Can I Lock My Tenant Out? – Material Defaults in Commercial Leases
Here is a question we frequently hear: “can I lock my tenant out?” If you are a commercial landlord, you may be operating under the assumption that when your tenant fails to pay the rent by the times set forth in the lease, you have the ability exercise a lock out remedy. Your lease likely says that failure to pay is a default and that such a default is a material breach. Not only that, but it is bolstered by a “time is of the essence” clause, clearly set forth, usually in its own, separate paragraph in the lease. After all, if these “magic words” don’t give you the power to exercise a lock out, then why have a written lease at all?
Not so fast. Arizona case law is replete with the idea that no matter what the words in the lease say, a tenant’s rights under a commercial lease cannot be forfeited based on an “immaterial breach.” And the stock incantation, “time is of the essence” (found in virtually every lease) really doesn’t change that.
Just what is a “material breach?” Arizona courts have analyzed that issue by asking the questions:
- To what extent will the landlord be deprived of the benefit which he reasonably expected to receive from the lease?
- Can the landlord be adequately compensated by money damages for the part of that benefit of which he will be deprived?
- Will the defaulting tenant suffer forfeiture?
- Is it likely that the tenant will cure his failure, taking account of all the circumstances including any reasonable assurances?
- Is the defaulting tenant acting in good faith?
Notice that none of these standards ask whether the tenant has violated the language of the lease. Instead, the question is whether the violation is serious and substantial, or whether it is merely “trivial.” As you might have guessed, these questions can be subjective and are most definitely based on a specific set of factual circumstances. You may be forced to prove your case at an expensive trial which may not take place for months or even years. This is usually a bad investment, even if you win.
Can I Lock My Tenant Out? – First Hire a Lawyer
There is a better way. If you’re a commercial landlord considering a lock out, the first thing you should do is hire a lawyer to opine on the “materiality” of the tenant’s breach. A knowledgeable lawyer will help you enforce your lease so as to avoid any defenses and claims (e.g., wrongful eviction, bad faith) against you. You will probably hire that same lawyer to sue for lease damages after the lockout. So the best and most efficient practice is to involve that lawyer from the beginning.
Second, check your motives and be patient. If you are looking for a technical breach in order to evict a tenant when previous breaches were overlooked, there is good chance that you’re acting in bad faith. For example, the occasional or consistently indulged, late rent payment will not serve as the basis for a material breach. Judges are people too, and when they sense an improper motive or pretext, their sense of justice compels them to look for every reason to indulge sympathies.
Two final, practical things about written notices of default: (1) make sure that, from content to delivery, the notice of default complies strictly with the notice provisions in the lease; and (2) if you have previously overlooked tenant defaults, reinstate the “time is of the essence” clause, and after reinstating the clause, give the tenant a reasonable time to comply.
Using good counsel, proper motives and reasonableness, you’re chances of successfully removing a non-performing tenant increase substantially.
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