What to do when a Tenant has Defaulted

Landlords, like everyone else, are feeling the pressure as COVID-19 continues to cause devastation. Businesses and individuals alike are seeing fewer customers and less revenue. They’re also experiencing a decrease in income that’s limiting their ability to pay rent on time and may mean that landlords are unable to pay their own obligations.

Rent relief can be a viable way of solving a lot of problems, but it does have some limitations. Some renters live too far from a cheaper place, others have responsibilities that prevent them from complying with the deal. In these cases the landlord should explore different options for collecting payments and try to find a more suitable solution. We’d have to figure out who is legally responsible for missed payments and find a way to get rid of them. Rather than kick the tenant out, we’d have to try and find someone else.

Guarantors

In some cases, a lease may be “backed up” by another person. This means they will cover the lease amount if the tenant doesn’t and the guarantor may be an individual, a company or an investor. A guarantor is usually a person in a better financial situation than the tenant and may be in charge of paying for the tenant’s lease. If there’s one on the lease, you may need to find out what their contract says about how much they have to pay.

Guarantees do differ, which is why you should ensure that your lease includes a detailed review of what the guaranties cover. Not all guarantees cover the same things. It’s good to check before you sign anything!

In difficult times, guaranties may be your best bet. Still, they’re not a hundred percent reliable – the guarantor may be feeling financial pressure and experiencing their own bankruptcy proceedings. COVID-19 has put a lot of pressure on us. If you’re thinking about enforcing a duty, it’s important to know what you’re getting into. Check out the Guarantor and their finances before taking anything further.

Security Deposits

If your lease agreement includes a legal stipulation about this, you may be able to apply your tenant’s security deposit to that tenant’s future lease payments. The amounts and any restrictions for a lease will depend on the individual terms of the contract. This may be an option that both parties can agree to, but it may not cover all of the funds due at this time.

You have a duty to mitigate damages

There are several ways to collect rent from tenants, but you also have to uphold your duties as a landlord. For example, if rent isn’t being collected and the tenant defaults, you need to take reasonable steps. This could include measures such as looking for new renters, listing the property with a real estate agent or another intermediary, or taking other similar steps. If a landlord tries to mitigate damages but can’t do so successfully, the tenant still owes the full amount specified in their lease agreement.

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