Expert: Jim Avancena, CPM - 6/5/2009

Question
Hi Jim.
I had a tenant that occupied whole floor (11000sqf) in my Chicago office building. That tenant fulfilled first 2 1/2 years of a 5 year lease (with 5 year option). Recently due to economic downturn that tenant moved out. I had a meeting with them couple of days before the move when the announcement was made. I was told that he let everyone go and can not conduct the business any longer and is bankrupt (probably financially not legally). I just recently found out that this tenant downsized and moved to another location in the area but operates under a different name. My questions are:
1. What's the best approach to recover the rent for the remaining lease term?
2. Can i serve a 5-day notice to him at new location (i have the address) or serve it to his attorney, if serve at all?
3. Should i wait with serving the notice until several months to accumulate larger overdue rent and then proceed with lawsuit?
4. If i rerent the space can i bill former tenant for space improvements to make it suitable for new tenant? What's the best way to approach it?
5. If the new tenant wants to rent only partial floor, can i go after the former tenant for the remaining rent balance?

Chris

Answer
Chris-

Allow me to answer your questions in order.   Note that I am not an attorney and cannot provide you with legal advice. I will tell you what I can based on my past experience in my own local jurisdiction, but do not do anything regarding this situation until you have solid legal advice from a practicing attorney.

1.  This is business, and not personal.  Tell the former tenant you are forced to pursue them for the rent obligation they made in the lease if, in the end, you believe you will collect anything of value from them.   Also, as soon as you legally can, immediately begin to market their vacant space and mitigate damages as the law likely requires a landlord to do in this situation.   Keep good records on all your expenses to relet the space.

2. If you have evidence - them telling you is not evidence unless you can prove what they actually told you - that the tenant has vacated and does NOT intend to continue paying the rent; that is, consider that they might say that they had intended to sublet the space and are paying the rent due; you should immediately serve notice in exactly the manner prescribed in the tenant's lease (probably via Fedex or certified mail) to the address specified for "Notice" in the lease.   I would also deliver notice in the same manner to the tenant's new address, home, and attorney's office.

Although I am not an attorney and legally able to give you legal advice, if you don't have evidence that the tenant does not intend to pay you the rent that is late being paid, wait until you can fairly make demand for the late rental.   If you can now, do it immediately. You must do what the lease allows you to do when the rent payment is behind schedule.   If your geographic area legally allows "Self Help" and that is provided for in the lease, I would immediately take possession of the premises if you are certain you can prove that the tenant has skipped on the lease.

If you have the legal basis for the action, I would file a legal action for possession if that is what is prescribed by the terms of the lease.  

3. Although you need to discuss this your legal counsel before taking any action, I would proceed with the lawsuit at the first moment based on the terms of the lease and the evidence.  Simultaneously I would take every action to mitigate damages and keep very specific records of your actions and expenses incurred.

4. You will need to ask local legal counsel to answer this question regarding new improvements costs for you.  Many jurisdictions allow you to make reasonable improvements to re-lease the premises, but you will need to verify with counsel the specifics of the law in your area.

5. Again, this is a question that you should discuss with your legal counsel because different jurisdictions have various legal provisions in this regard.

Remember that you must acquire legal counsel and have their advice before taking any action in this matter.

-Jim