Recently in Commercial Unlawful Detainer/Eviction Category

May 15, 2015

When Commercial Tenants File for Bankruptcy

Because federal bankruptcy law preempts California landlord/tenant law, it's important that commercial landlords and tenants alike understand the process when a tenant has filed for (or is considering filing for) bankruptcy. The timing of a tenant's bankruptcy is critical because once a tenant files for bankruptcy an automatic stay immediately stops any state court action against the tenant including pending unlawful detainer actions (evictions). Once the bankruptcy stay is in force, the tenant can maintain possession of the premises for up to seven months so long as it pays rent post bankruptcy filing. Landlords' recourse depends entirely on the timing of the landlord's pre-bankruptcy actions. If a judgment is obtained prior to the bankruptcy filing, the landlord will be able to recover possession. If an unlawful detainer action is filed but a judgment is not yet obtained, the landlord can file a motion with the bankruptcy court seeking to lift the stay so that the landlord can proceed with the unlawful detainer action. This can be accomplished in relative short order. If the bankruptcy action is filed before the landlord filed an unlawful detainer action, then the landlord is bound by the bankruptcy procedures which give tenants 120 days time to consider their options (90 days longer with a court approved extension).

auf-dem-brucke-1211355-m.jpgDue to the bankruptcy risk, it's advisable for landlords to move quickly where they suspect a tenant is heading for bankruptcy and is behind in rent. Of course, there is a cost (especially for large retail centers) to serving three day notices and filing unlawful detainers on the drop of a hat. Long time tenants with proven track records are known entities. There is a benefit to working with these known entities to see if the problem is a short term one or, if not, whether a compromise can be reached. Either way, open lines of communication allow landlords to get a better sense of the tenant's current position while simultaneously letting the tenant know that the landlord is willing to talk. However, if there is any hint that bankruptcy is on the horizon, the sound business decision is to file an unlawful detainer action as soon as possible (after a three day notice to pay rent or quit is served) and to pursue the action to judgment as quickly as possible.

The decision for tenants on the verge of bankruptcy on the other hand is much simpler. They want to file for bankruptcy as soon as possible. However, it's important that they are not filing bankruptcy for the sole purpose of avoiding eviction. First, at best the eviction proceedings are merely delayed (and rent for the post bankruptcy filing will still be due). Second, there are consequences to filing frivolous bankruptcies. For a tenant that truly qualifies, bankruptcy is certainly worth considering and back due rental obligations should be a factor in that decision. Because of the negative consequences attached to bankruptcy, it's important to consult with a bankruptcy attorney to fully understand whether it is right for your business.

Continue reading "When Commercial Tenants File for Bankruptcy" »

April 28, 2009

California Unlawful Detainer - Avoiding Delay Under a True Fast Track

San Diego commercial property landlords have a powerful tool when faced with the unfortunate necessity of evicting tenants. Properly utilized California eviction procedures can result in the speedy return of landlords' possession to their commercial property. Unlawful detainer actions may be brought for the purpose of evicting tenants that fail to pay rent or otherwise breach their lease terms. California unlawful detainer actions are summary proceedings designed to resolve issues of possession without the long delays typical of litigation. Service of the complaint on the tenant to resolution of the matter can be less than 30 days, although as a practical matter the process generally takes a little longer depending on how service was accomplished and what actions the tenant takes. Nonetheless, to a practicing litigation attorney outside of the summary proceeding context, the speed at which unlawful detainers proceed to trial in California is astounding. Important procedural timelines for the completion of discovery and noticing motions are condensed. In exchange, California unlawful detainer actions are confined primarily to issues of possession and secondarily to rent and/or holdover damages contingent on a valid claim of possession.  Understanding these limitations is critical to effective prosecution of unlawful detainer actions.

The leasing of commercial property is first and foremost a business, and the speed at which eviction procedures may be accomplished has a powerful effect on a business's bottom line.  To minimize possible delays, landlords should be cognizant of important procedural requirements and the necessity of a well-pled complaint.  There are strict requirements for the content of and service of a three day notice "to pay rent or quit" or "to cure breach or quit" (required statutory notice before an unlawful detainer action may be filed).  Because time is of the essence in most unlawful detainer actions, proper service and pleading is the best way to reduce the likelihood of delay.  Otherwise, defendant tenants may file a motion to quash for improper service or demur to the complaint and/or move to strike portions of the complaint that are not properly pled all of which delay the process.

Of course, this all presumes that the landlord's claims of failure to pay rent or breach of lease terms are valid.  If not, it may be that the tenants themselves desire a speedy resolution of the possession issues.  After all, commercial tenants are businesses themselves and their bottom line is affected by prolonged litigation and the uncertainty that comes with it.  Contact a business attorney to discuss your particular situation. 

A cursory but informative summary of California unlawful detainer procedures may be found at the Superior Court of California Self Service Center.