Be Careful How You Handle That Rent Check From Your Tenant in Default

November 15, 2013

Cartoon Money Bag While most commercial tenants enter into lease agreements with the best of intentions and highest of hopes, many tenants encounter financial difficulties and fall behind on their rent. As a commercial landlord, following the proper procedures for handling a rent check sent from a tenant in default is essential to ensure preservation of all legal rights.

Many commercial landlords may feel uncertain when they receive a rent check from a tenant who is in default, particularly when the amount of the payment is less than the total amount the tenant owes. Landlords should proceed with extreme caution in order to avoid forfeiting any rights they may possess to evict the tenant for dereliction with regard to rent payments.

One way a landlord may preserve its rights is simply by not cashing the check. Note that the landlord need not return the check to the tenant. Merely receiving a rent payment will not destroy a landlord’s right to evict. Cashing the check, however, constitutes “acceptance of rent,” and may, depending on the circumstances, constitute a waiver by the landlord.

Whether cashing that check triggers a harmful waiver depends, in part, on when the landlord cashes the check. If you, as the landlord, have not gone to court and obtained a “judgment for possession” of that rental space, you can probably accept and cash the partial payment check without impairing your ultimate right to evict that tenant. As a landlord, however, you should be sure that the partial payment you’ve received from the tenant does not identify the payment with language like “payment in full” or anything similar. A court would probably view such a check as an offer to settle the entire back-owed rent debt, and your cashing it as an acceptance of that offer.

If, on the other hand, you’ve already obtained a judgment for possession, you should treat with special care with any partial rent payments you receive from your deficient tenant. If you cash such a check, a court may conclude that you just waived your right to evict for the default that led to the entry of judgment for possession. This is not a legal certainty – indeed, the New Jersey Appellate Division opined in one residential default case that it “would be a strange doctrine of law that would require a landlord with a legitimate basis for demanding possession, facing a tenant who contumaciously remains in residence, to have to forego the receipt of compensation” – but it is possible.

The primary lesson for commercial landlords who receive partial rent payments from tenants in default is to “handle with care” in order to preserve all legal rights. Commercial landlords would be wise to seek knowledgeable counsel before taking action with such a check. For answers to your questions about your commercial tenant in default, talk to the real estate attorneys at Samuel C. Berger, P.C. Our New Jersey real estate attorneys are highly skilled and informed regarding this area of the law and can help you ensure that your present course of action does not harm you later. Reach us online or call (201) 587-1500 or (212) 380-8117.

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