Under Arizona commercial landlord tenant law a landlord can recover possession of his commercial property without filing an eviction lawsuit. The law says that if a tenant is more than five days late with a rent payment, the landlord may enter the premises and take possession without any prior notice or demand for payment. As an alternative, the landlord may file an eviction lawsuit. Many commercial leases contain terms which limit the landlord’s ability to recover possession without notice or demand for payment. In spite of the very broad repossession power given to commercial landlords by Arizona law, a landlord should follow any specific procedures found in the lease relating to notice and termination of the tenancy.
What can a commercial landlord do with all the tenant’s property left in the premises if they lock out the tenant? Arizona law gives a commercial landlord a lien on all the tenant’s property in the premises when the landlord recovers possession. The landlord can hold the property and demand payment of rent in exchange for release of the property. If the tenant has not paid rent due within sixty days, the landlord may sell the seized property and apply the proceeds to the amount of rent owed by the tenant.
Prior to selling the property, the landlord must provide the tenant with a ten-day notice of intent to sell the property if rent is not paid. If the tenant still fails to pay past due rent and late fees, the landlord must sell the property at a public auction. There are a number of commercial auction houses available in the Phoenix metropolitan area that can be used for the auction.
There are a several potential traps associated with seizing a tenant’s property and holding it for auction. A landlord may not hold for auction any property exempt by law. For example, personal financial records of the tenant, or personal education materials, or a personal library on the premises. A much more significant trap is the seizure of property on the premises which belongs to some third-party. It is quite common for commercial tenants to have equipment that is rented from another business. For example, a restaurant tenant might rent the freezers on the premises form a restaurant supply company. Often rented equipment can be easily identified by a sticker or label on the equipment. But, a landlord should make a concentrated effort to determine whether or not the tenant owns the property seized at the business before that property is auctioned at a public sale.
Note that if a lease has been assigned or there is a sub-tenant of the original tenant occupying the property a landlord can still enter and seize the property of the sub-tenant if the rent is in arrears. The landlord has a lien in the sub-tenant’s property on the premises. If nobody pays past due rent and late fees, the landlord can proceed to auction as described above. If the sub-tenant has been faithfully paying rent to the original tenant, who has not been forwarding that rent on to the landlord it makes no difference. The sub-tenant would have a very good breach of contract claim against the original tenant, but the landlord can proceed to auction unless somebody pays the past due rent.
As an alternative to a tenant lock-out, an Arizona commercial landlord can file an eviction lawsuit. There are two principal reasons to consider filing an eviction lawsuit. The first is that an eviction lawsuit is about the quickest, easiest method in Arizona law to obtain a money judgment against the tenant. But, if your business tenant is insolvent it may not be worth the expense of prosecuting an eviction lawsuit. A business that can’t pay rent is frequently judgment proof. There are exceptions. For example, a business tenant with multiple stores or locations may possess the ability to pay a judgment, with or without their consent. The landlord should assess the possibility of collecting a judgment on a case-by-case basis.
For this reason, it is always advisable to obtain personal guaranties from the principles of any closely held corporation or limited liability company tenant. You will then have the ability to seek recovery of your damages from the guarantors. There is another trap for commercial landlords lurking in Arizona law related to personal guaranty. To make sure you can collect on a personal guaranty if necessary, it is imperative to have both a husband and wife sign the personal guaranty. This is necessary to make the guaranty an obligation of the marital community. For example, if only the husband signs the guaranty at the end of the personal guaranty lawsuit you only get a judgment against the husband. You can only satisfy that judgment from the sole and separate assets of the husband.
Since the bulk of most couples assets are held as community property, attempting to collect from a husband’s or wife’s sole and separate property may be a futile effort. This highlights an important issues related to a personal guaranty. If you are going to require a personal guaranty for a lease, get a financial statement from the prospective personal guarantors; not just a credit report. Get a financial statement that shows you what the prospective personal guarantor owns.
The second reason an Arizona commercial landlord might consider an eviction lawsuit to recover possession is to limit any possible liability they might be exposed to by conducting a lock-out of their tenant. This depends on the nature of your tenant’s business and whether or not you have a lease. A good commercial lease will have terms which limit a landlord’s liability for any consequential damages the tenant suffers as a result of a lock-out. This is another reason to have a good commercial lease. If you don’t have a lease which limits your liability for consequential damages, you should consider going to court and getting an eviction judgment, rather than simply locking your tenant out. We would be happy to review your lease or draft a commercial lease for your property that protects you and your property to the maximum extent under Arizona law.
If you want to file an eviction lawsuit against your tenant, we can prosecute your eviction. Our legal fees for a commercial eviction are $1500. We handle commercial evictions in Maricopa and Pinal counties. The legal fees include prosecution of the case through trial, if necessary, or preparation of a settlement agreement if the parties settle.
If you need a commercial eviction in Maricopa or Pinal counties in Arizona, or would like more information about the process, click on the “Submit” button below. The button takes you to our on-line store.