May 18, 2018

Five Things to Remember When Repossessing Abandoned Rental Property

Dealing with a delinquent tenant can be one of the most stressful scenarios for a commercial landlord or developer. It’s no secret that tenants who cannot or will not pay rent (or otherwise perform according to the parties’ lease) are a common challenge for landlords. But what about when a tenant abandons — or appears to abandon — leased premises? A landlord then faces difficult questions about when and how to re-enter the property, and what to do with any personal property or fixtures the absentee tenant left behind on the leased premises. When navigating these challenging situations, a property manager should keep the following action items and considerations top of mind.

1. Confirm that the leased premises have been abandoned.

It is often tricky to determine whether a tenant has abandoned leased premises. The lights are off and there is no sign of activity, but the tenant — perhaps not very responsive to begin with — is incommunicado about its present and ongoing intentions regarding the property. The careful landlord should step deliberately in order to avoid inadvertently assuming liability.

If the tenant has not clearly defaulted under its lease obligations, the question of abandonment can be even more vexing. For example, in many commercial leases, failing to make a rent payment is a breach, but not a formal default, under the lease. If a formal default requires written notice of the breach and a time for the tenant to cure — and most commercial leases do — then a commercial landlord may not have clear rights to re-enter the premises until the formal process of putting the tenant into default has run its course. That’s true even if it appears that the tenant has abandoned the premises.

So, absent unambiguous evidence of abandonment or vacation of the premises — the tenant physically hands over the keys, for instance — commercial landlords should act carefully when looking to repossess leased premises.

2. Be careful with abandoned personal property and fixtures.

Commercial rental property can bring additional challenges even when repossession goes smoothly. Tenants often can be unclear about whether they are abandoning personal property and fixtures, for example. A defaulting restaurant tenant may leave thousands of dollars of equipment and materials on the premises. Compounding these complications, valuable fixtures — kitchen appliances, for example — are often independently financed by third-party creditors who have superior and legally secured interest in the equipment. A related complication can arise if a health care tenant abandons potentially confidential health information. In these circumstances, landlords may find that they have transitioned into a bailor/bailee relationship where they have obligations to maintain property for a third party with whom they are not contractually connected to, but to whom they owe a legal duty of care. In these circumstances, landlords’ key consideration must be to take reasonable steps to secure the potentially abandoned property so that there is time to determine if any other party or person has an interest in the property’s disposition or disposal.

3. Not taking action in a timely fashion can be risky, too.

Under some circumstances, a landlord needs to act quickly even when the status of the property is unclear. For example, a tenant abandoning leased premises may cut off utilities or fail to pay the utility provider while not paying rent. A landlord may need to act nimbly to avoid the consequences of frozen pipes and fixtures, flooding, or spoiled organic material, which can make a bad situation exponentially worse.

4. Document the circumstances of re-entry and repossession.

Landlords and property managers who are stuck in the purgatory of uncertain commercial rental space status can protect themselves by carefully documenting what they do, how they communicate with the tenant and other interested parties, and what they find as they reenter apparently abandoned rental space. If a lease requires written notice to empower a landlord to take action, provide written notice even if doing so seems pointless at first blush. Communicate the landlord’s intention as the landlord is taking action — in writing, face-to-face, by text message or by email. Use the best means of communication available, but communicate. Put interested parties on notice of what a property manager is doing prior to or as the manager is taking action to preserve commercial space. Photograph or videotape the condition of premises, personal property and fixtures if there is any question about what the tenant has been doing with it or what condition the premises or any personal property were in when the landlord regained control of the premises.

5. Under certain circumstances, court authorization is best.

Sometimes — particularly if there is ambiguity about whether a landlord has the right to repossess property or potentially valuable property interests are at stake — it is better in the long run to get court authorization before taking action. Court approval and direction can serve as powerful inoculation against liability for landlords stuck in difficult and ambiguous property management limbo. If a large or valuable rental space is at issue, there is a big risk of exposure, and court intervention is the best way to resolve a difficult and ambiguous situation.

As these considerations demonstrate, understanding options and risks relating to potentially abandoned rental property is important before taking a step that can be unfortunate and costly. Consulting an attorney before taking action can be a cost-effective option to avoid these pitfalls.

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