{"id":3130,"date":"2024-02-07T14:07:26","date_gmt":"2024-02-07T19:07:26","guid":{"rendered":"https:\/\/myhlaw.com\/?p=3130"},"modified":"2024-02-08T16:18:48","modified_gmt":"2024-02-08T21:18:48","slug":"real-estate-commercial-lease-disputes","status":"publish","type":"post","link":"https:\/\/myhlaw.com\/es\/real-estate-commercial-lease-disputes\/","title":{"rendered":"REAL ESTATE: Commercial LeaseDisputes"},"content":{"rendered":"

When a commercial tenant defaults on its lease, some strategic decisions need to be made by both the tenant and the landlord.<\/h4>\n
As with any lease that ends in default, emotions tend to run high.\u00a0 Commercial tenants often have feelings about how the landlord’s conduct, or the condition of the premises, led to the failure of the business.\u00a0 On the other hand, commercial landlords always suffer significant losses when a tenant defaults.\u00a0 So, very often, one or both sides are very upset.<\/div>\n
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The purpose of this article is to make both parties aware of the common considerations after default on a commercial lease.\u00a0 <\/em><\/strong><\/div>\n<\/blockquote>\n

Uncollectible Tenants<\/h2>\n
When they can, commercial Tenants may just dissolve the company or file a commercial bankruptcy — that is, unless the tenant believes it has a strong case against the landlord.\u00a0 In this scenario, the landlord does not get paid, but the landlord gets the property back relatively quickly.<\/div>\n
<\/div>\n
Nobody is happy in this scenario but, at least, everyone is able to move on.<\/div>\n

Personal Guaranty<\/h2>\n
Most commercial leases require the owner — i.e.<\/em> a human being or an entity very unlikely to become assetless — to sign a personal guaranty.\u00a0 So, there are plenty of times when the tenant cannot simply cut and run.\u00a0 In that situation, the tenant has two basic choices:<\/div>\n
<\/div>\n
Scenario #1 –\u00a0 make a deal quickly, or <\/em><\/div>\n
Scenario #2 – try to win by attrition.<\/div>\n
<\/div>\n
Of course, Scenario #1 makes the most sense to all concerned.\u00a0 If the landlord can get the property back quickly, the space can become a producing asset sooner and, thereby, minimize losses.<\/div>\n
<\/div>\n
As for the tenant, the terms of the commercial lease agreement are almost certainly not<\/em> favorable, so settling early prevents entry of a huge judgment.\u00a0 Nonetheless, a quick resolution often does not happen.\u00a0 Again, emotions can be a factor, but that is not the only problem.<\/div>\n
<\/div>\n
Most of the time, after a default, Landlords will do their calculations and present the Tenant with a big bill.\u00a0 That is understandable enough.\u00a0 It may very well be that, under the terms of the lease agreement, the Landlord is entitled to every cent.<\/div>\n
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It is hard to blame a commercial landlord for insisting on payment of every dime owed, but that does make it nearly impossible to cut a deal quickly.\u00a0 So, very often, we end up with Scenario #2, which is protracted litigation.<\/em><\/div>\n<\/blockquote>\n

Real Estate Litigation<\/h2>\n
Everyone will lawyer-up and things will start getting expensive.\u00a0 Generally, both parties have suffered losses, so the costs of litigation are pouring salt on the wound.\u00a0 If emotions were not running hot before this point, they definitely are now.<\/div>\n
<\/div>\n
Commercial tenants should understand they are playing a very dangerous game in this scenario.<\/div>\n
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Once the lawsuit starts, it’s basically for \u00aball the marbles\u00bb because the landlord will be entitled to ALL the costs and fees resulting from this lawsuit, along with unpaid rents and other damages.<\/em><\/strong><\/div>\n<\/blockquote>\n
With few exceptions, sooner or later, the landlord is going to get a judgment so, the longer the case goes on, the bigger the judgment will be.\u00a0 Therefore, unless the tenant has some exit strategy, the tenant has the Sword of Damocles over its head.<\/div>\n
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But, be aware, landlords.\u00a0 Sometimes the commercial tenant does<\/em> have an exit strategy.<\/strong><\/div>\n<\/blockquote>\n
If there has been a genuine default on the commercial lease, the landlord is almost certainly going to get some kind of judgment at the end of the lawsuit.\u00a0 And, because the commercial lease — unless it was not prepared professionally — will definitely have a provision for recovery of costs and attorneys’ fees, the amount of the judgment is likely to be significant.<\/div>\n
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I realize that all sounds good from the landlord’s perspective.\u00a0 Just remember, though, getting a judgment is one thing.\u00a0 Collecting on the judgment can be quite another. <\/em><\/div>\n<\/blockquote>\n

Executing on the Judgment<\/h2>\n
In light of the forgoing, if the tenant makes the decision to fight the landlord’s lawsuit — thereby incurring legal fees and running up the amount of the judgment — then you have to figure the tenant probably has a plan.<\/div>\n
<\/div>\n
Like all defendants in a lawsuit, the tenant can try to make the judgment uncollectible.\u00a0 Because commercial leases generally require a guaranty, it may not be a simple task for the tenant to make the guarantor \u00abjudgment-proof.\u00bb\u00a0 It will almost certainly take time to plan and manuever.<\/div>\n
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The tenant may start transferring assets out of the landlord’s reach.\u00a0 If you start seeing the tenant’s attorney utilizing delay tactics in the lawsuit, it may be that the tenant needs time to get the asset-protection<\/a> plan in place.\u00a0\u00a0<\/em><\/strong><\/div>\n<\/blockquote>\n
Asset protection<\/a>, when done skillfully, can be very effective.\u00a0 Often enough, a judgment-holder will decide to cut losses somewhere along the way, and the parties move on.\u00a0 Maybe a commercial tenant would consider that a \u00abwin.\u00bb\u00a0 Maybe . . .<\/div>\n
<\/div>\n
But, asset-protection does itself involve some expense and a fair amount of hassle.\u00a0 More importantly, there is a mechanism in the law called \u00abpiercing the corporate veil<\/a>\u00bb that allows a judgment-holder, such as a landlord, enforce the judgment against any new entity(s) the tenant creates for asset-protection purposes.<\/div>\n

Conclusion<\/h2>\n
There is no real morale to this article.\u00a0 I just want commercial landlords and tenants to be aware of the cat-and-mouse game that can follow a default.\u00a0 At some point it comes down to just how far each party is willing to go.\u00a0 And, I have seen these cases go very far indeed.<\/div>\n
<\/div>\n
There are a few critical moments along the way where the two parties need to carefully consider their options.\u00a0 Hopefully, this overview puts you in a better position to make the best decisions.<\/div>\n
<\/div>\n
~ Jeff Harrington, Esq.<\/a><\/div>\n","protected":false},"excerpt":{"rendered":"

The purpose of this article is to make both landlords and tenants aware of the common considerations after default on a commercial lease.\u00a0<\/p>\n","protected":false},"author":1,"featured_media":3131,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[285,210,289],"tags":[495,493,494,498,499,496,500,497],"class_list":["post-3130","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-litigation-adr","category-real-estate","category-real-estate-disputes","tag-commercial-landlord","tag-commercial-lease","tag-commercial-lease-dispute","tag-commercial-real-estate-attorney","tag-commercial-real-estate-lawyer","tag-commercial-tenant","tag-default-on-commercial-lease","tag-lease-litigation"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/myhlaw.com\/es\/wp-json\/wp\/v2\/posts\/3130","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/myhlaw.com\/es\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/myhlaw.com\/es\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/myhlaw.com\/es\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/myhlaw.com\/es\/wp-json\/wp\/v2\/comments?post=3130"}],"version-history":[{"count":0,"href":"https:\/\/myhlaw.com\/es\/wp-json\/wp\/v2\/posts\/3130\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/myhlaw.com\/es\/wp-json\/wp\/v2\/media\/3131"}],"wp:attachment":[{"href":"https:\/\/myhlaw.com\/es\/wp-json\/wp\/v2\/media?parent=3130"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/myhlaw.com\/es\/wp-json\/wp\/v2\/categories?post=3130"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/myhlaw.com\/es\/wp-json\/wp\/v2\/tags?post=3130"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}