My Tenant Can’t Pay Rent…Now What?

I’m not one for sweets, but there was something about the apple pie from Aunt May’s Kitchen* that made it irresistible. Aunt May*, the owner, cheekily tells me that the secret is that all her pies are made with love. I think it’s probably more due to the fact that she’s been making and serving the same pies for almost 40 years and has perfected the art. 

Aunt May’s Kitchen isn’t the store’s real name, but even if it was, I doubt you would have heard of it. It’s hidden away in Mississauga, one of many tenants in a small strip mall. It’s been there since 1986 and has cultivated a small, yet fiercely loyal, customer base. This small customer base has provided a steady, dependable stream of income to Aunt May, making her an ideal tenant for the past 36 years. That is until COVID-19 hit.

Sitting across from me in my office was my client Jeremy*, the owner of the building that leased space to Aunt May’s Kitchen. Aunt May was already three months behind on her rent with no sign of business picking up and Jeremy needed advice on how to move forward. He wanted to make the best decision for his business but felt too emotionally attached to the situation for unbiased analysis. 

So, what do you do when your tenant, especially one you’ve had a decades-long relationship with, can no longer pay their rent? Do you ride it out, taking the financial hit yourself, or do you make the agonizing call to evict and find a new tenant?

Every situation is different, but for landlords facing similar situations, I’ll tell you what I told Jeremy: There’s only one winner in this scenario, and that’s the lawyers.

Evicting Aunt May won’t be helpful to the business. Nevermind the destruction of a 30-year business relationship, but getting tenants out when they don’t want to leave can be a real hassle. Of course, Jeremy’s lawyer will stay very busy writing up eviction notices and such. Even if he manages to evict her with little effort, getting a new tenant isn’t easy in the best of circumstances, let alone during a global pandemic. Assuming he can find someone willing to take on retail space right now, most new tenants require some incentive in the form of leasehold improvements (his lawyer will be happy to spend hours ironing out this contract). This requires money upfront from the landlord, which is generally not a problem when dealing with a tenant that will pay rent, but how dependable are future earnings in the middle of a global economic shutdown?   

Our advice for Jeremy, and landlords in similar positions, is to work with Aunt May and hope both sides can be reasonable. Chances are, you’ve got a great tenant who doesn’t want to default and will work with you as best they can to come to an agreement that’s fair for both sides. Sure, you’ll lose money in the short term, but you’ll hang on to a great tenant who will eventually be able to pay the full rent once again - and you won’t get a bill from your lawyer!

*Names and identifying personal details have been changed to protect the privacy of the individuals involved.