There are many opportunities in commercial real estate, but these do not come without challenges, such as dealing with problematic tenants. We advise all new owners of commercial real estate to run their property like a business (see Part 1), and part of that is being prepared to evict tenants.
With a little planning and forethought, landlords can reduce the risks associated with tenant evictions. Here’s what you need to know.
1. Do your due diligence
If you want to avoid the hassle and expense of evicting tenants, deal with the types of tenants who are unlikely to default. It sounds obvious, but in our experience, many new owners skip this crucial step. As part of your due diligence (you vet your potential tenants, don’t you?), ask for financial information and do a credit check, contact previous landlords, and do a background check on the owner of the business. If you see any red flags, think twice before renting to the tenant – and at a minimum, seek advice from a third party such as your lawyer or CPA before entering into a lease.
2. Document the terms and procedures in the lease
There should be no ambiguity in your lease as to (1) the circumstances in which you can evict a tenant and (2) the procedures that must be followed to do so. This includes documenting what constitutes a breach of the lease, required notices, and opportunities, if any, for the tenant to “cure” a breach (eg, refund rent within 30 days). It’s far better to deal with these issues in advance, than to fight over them later in the heat of an eviction battle.
3. In the event of a violation, follow the procedures
The types of circumstances that generally give rise to a landlord’s right to initiate eviction proceedings include the tenant engaging in illegal activity on the property, non-payment of rent, interference with human rights, other tenants and damage to the property. In the event of a violation, if a landlord decides to evict a tenant, it is essential that the relevant tenancy terms, as well as state and local laws, are followed closely.
One of the most important conditions is the notice that must be given to a tenant before a landlord can seek to evict the tenant. Under Michigan law, before a court issues an eviction order, a landlord must serve the tenant with proper notice. After serving notice, a landlord must wait 7 or 30 days, depending on the reason for the eviction, before seeking redress in court.
There are many aspects to note – including what it says and how it is meant – that will impact its effectiveness, so it is best to seek legal advice rather than trying to do it yourself .
4. Seek non-judicial resolution, if possible
It’s best not to let problems with tenants, such as chronic late payments (on non-payments) on a lease, linger. However, if possible, it’s usually best to seek a resolution that doesn’t involve going to the courthouse, which can get messy and expensive very quickly.
This does not mean that a landlord should remain passive in the face of a tenant’s non-payment of rent. Indeed, it is often necessary to take aggressive measures to bring a tenant to the negotiating table. For example, asking a lawyer to serve the required notice can spur constructive discussions that lead to a resolution that avoids litigation.
5. Don’t do a self-help eviction
Even if you receive an eviction order from a Michigan court allowing you to evict a tenant, it is best to avoid trying to conduct a “self-help” eviction, such as locking the doors and/or or turn off utilities to a tenant’s space. . Michigan law defines physical eviction procedures, which must be closely followed. It is best to consult legal counsel before taking steps to deprive a tenant – even one in violation of their lease obligations – of their ability to occupy a space. The last thing you as a landlord want to do is compound your damages from a deadbeat tenant by exposing yourself to liability.
Expulsion: it’s not if, it’s when
The sad truth is that if you are a commercial real estate owner, at some point you will face eviction issues. To avoid having to face an eviction as much as possible, do the work upstream to find good tenants and sign a well-crafted lease. If issues with a commercial tenant arise during the term of a lease, know your rights and work with legal counsel to determine the best course of action. And if there is no other option, take decisive action to enforce your rights, including evicting a tenant if necessary.