Author Topic: Commercial Real Estate and Tenant evictions  (Read 1936 times)

jeromedawg

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Commercial Real Estate and Tenant evictions
« on: June 13, 2017, 11:53:15 PM »
Hey all,

Was curious on behalf of my in-laws who are hoping to sell their restaurant and retire how it works if there's another prospective tenant wanting to come in and revamp the space.

My in-laws are renting their space from a landlord who owns the entire block of commercial spaces they're located in (it's a small strip mall basically). They are currently on a month-to-month lease with the landlord, and there was a period of time prior to this where they sent checks in and the prior landlord (current landlords father) wasn't depositing them at all (my FIL wasn't very keen when he signed an EIGHTEEN year contract with the prior landlord who locked him into high rents). The current landlord forgave them, discarded those checks, and also lowered the rents so they got pretty lucky with that break. Without it, I think they would have been in greater financial trouble than they already are. This all happened within the past 5 years or so.

Anyway, there's a potential new tenant who is interested in the space and is working with the broker and landlord to move forward. Are they required to purchase the business in order to move into the space? Or could the landlord evict or kick my in-laws out in favor of leasing to the new potential tenant (who presumably would pay higher rent, etc). The new tenant was telling my in-laws that he would buy their business and then renovate and rebadge stuff - it's a Chinese restaurant and the new tenant is Armenian and was talking about opening a Chinese restaurant AND an Armenian club/lounge/bar. It is a huge space so it could conceivably be divided in half, but I find it odd that the new tenant would want that haha.

We're concerned that the new tenant is trying to work out a 'deal' with the landlord behind my in-laws backs. The landlord said he was looking out for my in-laws though because they've been good tenants and were good to his father (they've been in this space for almost two decades now).

Does anyone have experience with this or does this sound concerning?  Or is this pretty normal/business-as-usual?
« Last Edit: June 13, 2017, 11:56:03 PM by jeromedawg »

jwright

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Re: Commercial Real Estate and Tenant evictions
« Reply #1 on: June 14, 2017, 02:21:34 PM »
Not a lawyer, but currently leasing commercial space to a restaurant.  If they are on a month to month lease, the Landlord can choose not to extend the lease if he gives proper notice.  Do they have a written lease? 

Our leases usually have language that describes what the Landlord owns and what the Tenant owns.  Generally, all the structural property is that of the Landlord, personal property, fixtures, equipment belong to the Tenant.  When the Tenant leaves they would take their property with them.  The could try to sell to the new Tenant in a separate transaction.  I've seen sales of used restaurant equipment and auctions advertised in the event of a restaurant closing.   If they abandon the restaurant and the equipment, our lease has language that says abandoning the premises for x number of days means the contents belong to the Landlord.


jeromedawg

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Re: Commercial Real Estate and Tenant evictions
« Reply #2 on: June 14, 2017, 02:35:30 PM »
Not a lawyer, but currently leasing commercial space to a restaurant.  If they are on a month to month lease, the Landlord can choose not to extend the lease if he gives proper notice.  Do they have a written lease? 

Our leases usually have language that describes what the Landlord owns and what the Tenant owns.  Generally, all the structural property is that of the Landlord, personal property, fixtures, equipment belong to the Tenant.  When the Tenant leaves they would take their property with them.  The could try to sell to the new Tenant in a separate transaction.  I've seen sales of used restaurant equipment and auctions advertised in the event of a restaurant closing.   If they abandon the restaurant and the equipment, our lease has language that says abandoning the premises for x number of days means the contents belong to the Landlord.

My wife said she's not aware of any new paperwork that my in-laws would have signed. It *sounds* like the whole month-to-month thing might just be verbal... I don't know much about this landlord but he doesn't *seem* like the shady type. If he were money-hungry he would have started cashing all the checks he could and then imposed upon my in-laws to re-write checks... at least, I'm assuming that would be the case.

I don't know what my in-laws signed in terms of the conditions of the lease but I wouldn't be surprised if they signed over the rights to any and all improvements made. That said, if the lease expired for their contract (which would contain this wording) and they've only made a verbal agreement of going month-to-month, what would the repercussions be if the landlord wanted to evict or kick my in-laws out? Because nothing has been signed and it's all verbal, could he literally just kick them out of there in the blink of an eye and get the new tenant in?

Another Reader

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Re: Commercial Real Estate and Tenant evictions
« Reply #3 on: June 14, 2017, 02:55:06 PM »
The answers to most of your questions have to come from your in-laws.  They know what they have signed.  If there is no lease, likely the landlord can give them whatever notice is required by law and they could remove whatever property belongs to them.  Typically, the restaurant equipment and some fixtures, and as someone else said, those are typically sold after the restaurant closes and before the lease terminates.

jeromedawg

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Re: Commercial Real Estate and Tenant evictions
« Reply #4 on: June 14, 2017, 03:34:55 PM »
The answers to most of your questions have to come from your in-laws.  They know what they have signed.  If there is no lease, likely the landlord can give them whatever notice is required by law and they could remove whatever property belongs to them.  Typically, the restaurant equipment and some fixtures, and as someone else said, those are typically sold after the restaurant closes and before the lease terminates.

Yea, I found more information about the history of the property via Loopnet so have a better idea. My wife found a copy of the lease which expired in 2015 (signed in 2005) so it was a 10yr renewal. During that time, we think in 2011, the father passed on and then the wife shortly after in 2013. That was around the time that the checks weren't being deposited. The son took over as this was all in their living trust and apparently is running the show now - they seem to have had a good relationship with the parents so this could end up being a 'friend' transaction but it's tough to tell without knowing more. Either way, it doesn't sound like a new lease was signed so I'm not sure what's going to happen.

jwright

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Re: Commercial Real Estate and Tenant evictions
« Reply #5 on: June 15, 2017, 11:01:46 AM »
The rent for prior periods is irrelevant.  What do you mean a "friend" transaction?  There doesn't seem to be any transaction involving your inlaws other than the lease ending.

If there is no lease document, then they are bound by the laws of your jurisdiction.  Usually, that means they are unofficially renting on a month to month basis and the Landlord will have to give notice to end the lease.  Whether the notice is one month or six months is up to the laws of your jurisdiction.   

Another Reader

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Re: Commercial Real Estate and Tenant evictions
« Reply #6 on: June 15, 2017, 11:22:25 AM »
Why is the property on Loopnet?  Is it for sale?

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Re: Commercial Real Estate and Tenant evictions
« Reply #7 on: June 15, 2017, 11:48:38 AM »
Lease status - The old lease expired.  It is no longer valid.  Tenant and LL have an oral agreement for month-2-month lease.  The parties have operated under this oral agreement, so it is not subject to attack by the statute of frauds, which requires leases to be in writing.  To terminate the month-2-month lease, LL needs to give 30 days notice.  This is a commercial lease (not resi), so the LL is not required to give a longer notice period beyond 30 days.  As long that LL does not give notice, and you pay on the 1st of every month, the space is yours.

Old checks - If there are old checks outstanding, perhaps you should cancel those checks, or cancel the bank account and open a new one.  I wouldn't be able to sleep at night if I were Tenant.

"Buying the Business" - I'm sure the restaurant is worth something.  Goodwill, name recognition, restaurant supplies, signage, etc., all comes into play.  Yes, you should negotiate some price for all of this.  Except that, no lease will be included in the sale since the oral lease will terminate, and the new tenant will enter into a new one with LL. 

LL eviction - In my opinion, there is no value in the LL evicting Tenant or re-entering at moment's notice.  Why would they take that risk?  It is very disfavored in the eyes of courts.  Also, they don't want to deal with any of the restaurant equipment or hassles.  It's not their business.  The only thing they want is a steady transition into a new tenant. 

jeromedawg

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Re: Commercial Real Estate and Tenant evictions
« Reply #8 on: June 15, 2017, 12:47:24 PM »
The rent for prior periods is irrelevant.  What do you mean a "friend" transaction?  There doesn't seem to be any transaction involving your inlaws other than the lease ending.

If there is no lease document, then they are bound by the laws of your jurisdiction.  Usually, that means they are unofficially renting on a month to month basis and the Landlord will have to give notice to end the lease.  Whether the notice is one month or six months is up to the laws of your jurisdiction.

Oops, I meant "friendly transaction" - in either case, based on what you guys have stated, it seems like it's in the best interest of *all* parties that they work out a transaction that favors all parties. Of course, my in-laws probably won't come out of it with a lot of $$$ as they will likely end up selling the business based on liquor license, kitchen equipment, and maybe some of the decor that they affixed during initial renovations. If anything, selling the business would be to recoup some of those costs, it sounds like.

Why is the property on Loopnet?  Is it for sale?

So I *just* came across it after doing a property address search - it's only visible to premium members though, apparently, but I was still able to view the cached page to see it there. It *may* have been taken down by now but I have no way to verify as I'm not a premium member. Anyway, they did have a broker list it in the ad section of a Korean magazine so it looks like the same broker listed it on Loopnet and possibly other channels.

Lease status - The old lease expired.  It is no longer valid.  Tenant and LL have an oral agreement for month-2-month lease.  The parties have operated under this oral agreement, so it is not subject to attack by the statute of frauds, which requires leases to be in writing.  To terminate the month-2-month lease, LL needs to give 30 days notice.  This is a commercial lease (not resi), so the LL is not required to give a longer notice period beyond 30 days.  As long that LL does not give notice, and you pay on the 1st of every month, the space is yours.

Old checks - If there are old checks outstanding, perhaps you should cancel those checks, or cancel the bank account and open a new one.  I wouldn't be able to sleep at night if I were Tenant.

"Buying the Business" - I'm sure the restaurant is worth something.  Goodwill, name recognition, restaurant supplies, signage, etc., all comes into play.  Yes, you should negotiate some price for all of this.  Except that, no lease will be included in the sale since the oral lease will terminate, and the new tenant will enter into a new one with LL. 

LL eviction - In my opinion, there is no value in the LL evicting Tenant or re-entering at moment's notice.  Why would they take that risk?  It is very disfavored in the eyes of courts.  Also, they don't want to deal with any of the restaurant equipment or hassles.  It's not their business.  The only thing they want is a steady transition into a new tenant. 


Thanks for the insight - hopefully they'll get some $$$ back for the business. I don't think it's going to be a lot but we'll see... we're a little concerned about their future as they are talking about retiring yet they don't have a lot saved up nor do they have anything at all in an IRA or other retirement accounts.
« Last Edit: June 15, 2017, 12:52:59 PM by jeromedawg »

anonymouscow

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Re: Commercial Real Estate and Tenant evictions
« Reply #9 on: June 16, 2017, 12:00:27 PM »
As far as I know they wouldn't be required to buy the business in order to move into the space.

It seems like it would be the best deal for everyone though.

I assume your in-laws own much of the equipment, stove, booths, etc?

A tenant comes along and wants to open a fitness store, they have no need for all of that. Someone wants to open a restaurant, then that would be a large savings not to have to refit everything.

Do you have an idea of what they actually own?