** This Post Only Applies to Commercial Evictions Arizona **
Under Arizona law there are two (2) basic ways a landlord can recover possession of a commercial property.
“Locking Out” an AZ Commercial Tenant
Arizona landlords are permitted to “lockout” a tenant who is behind on their rent or otherwise in breach of the lease agreement. Through a lockout the landlord literally just locks out the tenant. If a commercial tenant is more than five (5) days late with a rent payment, the Arizona landlord may enter the premises and take possession without any prior notice or demand for payment. However, before you just lockout your tenant it is important to review the lease and see if it contains terms which will limit your ability to recover possession without notice or a demand for payment.
In spite of the very broad repossession power given to commercial landlords, an Arizona landlord must follow specific procedures found in the lease relating to notice and termination of the tenancy.
Tenant’s Belongings after Lockout
What must an Arizona commercial landlord do with all the tenant’s property left in the premises if they lock out the tenant? Arizona law gives the landlord a lien on all of the tenant’s property in the premises when the landlord recovers possession. The landlord can hold the property and demand payment of rent in exchange for release of the property. If the tenant has not paid rent due within 60 (sixty) days, the landlord may sell the seized property and apply the proceeds to the amount of rent owed by the tenant.
Prior to selling the tenant’s belongings, the landlord must provide the tenant with a 10 (ten) day notice of intent to sell the property if rent is not paid. If the tenant still fails to pay past due rent and late fees, the landlord must sell the property at a public auction.
Potential Mistakes with Lockouts
There are a several potential traps associated with seizing an Arizona commercial tenant’s property and holding it for auction. A landlord may not hold for auction any property exempt by law. For example, personal financial records of the tenant, or personal education materials, or a personal library on the premises.
A much more significant trap for commercial landlords is seizing property on the premises that belongs to a third-party.
It is quite common for commercial tenants to have equipment that is rented from another business. For example, a restaurant might rent freezers from a restaurant supply company. Or a printer might be financing its printing company through a bank.
Sometimes rented equipment can be easily identified by a sticker or label on the equipment. However, a commercial landlord should make a concerted effort to determine whether or not the tenant owns the property seized at the business before that property is auctioned at a public sale.
Note, that if a commercial lease has been assigned or there is a sub-tenant of the original tenant occupying the property a landlord can still enter and seize the property of the sub-tenant if the rent is in arrears. The landlord has a lien in the sub-tenant’s property on the premises. If the past due rent and late fees are not paid then the Arizona commercial landlord can proceed to auction as described above.
The commercial landlord still has a lien on sub-tenants belongings even if they have been faithfully paying rent to the original tenant, who has not been forwarding that rent on to the commercial landlord. The commercial sub-tenant would have a breach of contract claim against the original tenant, but the commercial landlord can proceed to auction unless the original tenant or sub-tenant pays the past due rent.
Filing the Lawsuit Against the Tenant
In Arizona, as an alternative to locking out a tenant, an Arizona commercial landlord can file an eviction lawsuit against the tenant. A major reason for filing an eviction lawsuit is that it is the quickest and easiest method to obtain a money judgment against the tenant.
For this reason, it is always advisable to obtain personal guaranties from the principles of any closely held corporation or limited liability company tenant. You will then have the ability to seek recovery of your damages from the guarantors. Additionally, as Arizona is a community property state it is imperative to have both a husband and wife sign the personal guaranty.
Another reason an Arizona commercial landlord might consider a lawsuit instead of a lockout is to limit any potential liability that may arise from making an error in the lock-out process. A good commercial lease will have terms which limit a commercial landlord’s liability for any consequential damages the commercial tenant suffers as a result of the lock-out. If you don’t have a lease which limits your liability for consequential damages, you should consider going to court and getting a judgment, rather than simply locking your tenant out.
If you are an Arizona commercial landlord and need an Arizona commercial eviction, then contact the Dunaway Law Group by phone at 480-389-6529 or message us HERE.
*** These blog posts are not intended, nor shall they be deemed to be the rendering of legal advice. Reading these blog posts does not create an attorney-client relationship, nor shall it impose an obligation on the part of the attorney to respond to further inquiry. ***