October 27, 2009
Ten Common Landlord Mistakes:
Effectively Dealing With Tenant Delinquencies And Eviction Proceedings
By: Jon L. Farnsworth, Esq.
The poor state of the economy threatens tenants’ ability to satisfy their lease obligations. Unfortunately, landlords are feeling pinched by tenants’ mounting delinquencies. Some tenants lack the cash flow to make lease payments, while other tenants voluntarily withhold rent for business reasons (i.e., conserve cash flow; obtain a lease modification with more favorable terms for the tenant; etc.).
This article summarizes some of the ten common mistakes made by landlords when dealing with tenant defaults and eviction proceedings as well as offers insights of how to effectively manage tenant delinquencies.
Mistake 1: Dillydallying. Landlords often allow tenant delinquencies to languish, hoping the tenant will eventually find the goodwill to bring their account current; however, landlord who delay sending default notices and commencing evictions action often risk enduring longer “rent-free” periods than if the landlord immediately responded to the first delinquency.
A landlord is generally in a better position to obtain overdue lease payments if the landlord promptly contacts the delinquent tenant to work out payment details. In some instances, the landlord may obtain full payment. In other circumstances, the landlord may make concessions by providing a lease modification (i.e., lower rent payments; forbear a portion of future rent payments; etc.) so the tenant will agree to remain in the premises. In yet other situations, the landlord may need to pursue eviction proceedings. Regardless of which scenario occurs, a landlord is in a better position to minimize its losses by reacting quickly to tenant delinquencies.
Mistake 2: Failing to Read the Lease. Landlords should pay particular attention to the default provision of the lease, including when, where, and why a default notice may be sent. Housing Court judges and referees generally require strict compliance with the lease’s default provisions (e.g., sending default notices). Other terms to consider include whether the tenant personally guaranteed payment under the lease (this provides the landlord with additional leverage in obtaining payment), and whether any sublease or assignment of the lease occurred (this information may assist the landlord in negotiations with the tenant as well as in eviction proceedings).
Mistake 3: Negotiating With The Tenant Without Commencing Eviction Proceedings. Regardless of whether the landlord actually seeks to evict the delinquent tenant, pursuing an eviction action is often prudent for business reasons. Specifically, pursuing an eviction action generally increases the landlord’s leverage when negotiating a lease modification with the tenant. This strategy is effectively a “carrot and a stick” approach. If the tenant cooperates in the negotiations and pays at least some of the past due rent, the tenant will obtain a lease modification. If the tenant is does not cooperate, the tenant will be evicted.
Assuming the tenant is cooperative and a settlement is reached, the eviction hearing may be cancelled. Unfortunately, the landlord will be unable to obtain a refund for court filing costs; however, the cost associated with preparing and filing the eviction proceeding are often times minimal compared to the amount of lease payments in dispute.
Two other benefits to commencing eviction proceedings while negotiating with a tenant is that (1) the proceedings provide a firm deadline for when a settlement must be completed, and (2) a level of insurance to the landlord that if negotiations break down, the tenant will be forced to promptly vacate and the premises may be re-let more quickly to a new tenant.
Mistake 4: Failing to Evict All Occupants. The landlord should always know who is occupying the leased property before proceeding with eviction proceedings (Note: the tenant on the lease may not be the occupant). Assuming eviction proceedings are necessary, the landlord should commence an eviction action against the named tenant on the lease as well as against any other occupant. Naming all occupants will better ensure the landlord will regain control over the property and will not have to bring a subsequent eviction proceeding if some occupant other than the named tenant asserts rights to the property.
Mistake 5: Incorrect Information in Complaint/Ineffective Service. The landlord should ensure the information contained in the eviction Complaint is correct. Two common mistakes include using an incorrect address for the leased property and bringing the eviction Complaint on behalf of the wrong party.
An incorrect address may cause delays in the eviction proceeding and/or prevent the Sheriff from executing a writ of recovery even if the landlord is successful in the eviction action. Similarly, the plaintiff in the eviction action must have an ownership interest in the property. This usually means that the person or entity named on the lease as the landlord must be the plaintiff. In other words, a management company that does not have an ownership interest in the leased property generally cannot commence the eviction action as the plaintiff.
In addition to incorrect information in the Complaint, incorrect service is another frequent mistake. Landlords and attorneys unfamiliar with eviction proceedings are often unaware of Minnesota’s strict service requirements and law regarding which parties may commence an eviction action. Service requirements for eviction actions differ from normal legal actions. The eviction action must first be filed with the court and then served on the tenant. There are also timing restrictions on when the complaint must be served on the tenant (between seven to fourteen days before the hearing). Service requirements are even more involved for residential property, which sometimes require multiple attempts at personal service during a specified time of the day.
Mistake 6: Not Having an Attorney. The default rule is that a landlord will need an attorney to draft and argue the eviction complaint in court when the landlord is an incorporated entity (e.g., corporation, limited liability company). While some counties within the State of Minnesota do not enforce this requirement, this flexibility may actually disadvantage the landlord. The Minnesota Court of Appeals determined that incorporated entities must be represented when appearing before the district court. See Walnut Towers v. Schwan, A-07-1311 (Minn.App. 2008) (reversing district court issuance of eviction when incorporated entity unrepresented by counsel).
The Walnut Towers decision appears to impact all eviction proceedings occurring in district court; however, the decision does not impact Hennepin and Ramsey counties which have established housing courts and rules. While Hennepin County allows incorporated entities to be unrepresented during the initial appear phase of housing court, Ramsey County mandates incorporated entities be represented by an attorney during the entire eviction proceedings. Note: Anoka County has an unusual quirk in that it requires testimony from landlords, so regardless of the Walnut Towers decision, having an attorney present is often helpful.
Mistake 7: Waiving the Tenant’s Breach of the Lease. Under Minnesota law, a tenant may usually cure any default in the lease up to the time of the eviction is ordered (e.g., by fully paying past due rent, interest, and late fees). In the event the tenant cures the breach, the landlord is often satisfied. However, there are also situations where landlords may unintentionally forgive a breach of the lease, will be prevented from collecting past due payments, and will be unable to pursue eviction proceedings. For instance, a landlord may waive its right to evict a tenant and collect past due rent if the landlord accepts a partial payment of rent from the tenant. A landlord should be careful not to cash checks indicating in the memo line “full payment” or “all outstanding rent”. Similarly, if a landlord accepts the keys from the tenant prior to the termination of the lease and without any other agreement, the landlord may be unable to collect the unpaid portions of the future rent from the tenant.
Mistake 8: Ignoring Tenant’s (Threatened) Bankruptcy. Once a tenant files for bankruptcy, all legal proceedings against the tenant must be immediately halted. This includes all pending lawsuits or eviction proceedings against the tenant. It is in the landlord’s best interest to immediately commence eviction proceedings against any tenant that is expected to declare bankruptcy. Once in bankruptcy, a tenant may be able to remain in the property rent-free for up to 60 days. It is usually far less costly to pursue an eviction proceeding than to be enveloped into a tenant’s bankruptcy action as the landlord and/or creditor. Note: Eviction proceedings usually take approximately three weeks to complete.
Mistake 9: Paying for an Unnecessary Writ. Once an Order of Eviction is granted, tenants seldom linger. If a tenant remains on the property, a writ may be ordered at a cost of $55 and a sheriff will forcibly evict the tenant. However, landlords can usually save themselves $55 by just showing the Court Order to the tenant.
Mistake 10: Foregoing Collection Proceedings. Landlords are relieved once a problem tenant vacates the property and often overlook the ability to obtain a judgment against the tenant for breach of contract (e.g., past and future unpaid rent, damage to property, etc.). Tenants who breach their leases and vacate properties prior to the expiration of the lease may be liable for the remaining rent amounts due under the lease. Notwithstanding this, Landlords should consult with their attorney and consider the value of the potential judgment and the prospects of collecting on the judgment before proceeding with collection work.
Jon L. Farnsworth, Esq. is an attorney with Felhaber, Larson, Fenlon & Vogt, P.A., a full-service law firm with offices located in St. Paul and Minneapolis, Minnesota. He represents clients in with a wide variety of real estate matters, including unlawful detainers, lease negotiations, foreclosure proceedings, and collection work.
(This article contains a general discussion of the law. You should consult with your attorney on the issues regarding tenant delinquencies and eviction proceedings. This article does not constitute and should not be treated as creating an attorney-client relationship or providing legal advice.)