Disclaimer: I am not an attorney and this article is not intended as a substitute for advice from the appropriate legal, zoning, financial, construction and/or tax professionals. This information is provided for educational purposes only and is made without warranties or representations
Under normal circumstances, the landlord-tenant agreement is smooth. The landlord provides upkeep and maintenance, and the tenant pays rent to lease the space. It doesn’t necessarily matter whether this is individual housing or huge commercial space; landlords need to get paid according to their rental agreements, and tenants are accountable for the contracts they sign.
What happens if the tenants stop paying rent? What recourses does a landlord have? Are there different laws between residential and commercial properties and their leases?
Learn more by reading on!
Before anything else, you have to refer to the lease both you and your tenants signed. The lease will have the terms, grace periods, and recourses you may have baked into it. If it doesn’t, well, you may be in a tricky situation. There’s a good reason why landlords should have contract lawyers look over their leases.
That said, a lease can’t supersede the law. California and San Diego have specific rules and regulations governing what can and can’t be part of a lease. For example, it used to be possible for a landlord to evict a tenant for no reason, but an eviction moratorium had been passed to prevent this.
It has since expired, but it’s a great example of how city-level and state-level regulations can apply to your situation.
Another example is the waiver of rights protected by the state. By state law:
These and many other clauses may be prohibited by law.
The law comes first, then the contract, then any more informal agreements you may have with your tenants. At that point, you end up deep in the weeds of contract law, and that’s where you should be consulting lawyers, not blogs on the internet.
All of this is to say that the actions you can take, the recourse you have, and the damages you may be entitled to can be determined – or limited – by both law and lease. Know both before you spring into action.
So, what can you do if you have tenants that aren’t paying rent? Here are five options.
The first thing you may want to do is evaluate the situation and determine why the tenant isn’t paying rent. The aphorism “you catch more flies with honey than vinegar” can be true here.
Tenants can fall on hard times, and those hard times can be temporary. Sometimes, a grace period can allow a tenant to get back on their feet, repay their back rent, and get back to regular payments as if nothing ever happened.
On the other hand, sometimes those hard times aren’t so easily mended. Health crises, job loss in a tough market, or other catastrophes can mean it’s unlikely that the tenants would be back to stable rent payments in such a short time.
A primary consideration here is the opportunity cost of an eviction and vacancy versus the lost rent that may (or may not) end up being paid back in a reasonable time. If you proceed with a legal eviction and follow up with actions to recover the damages from lost rent, that’s a lot of time, legal fees, and effort invested in the process. But, having a unit occupied and not paying rent is also a cost. You’ll need to do the math to figure out where the tipping point is and where generosity has its limits.
A special note here is that while you can talk to your tenant and find out what’s going on, you need to be very careful about repeatedly contacting them. If you keep calling them to get status updates, it can be considered harassment, which is very illegal and can get you in hot water if the tenants choose to pursue an adversarial process.
A late rent notice is an essential piece of paperwork. It will generally be a form letter that you fill out and send when your tenant needs to pay rent and is late on their payment. It should state the amount of rent past due, as well as any late fees or other fees you would want to charge.
The late rent notice can be delivered by email, delivered in person, or even just taped to the door of the unit when rent is late. Ideally, it will serve as a reminder that rent was due and that a tenant who lost track of time can pay the rent ASAP to make things right.
This is also your proof that you’ve initiated contact regarding late rent, which can become part of the evidence in a later eviction filing. For that reason, you’ll want to make a copy of the notice, with a date of when you delivered or sent it, for your own records.
Even if your tenant then does pay rent, keeping this on file can be helpful in the future. If the tenant develops a history of late payments, having each notice on file can be beneficial in building a case. Obviously, you would prefer it if it doesn’t come to that, but it’s always better to be safe than sorry.
A pay or quit notice is an official piece of paperwork that constitutes the beginning of the eviction process. It’s a strongly-worded threat, essentially telling the tenant that they have X number of days (as governed by lease, local laws, and the specific situation) to pay up, or you’ll begin the official legal process of eviction.
A pay or quit notice needs to include information about the situation, the lease terms, the amount past due, the deadline to pay in full or make other arrangements (if other arrangements would be acceptable to you), and additional salient information. An eviction attorney can draft such a letter for you as a form you can fill out when necessary.
Critically, you may have different timelines required for your various pay or quit, pay or cure, or notice to vacate letters.
“In California, if a tenant has been in the premises for a year or more, they must be given a 60-day notice of the intent to terminate the tenancy. In San Diego, if a tenant has been in the premises for more than two years, they must be given a 60 days notice of the intent to terminate the tenancy PLUS “just cause” for the termination, unless certain exceptions apply.” – San Diego Evictions.
Remember that evictions are rarely a fast process, especially in an area like San Diego, where it may be difficult and expensive for a tenant to find another residence. Many regulations are in place to provide additional leeway to avoid driving tenants into homelessness.
Sometimes, there are valid reasons why a tenant needs to vacate, even though an ongoing lease would hold them responsible for rent they can’t afford or don’t want to pay. While many tenants are more than happy to make arrangements, some might not think to do so until the last minute or might even vacate and assume they can get away with it by being gone.
A sublet can be a solution in some situations. If a tenant can’t pay rent but is okay with leaving, you can work with them to arrange a sublet. They find someone to take their place and pay rent to occupy the unit, while at the same time, they are still on the hook if the subletter doesn’t pay rent themselves.
This is, of course, a very narrow situation that won’t always work out. For month-to-month leases and other short-term agreements, a sublet won’t be necessary. And, of course, if a tenant is unable or unwilling to pay rent, they don’t necessarily have the incentive to work with you for a sublet when they could just as quickly vacate and wash their hands of the situation.
Above, we mentioned that the eviction process could be lengthy and costly. In some cases, it’s the only viable option to deal with a tenant that refuses to communicate or engage with your attempts to be made whole, but there are often other options as well.
One such option is a Cash for Keys deal. The concept is simple: you pay them some sum of money in exchange for an immediate or near-immediate vacate from the property. You essentially abandon both the legal eviction process (for now) and the option of recovering the rent you lose. In exchange, you save the money of having to go through an eviction, and you get your property back to lease to new tenants faster.
What does a tenant get out of this? Three things.
This deal, of course, also has a deadline attached. Even if the tenant agrees to play ball, if they can’t live up to their end of the bargain by the deadline, you proceed with eviction.
Even though it’s the legal route to solve precisely this kind of problem, it’s usually long, drawn-out, expensive, time-consuming, and distracting. Neither you nor your tenants want to go through it, so if you can avoid it, it may be a good idea to do so.
Make sure that the terms of the deal are spelled out in writing and agreed upon by both parties.
Similarly, make sure you set expectations for the condition of the property so the tenant doesn’t do damage on the way out. Finally, don’t forget that the security deposit is separate and must be handled as usual; it can’t be part of the lump sum you pay. You may be able to apply this towards unpaid rent but make sure you know the legality of doing so ahead of time.
Your final option is the legal eviction process. In California, this is the “unlawful detainer” lawsuit. All evictions in San Diego need to be handled with just cause; fortunately, nonpayment of rent is a reasonable cause. You will need to gather your evidence and talk to an eviction attorney to proceed with the process. Any documentation, such as late payment notices, missed payment notices, bounced checks, and other timestamped paperwork, can help with this process.
Once you’ve filed with the courts, your tenants have five days to respond. If they don’t respond in that time, you can file for default judgment; otherwise, it will proceed to a court hearing. Any judgment in your favor will typically result in a hefty bill for the tenant and a date at which the sheriffs will lock the tenant out of the property.
A special note here: you cannot take actions yourself to drive out the tenant, such as cutting off their power or changing their locks. You need to have a court order and write of possession before you can take those kinds of actions.
San Diego also has specific considerations for the timing and situations you can use to file an eviction notice. This graphic illustrates it:
In any case, once the proceeds have come to a resolution, you’re left with your property back and can make any repairs necessary and find a new tenant.
If you’re trying to evict your tenant to sell your San Diego property, or if they’re getting in the way of you selling it, I’d love to speak with you and see how I can help. For that, I may be able to help. Feel free to drop me a line if you have questions or need assistance, particularly with commercial property sales.
Erik Egelko is a veteran of the commercial real estate business with a specialized focus on Investment Property Sales. In 2021 and 2022, Erik was the #1 ranked Broker in California for one of the largest CRE Firms as well as ranked in the Top 1% of brokers nationwide. He has extensive experience in a variety of asset types including: Retail Shopping Centers, Medical Office Buildings, Industrial Properties, and Multifamily Apartment Complexes. Over the course of his career, Erik has closed over $100,000,000 of commercial property sales throughout Southern California.