For any successful commercial and industrial landlords and property managers, tenant problems and defaults are situations they have to deal with occasionally. As a tenant, probably the first time you hear about default is when you are issued with a default notice from your landlord or property manager. This can be very stressful as you may not know what to do in such a situation.
A lease default letter can be sent either by the tenant to the landlord or the landlord to the tenant. For the tenant, they can send a demand letter if the landlord breaches any part of an agreement they made. The landlord can also send a lease default letter to the tenant due to late rent payment or due to non-compliance.
There are two types of leases. Before signing a lease agreement, you should know the difference to understand what to do in case of a breach:
- Periodic Rental Agreement: this agreement typically operates on a week-to-week or month-to-month basis. The agreement renews itself after for the duration with each rent payment made.
- Lease agreement: the tenant has the option of paying their rent every month for the duration of the lease, typically one year, but the landlord may decide to a shorter or a longer-term.
What is Tenant Default?
Tenant default is a situation whereby a tenant fails to fulfill what they had agreed to do in the lease agreement.
There are several ways in which Tenant default can arise, including:
- failure to pay the rent and other sums reserved under the lease
- Breach of the repair agreement
- Breach of the alienation agreement
- Breach of permitted use
- Unauthorized alterations
- An act of insolvency
A lousy tenant situation can be a costly problem and can lead to eviction. Knowing what to do as a landlord or as a tenant when issuing or issued with a lease default notice is essential and can be very useful and profitable to both parties involved.
Here Are Some Key Points To Remember:
- Make sure the tenant is in default: In as much as it may seem like a pretty straight forward issue, it is vital to ensure that a tenant is in default before taking any extreme measures against them. It is essential to go through the signed lease to check on the provisions set by the lease in the event of default by the tenant. For instance, the lease may provide that the tenant be allowed to correct the breach within a specified period before taking further actions against them.
- Failing to check the lease may set the landlord in a potentially expensive and embarrassing counterclaim, which they may not be well prepared to handle.
- Commence self-help only if it is clear that acting alone is appropriate: A landlord may assume that a tenant is in default, thereby evicting them without resorting to a process of law. Most jurisdictions permit self-help in such situations if it works, it works. Nevertheless, you should check with your attorney before resorting to self-help as many jurisdictions from upon landlords taking matters into their own hands.
- Without a court order authorizing evection of a tenant, the landlord may be liable for trespass along with liability under the tenants’ lease if the landlord takes steps to evict a tenant – in as much as the tenant may be in default of the lease and would have otherwise have been subject to eviction.
- Any “Abandoned” Personal Property carries its own risk: Landlords and property managers have to be very careful when recapturing any properties that may appear abandoned by the tenant. Some items left behind by the tenant may still be of value to the tenant. The landlord may be found liable for conversion or breach of the tenant’s lease for disposing-off any property that they had not been authorized to seize or dispose of.
- Comprehend any laws governing formal, court-administered eviction: All states have laws that govern how landlords may evict tenants from their premises. In some states, there are courts set aside to listen to matters revolving around tenancy and tenant evictions. Knowing whether your landlord has an obligation to store your property for a while after the eviction is very important. Some states also provide the tenant a statutory period of resolving the breach before which an eviction can occur.
- Consider prejudgment possession of premises in eviction proceedings: If there are no meaningful questions regarding the tenant’s default, most states permit the landlord/ property manager to reclaim possession of the property in eviction proceedings preceding entry of the final judgment to allow the landlord to re-let the premises. However, this option comes with a set of logical issues and concerns- a separate court hearing and the posting of a bond may often be required if this prejudgment relief is permitted. Prejudgment possession is an essential tool for landlords and tenants to understand as it can trigger a meaningful negotiation in trying to resolve the dispute.
- Be open to any form of resolution: Disputes are often tricky, risky, and expensive for both parties. The landlord and property managers must, therefore, be prepared for informal resolution whenever it is a viable option.
What to Do When Issued With a Lease Default Letter?
Lease defaults can have a negative impact on your credit report. It is, therefore, important to avoid a negative landlord report aimed at your credit and your reputation as a tenant. Below are some tips to help you avoid such situations:
- Work within a time frame: If you are planning to move out before the lease expires, you are still expected to pay the remaining rent. Nonetheless, the landlord in as much as they have a duty of mitigation, they are also tasked with looking for new tenants for your apartment rather than just waiting until your lease expires. Some leases provide that you may decide to buy out the lease, i.e., pay a fee to exit the lease. If your lease does not offer such provisions, you may want to negotiate with your landlord.
- Examine other considerations: If your lease does not have the provision for a buyout, you may still have other options available. In some cases, the lease may allow the tenant to sublease or assign the property to another tenant temporarily. However, in as much as you may be allowed to sublease or assign the property to another tenant, this will now exonerate you from the duties and responsibilities of your original lease.
- Assessing your credit: Breaking or breaching your lease may lead to severe damages in your credit rating. The landlord may decide to take you to a small claims court, a process that may be expensive and an inconvenience to you at the same time. If taken to court, the court may rule in favor of the landlord. In which case, you will have to repay your debt to the landlord – the judgment will appear on your credit report and shall remain in the report for up to seven years.
- Finding a solution: The last option for when you need to break an apartment lease – is offering to work with your landlord. You can offer to do the leg work to find a new tenant for the unit; this way, the landlord may decide to allow you to break your lease.
Lease Default Notice Template (How to Write)
Landlord’s details (name, address, and city)
To: (Tenant’ details)
Name of the tenant
Address of the leased assets or premises
I write this letter to you regarding the unpaid rental payments for this building. My records clearly show that you have not paid the rental payment for the previous month (name of the month). This letter acts as a warning for the repercussions of failing to pay your debt in time. It also provides written information about the amount owed.
The premises’ rental payments are always due on the XX day of the month; failure to pay on the due date is regarded as a late payment. In this case, the landlord has the right to provide you with a notice to pay your dues, or your lease contract terminates. The landlord is usually allowed by the law to terminate your contract if you fail to pay the stated rental payments within the agreed period, which is always fourteen (14) days, as stated under Massachusetts law.
The currently rental payment due on these premises is
$ XXX Rental for XXX (state name of the month)
$ XXX Charges for late payment
$ XXX Electricity and water bill
$ XXX Total amount due including future costs accruing
Kindly pay the above-stated amount to me; failure to pay the rental payments on time, I will have no choice to take legal action or terminate the contract.
This letter was signed on the XX day of XX (month), 20XX (year).
Landlord or authorized agent.
Sample Lease Default Notice
Manchester Street, 67092
Donte Street, 30425
This is an official notify
cation to inform you that you have failed to abide by the lease agreement terms by not paying the rental payments, account 1237589. This account currently holds a debt of $75,000 for four months, which is due on 02/07/2009. The amount has accumulated since March 1, 2009, and you have violated the terms which signed on 02/08/2008, that you would pay your rent on the third day of every month.
I urgently request you to pay the debt within 15 working days of receipt of this letter, or you quit the apartment. Failure to which I will be forced to take the matter to the court of law. We had already given you enough time to redeem yourself.
I would appreciate your total cooperation so that we may solve this issue.
- MS Word
Frequently Asked Questions
Once a default has been recorded on your credit report, it stays there for up to seven years. However, there are various things you can do to mitigate the negative impact:
• Repayment: if the breach is as a result of your failure in paying the rent or damages, try to rectify the situation by paying off what you owe as soon as possible. Once paid, the default status will be changed to “satisfied” on your credit report, which will look better when presented to lenders.
• Explanation: you can ask the credit bureaus to add a note to your report when sending it out to the lenders explaining why you got into debt.
• Time: you may decide to wait until the period lapses, and your credit report is cleared of any blemish. As time goes by, the default listed on your credit report may become less important to lenders.