Locking Out a Defaulting Tenant in a Commercial Lease

Arizona Laws Governing Locking Out a Defaulting Tenant in a Commercial Lease

Can a commercial landlord simply lock-out a defaulting tenant in a commercial lease for non-payment of rent? If so, what are the procedures for a proper lock-out? 

Please note that, while this article accurately describes applicable law on the subject covered at the time of its writing, the law continues to develop with the passage of time. Accordingly, before relying upon this article, care should be taken to verify that the law described herein has not changed.

I. Landlord’s Options in a Commercial Lease

Especially in a difficult economy, landlords occasionally face tenants who are unable to pay rent. However, when dealing with a defaulting tenant, the commercial landlord’s options are much different from those of a residential landlord. As opposed to a residential landlord, the commercial landlord faces many different options, including a potential lock-out against a defaulting tenant. While some potential tenants will be able to stay in business and resume payment of rent, some will not, which brings the landlord to a difficult position regarding how to collect the past due rent and find a potential tenant who is able to assume the rent.

One of the landlord’s options is to carry out a lock-out against a defaulting tenant, unless the lease provides otherwise. On the other hand, a residential landlord is not allowed to recover possession of the rented unit unless either the tenant voluntarily returns possession of the unit to the landlord, by a court order, or after the tenant has effectively abandoned the residence. A.R.S. § 33-1368. Additionally, a residential landlord is never allowed to lock-out the tenant while the tenant is still occupying the residence. Id.  

Assuming that the lease does not prohibit a lock-out, the commercial landlord may reenter the premises when a tenant neglects or refuses to pay rent when due and in arrears for five days, or when a tenant breaches any material clause of the lease. A.R.S. § 33-361(A). If the landlord is in doubt about his ability to lock-out the tenant, he can file a forcible detainer action, which will allow the court to decide who has rightful possession of the premises. Id. at § 33-361(B).

Furthermore, if the tenant continues to refuse or pay any past rent due, the landlord will have a “lien upon and may seize as much personal property of the tenant located on the premises and not exempted by law as is necessary to secure payment of the rent.” Id. at § 33-361(D). If the overdue rent is not paid within sixty days after the landlord has seized the personal property, the personal property may be sold in accordance with certain statutory provisions. Id. Additionally, if the original tenant has subleased or assigned the lease, the landlord will have the same lien privileges against the sub-lessee or assignee as he would against the original tenant, and may enforce it in the same manner. Id. at § 33-361(E). 

It is important to analyze the lease agreement as it may have terms that are different than what is provided by applicable statute. It may be more restrictive as to available landlord remedies and the notice requirements applicable. It is also important that the default be a material breach of the lease. 

Also, if a landlord anticipates that the tenant may have any potential claims or offsets against the landlord, a lockout should be avoided. A wrongful lockout that damages a tenant’s business may subject a landlord to liability for damages.

II. Proper Lock-out Procedures

A lock-out is a fairly drastic measure against a defaulting tenant, and should be considered with due caution. A commercial landlord faces some restrictions when looking to exercise their right to lock-out a defaulting tenant. Firstly, a landlord cannot lock-out a defaulting tenant while they are physically inside the actual premises, and secondly, the landlord must not “breach the peace” while executing the lock-out. "Commercial Lock-Outs, Landlord Liens and Evictions," Arizona School of Real Estate and Business (January 6, 2012). Therefore, a tenant has the option to avoid a lock-out by remaining on the premises at all times, a daunting and callous task. Id. If the tenant decides to do so, the landlord still has the option of filling for a forcible detainer as stated above. Id. “Of course, this may give the tenant an opportunity to remove personal property or to file bankruptcy (which will certainly cause more delays in regaining possession), however, the landlord really has no other choice in that situation.” Id.  

If time and the circumstances permit, the landlord should consider contacting the police before executing the lock-out. Id. A landlord should also consider performing the lock-out with an appropriate number of witnesses, including a locksmith, in order to have an accurate and trustworthy account of how the process was performed and to document the condition of the premises. Id. In examining the premises, the landlord should make a complete itemization of all the property located in the premises, including taking photographs of everything. Id. This will help against an inevitable claim from the tenant that property from the premises is now missing or stolen. Id. “It would also be wise for the landlord to make sure it is covered by insurance against any loss or claim relating to such personal property.” Id.  

The landlord should also take proper measures to give notice to the defaulting tenant of the lock-out. “The notice should not slander or belittle the tenant (as it may be read by persons doing business with the tenant). If the landlord desires to hold the tenant liable for future rent, the landlord should be careful to avoid using language in this notice or any other notice that could be interpreted as “terminating” the lease (as opposed to terminating the tenant’s right of possession).” Id.  

Finally, since the lock-out is such a drastic measure to both parties, a commercial landlord should make sure that any default notices required under the lease have been performed, all possible grace periods required under the lease have expired, he has not waived their rights to perform the lock-out, and the lock-out can be performed without breaching the peace. Id.  

Again, a lock-out remedy is only available in a commercial lease situation (not residential leases), and only where not prohibited by the lease agreement.

Robert Mitchell represents landlords in commercial lease disputes. If you are a commercial landlord, to arrange for a consultation concerning your commercial landlord-tenant dispute, please contact Robert Mitchell at rdm@tblaw.com or at (602) 452-2730.
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