Signs a Commercial Tenant is Filing for Bankruptcy

Being a landlord is difficult, even if Florida. Our state has generous laws that make it difficult for landlords to evict tenants who do not follow the terms of their lease.

One nightmare many landlords have is that their tenant will file for bankruptcy. Filing will allow the tenant to wipe out any unpaid rent and halt the eviction process at the same time. In some situations, a landlord could lose out on months of rent, which they have no right to recover thanks to the bankruptcy. Below are some signs your tenant is on the verge of bankruptcy and not going through a temporary downturn.

Consistently Late Payments

It isn’t unusual for a tenant to be late once or twice a year on rent. Maybe they faced a temporary cash crunch, or they simply forgot. But when payments are consistently late, then a tenant is clearly facing financial difficulty, often because their business is slumping. If the business is new, the owners might have been too optimistic about their income and taken on a larger rent than they can afford. In any event, consistently late payments are a red flag.

More than a Month Behind Rent

Tenants should catch up as soon as possible on rent payments. When a tenant is more than a month behind, then this is a clear flashing red sign that they are in trouble.

Excessive Cost Cutting

A business that is going under might suddenly start slashing prices on everything in the store or offer their services for an absurdly low amount. In these situations, the tenant might be operating at a loss simply to get rid of inventory or trying to drum up business.

Also watch for sales that fall at odd times. A holiday sale is one thing, but sales in the middle of March or April could signal a severe cash crunch.

Lack of Communication

A tenant on the verge of filing for bankruptcy might cut off all communication with a landlord. They often do this to prevent the landlord from taking preventative action, such as trying to evict the tenant before they file for bankruptcy. Once a debtor files, they get the protection of the automatic stay, which is a huge roadblock to getting rid of a tenant.

Staff Turnover

Low paid employees frequently leave businesses. However, a company that is dying will often fire large numbers of staff. There could also be high turnover as frustrations with the business force many employees to flee.

Dying Industry

Look to see how other businesses are doing in the same industry. For example, bookstores have closed around the country as more readers switch to Kindle or else buy physical books from online retailers like Amazon. If similar businesses in your city are filing for bankruptcy, it isn’t surprising if your tenant is also struggling.

Our Firm Represents Small & Family Businesses

Businesses fail for different reasons, and some can continue if they can only reorganize their debts. Others will need to liquidate in an orderly fashion. Nowack & Olson, PLLC has helped many small businesses through the bankruptcy process. For more information about your options, please contact a Plantation bankruptcy attorney at 888-813-4737 to set up an appointment.

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