Success rate of legally pursuing a tenant for breaking the lease
Hi everyone,

I own a shopping strip center (along with my 2 partners) and one of our tenants was a franchise owner of one of the regional massage parlor brands. He did tell us that he's struggling due to shut downs and we gave him a rent deferment offer which he didn't expect and w/o any further notice, vacated the place. Since then (May-2020) he hasn't paid any rent/CAM and after months of pursuing offered us approx. $15k to settle while he owes us $125K. We are thinking about filing a suit against him.  What do you all suggest based on your experience if it's worth the headache and cost? Do the Landlords generally prevail in such cases? 

Thank you!
[{"id": "h8xd4g8", "text": "In these type of situations it is best to talk to an attorney. If there is a personal guarantee on the lease you have a much stronger position. If not the attorney will present the best options for you and it is possible though not guaranteed to collect attorney fees.", "replies": [{"id": "h8xf7wg", "text": "Thanks. Yes, we are in talks with an attorney who's been helping us with this for last few months but for some reason he's not encouraging this as much and asking us to settle out of court if possible. Don't know why. Will be talking with another attorney soon.", "replies": [{"id": "h8xfw7e", "text": "Seems like you are being fairly reasonable in getting a second opinion. Without reading the lease and knowing more of the facts there are a ton of variables. Only recommendation is to get an attorney that specializes in creditor representation.", "replies": [], "depth": 3}, {"id": "h8xle5v", "text": "I've heard that some lawyers will suggest to settle out  because it's faster and they're guaranteed part of what was offered.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "h8xdah6", "text": "Do you have a personal guarantee with the lease. If he is a small time franchise owner and he is closing locations, he probably doesn\u2019t have much assets in the business to go after. Might be different if you can go after his personal assets.", "replies": [{"id": "h8xezd8", "text": "Thanks. Yes we do have personal guaranty. I think the personal assets is the only option but I'm sure he doesn't have much to \"show\" in terms of liquid assets if we ask for his personal financial statement.", "replies": [], "depth": 2}], "depth": 1}, {"id": "h8xhy1f", "text": "Do you get a judgement in your favor? Yes. Are you able to collect? Who knows! If this was his primary business and didn't get significant PPP money, unlikely you'll collect. If he got PPP, a portion of it may have been allocated to rent. \n\nAlso, there's a chance he files for bankruptcy. \n\nPersonally, I'd likely take the $15k to cover CAM now and just walk away.", "replies": [{"id": "h918k82", "text": "Well said \u2014 you can\u2019t get blood from a turnip. If he legitimately has no money, take the settlement and move on. This is business.", "replies": [], "depth": 2}], "depth": 1}, {"id": "h8xpyx6", "text": "If it occurred during pandemic, good luck to the landlord.  In our area the Superior Court is not open with 100s and 1000s landlords go after tenants.  I think you are better off with the property vacant getting it fixed up until the defrost of moratorium.  It has been extended 3X since 2020.  I do not expect in our state it will happen anytime in 2021....", "replies": [], "depth": 1}, {"id": "h8xrvz6", "text": "Getting a judgement is one thing. Collecting on the judgement is another. I have always been of the opinion that at personal guarantee is not with the paper it\u2019s written on when a tenant fails. I usually write it off and focus my energy on a releasing the space.", "replies": [], "depth": 1}, {"id": "h8xtii7", "text": "Many similar responses here and first and foremost is talking with your attorney and taking their guidance. Another issue is the State your property is in. If you have a personal guaranty AND the guarantor owns property that you can put a lien against, it may be worth considering further. The 2 big questions to consider are.....1) Did the tenant receive any PPP monies that could have been used to help pay their rent 2) Will a Judge side with a tenant who was forced to shut down their business because of the government which is the reason they were not able to meet their financial responsibilities for the lease payments OR will a judge side with a Landlord? This is the BIGGEST question and so far, I haven't seen or heard of enough court decisions to find out the answer. If you can financially take the hit, you may consider taking some guaranteed cash now and writing the loss off on your taxes.....just a thought.", "replies": [], "depth": 1}, {"id": "h8xu8m9", "text": "The problem is that $125k isn\u2019t enough to go after\u2026 litigation is expensive and the chances of fully collecting, even if successful, are low. That\u2019s why your very wise and experienced lawyers are encouraging you to cut your losses and settle.", "replies": [{"id": "h8z79k2", "text": "$125k isn't enough to go after? \ud83e\udd14", "replies": [{"id": "h8z9gxg", "text": "In litigation", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "h8y1wtu", "text": "Depends on the state. Sounds like you have a PG which is good. Do you currently have possession of the space? How much term was left on his lease. He doesn\u2019t just owe what is outstanding to this date, he obviously owes the outstanding balance through the end of the term. You would calculate this as damages, though depending on the state you would likely only get a year worth. An attorney can also run an asset search on the guarantor to get an idea of his financial status. Some tenants, mostly restaurants, have faired quite well with the PPP and restaurant revitalization. It is best to settle and not go to court so you are not spending the dollars on legal. The courts are extremely backlogged and no one knows how courts will rule with the covid variable. If it is in CA it will certainly be tenant friendly. I would try to get the space back as soon as possible so you can work on re-tenanting the space. Doesn\u2019t hurt to counter his offer at half of his outstanding. If he doesn\u2019t agree, consult legal to understand the most you will likely be able to win in a judgement as well as the estimated legal costs assuming it went to trial. No point in paying $20k to win $15k settlement (unless you are trying to set a precedent in your portfolio).", "replies": [], "depth": 1}, {"id": "h8y38ir", "text": "Thank you everyone! Great advise and suggestions. I should have mentioned, but the property is in the state of Texas, generally a landlord friendly state. I'll be talking with our attorney and use some of the helpful suggestions you all have provided to decide the best course of action. I'll defintely keep you all posted assuming some of you might be interested,", "replies": [], "depth": 1}, {"id": "h8y620f", "text": "Frequently in these situations you will pay more in legal expenses than you will ultimately recuperate from the tenant", "replies": [], "depth": 1}, {"id": "h8zhcfg", "text": "The reason the lawyer is saying take the lowball settlement of $15k is because it\u2019s guaranteed money in hand. If you sue him for $125k, he will most likely never pay that amount, have his business go under or declare  personal bankruptcy if he has a personal guarantee that you can go to him for. \n\nAs a landlord, I too would say take the 15k or try to get a little higher and be glad he\u2019s gone and start trying to rent to others. This last year sucked for everyone.", "replies": [], "depth": 1}, {"id": "h8zvy7o", "text": "Take the money and focus your time and funds on re-leasing the space. Hard to collect even if you prevail.  A lot of times judges can lean pro tenant, but probably even more so in this climate- big bad landlord v. struggling small business over.", "replies": [], "depth": 1}, {"id": "h90vhpp", "text": "Obviously it\u2019s best to speak with a lawyer nearby but do you know if the franchisee is on the lease or the actual company? I\u2019d sue both for damages. You have a good. Nance, actually.", "replies": [{"id": "h924sd0", "text": "Thanks. It's limited to the franchisee only, not the actual company.", "replies": [], "depth": 2}], "depth": 1}]