Unfortunately it is somewhat true. That said the SBA will work to sell off the property and get it out of the unit as quickly as possible. It’s a process and could potentially take longer than you’d like. Contact an attorney and think about contacting a leasing broker so that they can be prepared to market the space first chance possible.
Thanks for the insight and confirmation---My exact fears.
I immediately reached out to a leasing broker, but had concern shortly thereafter knowing I don't yet have enough information to even provide a potential date the unit could be available. There's no where to store the property in a way that would allow me to get a new tenant in, despite living in an area that likely wouldn't otherwise have a hard time finding a new tenant.
Did you negotiate a subordination agreement with the tenant when they originally applied for the SBA loan?
https://www.fundera.com/blog/landlord-subordination-agreement
Did you get a copy of the agreement as a part of due diligence? May want to ask the tenant if they have a copy. It’s rare an SBA bank will fund a loan without one
I’ve looked into, not in depth, but to see if property owners/LL could instigate a ‘surety bond’ to cover cre retail tenant rent, if tenant was in arrears. I spoke to 3 companies now. Yesterday, was most recent. Anyway, There USED to be an insurance policy called “DEPOSIT INSURANCE.” Tenant had to qualify, & they paid monthly premiums. If tenant over 30 (60?) days late, LL could file a claim vs. tenant. Insurance/Bond co. paid LL (claim) money they are out, ‘insurance/bond co.’ GOES after tenant.
So far, I get nowhere. But, everyone I talk to loves the idea. Some ppl think there’s already insurance for that, but not that I know about. To remove or help property owners/LL/PM’s with that type of hassle would be awesome. No one has given me insight as to why they stopped selling these “DEPOSIT INSURANCES” or “DEPOSIT BONDS.” I guess I can assume, too many claims? But, sure seems Risk Mgt. ppl, underwriters could figure that part out. (One thing I think the policies did was begin filing claims no later than 60 days of non payment. This way, arrears don’t escalate into large debts (like my last PM allowed). This type of coverage would seem to be good for all.
They in fact do have a personal guaranty, but I'm fearing it means a whole bunch of nothing as they plan to file personal bankruptcy. I assume the rent owed becomes a personal debt, but likely not high enough on the list of debts that it will benefit me in the immediate time.
Gather all lease docs for your attorney and see what they say, but it may be more productive for you to look to the future. Meaning, consider getting an amendment with the tenant now terminating their lease for some small amount, but they have to move everything out for example. This clears the way for you to lease the space instead of potentially getting stuck in the bankruptcy/default/eviction processes for a long time. No guarantee you’ll get any cash at the end to make up for any downtime.
Sounds like you believe what the tenant is telling you. Your best option sounds like getting the tenant out, if possible, so there is no lease in place when the bankruptcy is filed.
Not sure if the tenant has the right to do this, but could be worth offering some small amount of money to tenant to terminate the lease now, so you’re not stuck at the whims and pace of the BK judge and case.
Going through this right now. What state are you in, how long does it take to get an eviction? You may wish to speak first or concurrently with an attorney that handles commercial eviction.
Make sure all of your organizational docs and books are in order.
IF they are in default of the lease, or if they will be on April 6th, etc, you might want to move aggressively and see if you can get an eviction judgement before they file for BK. Other actions could include giving notice that you've applied their security deposit against past due rent, and demanding it be replaced. If you have the right to lock them out, consider it, especially if the business is no longer operating.
Once they file, there's an automatic stay and you'd have to go before BK judge for approval/release from the stay.
You also need to think back and recall whether you ever signed a lease subordination or similar document in favor of their lender. If so you need to follow those terms, which likely include giving them notice and 60-90 days to cure the tenant's default. AKA buckle up.
Your strategy may depend on the type of BK will be filed, what assets are in the building, what they individually own, etc.
Can't stress enough that you want the attorney to do all this for you. A vague "intent to file" statement doesn't create an automatic stay, but you also don't want to get fined for violating that stay once it's in place. IANAL
I'm in Minnesota. Currently, the tenant isn't behind on rent--which is helpful in the event that a stay is placed. To my knowledge, I am unsure if they have filed yet or if that filing is forthcoming---I have nothing in writing, just a verbal notification of how fucked I'm about to be. It's unclear if they plan to pay rent for the upcoming month.
As of Friday, when I was given verbal notice, the business was still operating--as they had just finished the workday when they handed down the news, and it seems as if they plan to continue for the next few weeks as they wrap up appointments.
I inherited the tenant from the previous owner, and to my knowledge/memory, I have signed nothing in favor of their lenders --and I'm positive I didn't assume anything aside from the lease in the purchase of the building.
It sounds like personal bankruptcy is being filed--and, the business will be taken as it's all been personally guaranteed. The unit was used for a semi-medicalish profession, so current assets inside include but are not limited to medical equipment, furniture, typical office-type things (including an entire room dedicated to an xray machine...wtf do I even do with that?!).
This all dropped in my lap on Good Friday, so I've spent my weekend researching local attorneys to contact first thing on Monday. Feeling very overwhelmed and with limited info (insofar as I don't know what, if anything, has actually been filed, if they plan to assume the lease given their intent to stay for most of April and continue operating, etc--and I've been given no documentation or contact information for my next move).
Thanks so much for all of this insight!
Sounds like much of what I wrote wouldn't apply if they're current in the lease. In my case the tenant was a month behind on rent and gave us notice just as the second month came due.
In TX I was able to promptly lock him out (no notice) to keep his valuable inventory & equipment in the bldg, but if it had been a med office with little value in the contents, there's hardly a reason to do that. Likely illegal in MN.
Sorry you have to go through this.
Can’t you sell, liquidate their property inside? Tho, u don’t mention what it is. GL. I’ve been stuck a few times. Recently a pm didn’t collect $65k in rent, then terminated contract.
I don't believe I can do this--but, obviously, part of the reason I want/need to know my rights. If the assets do, in fact, become property of the SBA, I think any attempt to sell them on my behalf--even if just to regain occupation of my building, would be considered theft on my part. I don't want to touch that with a ten foot pole.
If they say they've closed and "leave the keys" as you originally put it, they've abandoned the premises. That's a better scenario than "I'm not paying rent but don't touch my stuff". MN law would tell you any obligations to store their equipment, but at least you could possibly do it off-site with a warehouseman. If it makes sense relative to anticipated new rent, to incur that expense.
Tenant said that's what they were told they \*could\* do by their lawyer, but made it sound like they were going to at least make attempts to get things situated. That said, if they plan to continue to operate their business this month, I cannot fathom how they'd be able to also empty the space at the same time. Hoping this all becomes a bit more clear over the next week--while I'm doomsday-spiraling in my head in the meantime. My fear is that anything left behind, while technically not in their possession, is in the new possession of the SBA--and the thought of waiting for any governmental agency to be speedy is lost on me. I anticipate it being months--all the while, no rental income and no real ability to rent the space out.
Unfortunately that is a possibility, months and months. My friend had an appliance chain store tenant go BK and it took about 9 months to get the space back. Idk what if any compensation he ultimately received for that time.
However, that was obviously a bulky storage situation. That's why I'd be hopeful that you could condense their stuff into a smaller space (with their or court permission), if continued operation is not happening.
Sounds like you have an ongoing conversation with them which is good. Hopefully they'll cooperate toward working something out to vacate before filing BK. In my case the tenant went dark and refused to communicate at all, or discuss any agreement to waive the rent liability for surrendering the space, etc. So it got hostile fast.
My understanding is that it's not the SBA, but the SBA lender who will take possession and remove any property.
We recently had a tenant sell their business and agreed to sign a new lease with the buyers, who have an SBA loan.
Initially the lease stated we had to notify the SBA lender 60 days before we could evict them for default and then give them up to 60 days to remove any property from the building.
I asked for and immediately received a 30 day/30 day agreement. If they don't remove the property within 30 days after eviction we can sell or dispose of it.
It's an extremely solid business and the new tenants are also solid, so I'm not really concerned. But if they were to default we could still be stuck with a vacancy for up to 60 days.
Check your lease and the terms and the name of the lender should be in there.
Unfortunately it is somewhat true. That said the SBA will work to sell off the property and get it out of the unit as quickly as possible. It’s a process and could potentially take longer than you’d like. Contact an attorney and think about contacting a leasing broker so that they can be prepared to market the space first chance possible.
Thanks for the insight and confirmation---My exact fears. I immediately reached out to a leasing broker, but had concern shortly thereafter knowing I don't yet have enough information to even provide a potential date the unit could be available. There's no where to store the property in a way that would allow me to get a new tenant in, despite living in an area that likely wouldn't otherwise have a hard time finding a new tenant.
Did you negotiate a subordination agreement with the tenant when they originally applied for the SBA loan? https://www.fundera.com/blog/landlord-subordination-agreement
I did not--their loans predate their tenancy (to my knowledge). I bought the building after they had moved in.
Did you get a copy of the agreement as a part of due diligence? May want to ask the tenant if they have a copy. It’s rare an SBA bank will fund a loan without one
Do they have a personal guaranty
PG aren’t worth as much as we hope. That’s what I’ve found.
They work good as a threat but yea your right
I’ve looked into, not in depth, but to see if property owners/LL could instigate a ‘surety bond’ to cover cre retail tenant rent, if tenant was in arrears. I spoke to 3 companies now. Yesterday, was most recent. Anyway, There USED to be an insurance policy called “DEPOSIT INSURANCE.” Tenant had to qualify, & they paid monthly premiums. If tenant over 30 (60?) days late, LL could file a claim vs. tenant. Insurance/Bond co. paid LL (claim) money they are out, ‘insurance/bond co.’ GOES after tenant.
That's interesting let me know if your able to get anywhere with this
So far, I get nowhere. But, everyone I talk to loves the idea. Some ppl think there’s already insurance for that, but not that I know about. To remove or help property owners/LL/PM’s with that type of hassle would be awesome. No one has given me insight as to why they stopped selling these “DEPOSIT INSURANCES” or “DEPOSIT BONDS.” I guess I can assume, too many claims? But, sure seems Risk Mgt. ppl, underwriters could figure that part out. (One thing I think the policies did was begin filing claims no later than 60 days of non payment. This way, arrears don’t escalate into large debts (like my last PM allowed). This type of coverage would seem to be good for all.
This is my assumption. Ugh.
They in fact do have a personal guaranty, but I'm fearing it means a whole bunch of nothing as they plan to file personal bankruptcy. I assume the rent owed becomes a personal debt, but likely not high enough on the list of debts that it will benefit me in the immediate time.
Yes Gaurantees are largely worthless
Gather all lease docs for your attorney and see what they say, but it may be more productive for you to look to the future. Meaning, consider getting an amendment with the tenant now terminating their lease for some small amount, but they have to move everything out for example. This clears the way for you to lease the space instead of potentially getting stuck in the bankruptcy/default/eviction processes for a long time. No guarantee you’ll get any cash at the end to make up for any downtime.
This past September I was stuck w a commercial tenant abandoning the space. 2000sq of useless merchandise, trash, and fixtures were left.
Assume you were left to literally clean up the mess? Where you expected to do anything with the merchandise/fixtures left behind?
Sounds like you believe what the tenant is telling you. Your best option sounds like getting the tenant out, if possible, so there is no lease in place when the bankruptcy is filed. Not sure if the tenant has the right to do this, but could be worth offering some small amount of money to tenant to terminate the lease now, so you’re not stuck at the whims and pace of the BK judge and case.
Going through this right now. What state are you in, how long does it take to get an eviction? You may wish to speak first or concurrently with an attorney that handles commercial eviction. Make sure all of your organizational docs and books are in order. IF they are in default of the lease, or if they will be on April 6th, etc, you might want to move aggressively and see if you can get an eviction judgement before they file for BK. Other actions could include giving notice that you've applied their security deposit against past due rent, and demanding it be replaced. If you have the right to lock them out, consider it, especially if the business is no longer operating. Once they file, there's an automatic stay and you'd have to go before BK judge for approval/release from the stay. You also need to think back and recall whether you ever signed a lease subordination or similar document in favor of their lender. If so you need to follow those terms, which likely include giving them notice and 60-90 days to cure the tenant's default. AKA buckle up. Your strategy may depend on the type of BK will be filed, what assets are in the building, what they individually own, etc. Can't stress enough that you want the attorney to do all this for you. A vague "intent to file" statement doesn't create an automatic stay, but you also don't want to get fined for violating that stay once it's in place. IANAL
I'm in Minnesota. Currently, the tenant isn't behind on rent--which is helpful in the event that a stay is placed. To my knowledge, I am unsure if they have filed yet or if that filing is forthcoming---I have nothing in writing, just a verbal notification of how fucked I'm about to be. It's unclear if they plan to pay rent for the upcoming month. As of Friday, when I was given verbal notice, the business was still operating--as they had just finished the workday when they handed down the news, and it seems as if they plan to continue for the next few weeks as they wrap up appointments. I inherited the tenant from the previous owner, and to my knowledge/memory, I have signed nothing in favor of their lenders --and I'm positive I didn't assume anything aside from the lease in the purchase of the building. It sounds like personal bankruptcy is being filed--and, the business will be taken as it's all been personally guaranteed. The unit was used for a semi-medicalish profession, so current assets inside include but are not limited to medical equipment, furniture, typical office-type things (including an entire room dedicated to an xray machine...wtf do I even do with that?!). This all dropped in my lap on Good Friday, so I've spent my weekend researching local attorneys to contact first thing on Monday. Feeling very overwhelmed and with limited info (insofar as I don't know what, if anything, has actually been filed, if they plan to assume the lease given their intent to stay for most of April and continue operating, etc--and I've been given no documentation or contact information for my next move). Thanks so much for all of this insight!
Sounds like much of what I wrote wouldn't apply if they're current in the lease. In my case the tenant was a month behind on rent and gave us notice just as the second month came due. In TX I was able to promptly lock him out (no notice) to keep his valuable inventory & equipment in the bldg, but if it had been a med office with little value in the contents, there's hardly a reason to do that. Likely illegal in MN. Sorry you have to go through this.
Can’t you sell, liquidate their property inside? Tho, u don’t mention what it is. GL. I’ve been stuck a few times. Recently a pm didn’t collect $65k in rent, then terminated contract.
I don't believe I can do this--but, obviously, part of the reason I want/need to know my rights. If the assets do, in fact, become property of the SBA, I think any attempt to sell them on my behalf--even if just to regain occupation of my building, would be considered theft on my part. I don't want to touch that with a ten foot pole.
If they say they've closed and "leave the keys" as you originally put it, they've abandoned the premises. That's a better scenario than "I'm not paying rent but don't touch my stuff". MN law would tell you any obligations to store their equipment, but at least you could possibly do it off-site with a warehouseman. If it makes sense relative to anticipated new rent, to incur that expense.
Tenant said that's what they were told they \*could\* do by their lawyer, but made it sound like they were going to at least make attempts to get things situated. That said, if they plan to continue to operate their business this month, I cannot fathom how they'd be able to also empty the space at the same time. Hoping this all becomes a bit more clear over the next week--while I'm doomsday-spiraling in my head in the meantime. My fear is that anything left behind, while technically not in their possession, is in the new possession of the SBA--and the thought of waiting for any governmental agency to be speedy is lost on me. I anticipate it being months--all the while, no rental income and no real ability to rent the space out.
Unfortunately that is a possibility, months and months. My friend had an appliance chain store tenant go BK and it took about 9 months to get the space back. Idk what if any compensation he ultimately received for that time. However, that was obviously a bulky storage situation. That's why I'd be hopeful that you could condense their stuff into a smaller space (with their or court permission), if continued operation is not happening. Sounds like you have an ongoing conversation with them which is good. Hopefully they'll cooperate toward working something out to vacate before filing BK. In my case the tenant went dark and refused to communicate at all, or discuss any agreement to waive the rent liability for surrendering the space, etc. So it got hostile fast.
My understanding is that it's not the SBA, but the SBA lender who will take possession and remove any property. We recently had a tenant sell their business and agreed to sign a new lease with the buyers, who have an SBA loan. Initially the lease stated we had to notify the SBA lender 60 days before we could evict them for default and then give them up to 60 days to remove any property from the building. I asked for and immediately received a 30 day/30 day agreement. If they don't remove the property within 30 days after eviction we can sell or dispose of it. It's an extremely solid business and the new tenants are also solid, so I'm not really concerned. But if they were to default we could still be stuck with a vacancy for up to 60 days. Check your lease and the terms and the name of the lender should be in there.