Series: Real Estate in the Time of Covid Part Three
What happens if a tenant stops making payments?
Again, it depends on what the lease says.
If the lease clearly states that the tenant can stop making payments, then that controls.
If it doesn’t, a well-written lease will clearly specify the landlord’s remedies in the event of such a breach by Tenant.
In that case, the landlord may deliver a notice of monetary default and may even accelerate all remaining amounts owed under the lease with possible direct options against personal guarantors and letters of credit used as security.
Some states, including Texas, have/had a moratorium on certain evictions. In 2020, the Centers of Disease Control (CDC) also implemented temporary eviction protections for certain tenancies. This does not mean that landlords cannot or will not get the ball rolling and begin sending required notices and running down timelines.
Landlord Assistance
Commercial landlords generally do not have an obligation to provide rent relief or assistance to tenants. However, in light of the extraordinary circumstances, landlords are encouraged to seriously review, consider, and reply to tenant requests for assistance. It helps to have a good and consistent assessment form.
Since it is currently difficult to forecast what may happen in the coming days, much less weeks and months, any relief granted should be limited to short periods, like 30 or 60 days. Many landlords, instead of cancelling or waiving rent, are offering their tenants rent deferments or offering to use the security deposit in place of a rent payment with the condition that the tenant replenish it over time. Security deposits should be handled carefully by landlords due to penalties imposed by the Texas Property Code, including triple damages in some cases.
Landlords are well-advised to check with their own lenders and attorneys before offering rent and other assistance to tenants. Assistance should be well-documented and coupled with non-disclosure agreements.
For Tenants, numerous government programs have been implemented to provide assistance.
To speak to an attorney about the current language of your lease, or improving the language for the future, drop us a line.
This article is not intended to be construed as legal advice. Always consult an attorney to assess your particular situation and set of facts.