by stating that acceptance of rent after a default does not constitute a waiver of the default, or indirectly through a provision stating that the waiver of any right by the landlord must be in writing. Even with these provisions, however, accepting rent after a decision to terminate and evict can significantly complicate the process.

As a best practice, a landlord should consider:

• Rejecting rent checks delivered after termination.
• Immediately deactivating electronic invoicing or electronic payment options upon the decision to terminate.
• Consulting counsel before accepting a payment that could complicate the termination or eviction process.

The specific language of the lease matters, but once the decision has been made to terminate and recover possession, landlords should be particularly careful about actions that could create an argument that the landlord waived the default or otherwise changed its position.

Should a Landlord Start Marketing the Property Before the Tenant Is Evicted?

Finally, the act of taking steps to re-let the premises between termination and eviction can be a double-edged sword.

On the one hand, where a tenant has fallen far behind on rent, beginning to market the property can demonstrate a good-faith effort by the landlord to mitigate damages and make a bad situation better for all parties.

On the other hand, where the tenant’s issues are not clearly or entirely monetary, searching for a new tenant at a higher rent, even if that higher rent is consistent with the market, can create an unfavorable narrative. The tenant may argue, and may communicate to others, including the court and the public, that the landlord’s decision to terminate and evict was pretextual, even if the termination is fully supported by the terms of the lease.

There are therefore competing considerations:

Potential benefit:

• Demonstrates a good-faith effort to mitigate damages.
• May help limit the landlord’s financial losses, particularly where the tenant is substantially behind on rent.
• Can help the landlord move forward with re-leasing the property if possession is recovered.

Potential risk:

• Marketing the property before termination or eviction may give the tenant an opportunity to argue that the stated reason for termination was pretextual.
• Marketing the property at a higher rent may create an unfavorable narrative, even if the proposed rent reflects current market conditions.
• Where discrimination or another improper motive is alleged, the resulting dispute can substantially increase litigation costs and delay recovery of the premises.

Accordingly, the decision to begin marketing a property before the tenant has voluntarily surrendered the premises or a court has entered an order granting landlord possession should be weighed carefully against the potential risks of complicating the litigation.

When Should a Commercial Landlord Engage an Attorney for Summary Ejectment?

Preparing for summary ejectment begins well before a landlord files anything in court. Following the lease’s notice requirements, maintaining discipline in communications, handling rent payments carefully, and considering the timing of efforts to re-let the property can help protect a landlord’s rights and avoid unnecessary complications.

A landlord can take the steps outlined above on their own, or with the assistance of counsel, depending on their appetite for risk and budget. However, when it comes time for the next potential step, filing for summary ejectment, it is highly advisable, and sometimes legally necessary, to engage counsel. The preparation described above can put you and your lawyer in the best possible position to succeed.

If you are dealing with a problem commercial tenant and are considering termination, voluntary surrender, or summary ejectment, Venn Law Group can help you evaluate the situation and determine the appropriate next steps. Contact us to discuss your commercial landlord-tenant matter before a problem becomes a more costly dispute.

Gordon Wikle is an attorney at Venn Law Group with more than 14 years of experience serving as an assistant district attorney with the State of North Carolina. He focuses on commercial litigation and enjoys analyzing problems and finding creative solutions that are in the best interest of his clients. Navigating difficult situations and resolving business disputes are areas where he excels. Gordon earned his J.D. from Duke University School of Law and has his B.A. in Economics from Vanderbilt University.