Arizona Landlord Tenant Blog

Can a commercial landlord include provisions in the lease that take away most/all of the tenant's rights away?

Yes.  Generally, the law permits people to enter into contracts, including commercial leases, upon whatever terms the landlord and tenant agree. Therefore, if you sign a commercial lease for a store in a shopping center, for example, that is written to favor only the landlord, then, yes, you have effectively forfeited all rights not expressly granted to the you, the tenant, by the lease agreement.

The Arizona Residential Landlord and Tenant Act (the "ACT"), A.R.S. §§ 33-1301 to 33-1381, gives tenants many rights, but these statutes do not apply to "commercial" leases (i.e., rental of real property other than dwelling units). The Landlord and Tenant statutes that apply to commercial leases, A.R.S. §§ 33-301 to 33-381, give the tenant practically no rights. Presumably, the Arizona legislature felt that persons who rent dwelling units (i.e., apartments, homes, etc.) need more protection from landlords than persons who have the financial wherewithal to rent commercial real estate.

An example will best illustrate the drastic distinction between residential leases and commercial leases. The ACT requires that the landlord give a delinquent tenant a Five-Day Notice to Pay or Quit before initiating an eviction action. A.R.S. § 33-1368(B). Further, a residential tenant has an absolute right to pay the total amount owed (i.e., past due rent, late fees, court costs and attorneys' fees) and force the landlord to accept reinstatement of the lease. A.R.S. § 33-1368(B). A commercial landlord, however, when rent is in arrears for five days, may, at the landlord's option, either re-enter and take possession (i.e., lock the tenant out) or "without formal demand" commence an eviction action. A.R.S. § 33-361(A). Further, once the commercial landlord has terminated the lease, the tenant cannot (unless the landlord consents) reinstate the lease, even if s/he pays all amounts due (i.e., past due rent, late fees, court costs, attorneys' fees). As you can see, the rights afforded to residential tenants by the ACT greatly exceed the rights afforded commercial tenants by the statutes. Moreover, one of the statutes in the ACT prohibits landlords from attempting to take away any of the tenant’s rights that are granted by the ACT; meaning, a residential landlord cannot even put provisions in the residential rental agreement (even if signed by both parties) that take away any of the tenant’s rights under the ACT. The only way, then, for the commercial tenant to obtain more rights is to have these rights written into the lease agreement (i.e., the landlord cannot re-take possession for any type of default without five-days prior written notice).

Returning to the answer to the question: the solution to your problem is simple in theory, but sometimes difficult in practice. Read the "proposed" lease agreement very carefully and/or have your attorney review it. Note any changes that you would like made to the terms "offered" (remember, at this point, the terms contained in the lease agreement are merely the terms offered by the landlord). Ask the landlord to modify the lease to include the terms that you wish changed. The landlord may change all, some or none of the terms you desire. You will either ultimately come to an agreement with the landlord or not. If the vacancy factor for the type of property you are looking for is high, your chances of convincing the landlord to modify his/her offered terms is greater than when the occupancy factor is low. If the landlord simply will not budge, then look elsewhere for a location and terms that are acceptable. Again, your chances of finding alternate commercial space on terms you find acceptable are greater when the vacancy factor for the type of property you are looking for is high.

Some specific concerns that you will have as a new store owner in a shopping center are: (1) does your lease include a non-compete clause, so that the landlord cannot rent space in the same shopping center to a tenant with a similar business, (2) does the lease obligate you to remain for the entire term of the lease even if the anchor tenant terminates or vacates (an anchor tenant is normally the largest tenant in the shopping center and typically draws most customers to the shopping center; for example Home Depot or a grocery store), and (3) are you required to be open for business certain hours of the day and certain days? Naturally, there may also be many other concerns specific to the type of business you are running and/or the type of property that you are leasing.

Once you have signed the lease agreement, however, onerous or not, you are bound by the terms of the written lease agreement; there is no statutory recision period (i.e., you do not have a few days to "think about it" and cancel the deal without penalty). Only in the most exceptional circumstances will a court of law intervene and rule that a particular term is "unconscionable" (i.e., unenforceable) under the law.

How to Select the "Right" Attorney

If you are particularly fortunate, you will never need an attorney and the recommendations in this article will be of no real value. On the other hand, if, like an ever growing number of people, you require the services of an attorney, the following will be invaluable.

When selecting an attorney, the first question you must ask yourself is, "How much time do I have to select an attorney?" Although your selection of legal counsel should properly be determined by the attorney's qualifications, there may be times when you need a lawyer right now! Example: you are a tenant (commercial or residential), you have just been served with a lawsuit seeking eviction, and the hearing is two days away. Under these circumstances, you may need to "streamline" the recommendations made below, so that you will have "some" legal representation at the upcoming hearing. As a general rule, "some" representation is better than "no" representation (but there are exceptions), and if you discover you have made a poor selection, you can always hire a different attorney after the critical hearing date has passed.

When you have sufficient time to search for an attorney, the following approach will normally yield good results. You must first decide in which area of law you need assistance (i.e., real estate, personal injury, bankruptcy, wills & estates, etc.). Next, seek referrals from friends and associates. Some of the best referrals, however, come from attorneys who do not practice in the area in which you need help. You may also wish to see if any attorneys have written books or articles on the area of law in which you need help. The State Bar of Arizona and local county bar associations will also provide you with referrals. Your last choice should be the Yellow Pages (note that radio and television advertisements were not listed as viable choices).

Start with a list of five to ten attorneys. Call each one of the attorneys, give him/her a short (i.e., one minute) synopsis of your case, and ask whether they are interested in undertaking your representation. You should also inquire at this time if their work schedule is such that they will have sufficient time to accept another matter. This question is more important if you need representation for a lawsuit, which will require significant time and requires certain actions to be taken at prescribed times, versus the drafting of a will, which can be worked into almost any attorney's calendar and may not require a significant amount of time. Ask the attorney how long they have been practicing and, more important, how long they have been practicing in the area of law in which you need assistance. If satisfied with the answers to the foregoing, ask to schedule an appointment. Be sure to inquire whether there will be a fee for the initial consultation. Some attorneys charge for an initial consultation; some do not.

Personally visit at least three attorneys before you make a decision. For some reason, most people have a tendency to hire the first professional person (i.e., doctor, lawyer, accountant, etc.) that they speak with face-to-face. This is not sound practice. You comparison shop for virtually everything else in life (i.e., cars, houses, etc.), why not comparison shop when you need an attorney? The choice of attorney is equally as important as a car or house, perhaps more, and will most certainly impact on the ultimate results achieved (i.e., success in the lawsuit, well drafted will, etc.).

During your personal visits, you will want to inquire: where the attorney went to school (i.e., was it an accredited law school, a law school you know or did the attorney their law degree online); how much experience s/he has with your type of case/matter; and whether the attorney is a specialist in this area of law. Attorneys may apply to the State Bar of Arizona for certification as a specialist in certain areas of the law (i.e., real estate, bankruptcy, personal injury, etc.). To become a certified specialist, an attorney must meet certain prescribed minimum requirements (i.e., licensed for a prescribed number of years, practice in that area of law for a prescribed number of years, etc.), must take an examination and, thereafter, must attend classes every year in that area of the law. The advantage of hiring a certified specialist is that you are normally assured that the attorney is competent in that area of the law. But that does not mean you cannot find an attorney that is competent in that area of the law who is not certified. Many attorneys simply have not taken the time to apply to become certified specialists. The disadvantage of hiring a certified specialist is that the fees charged are generally higher (there are exceptions, i.e., generally, personal injury specialists charge about the same as attorneys who are not certified).

If you are hiring an attorney to bring or defend a lawsuit, the most important information you will want to get from the attorney is an assessment of your chances for success. If you speak with three attorneys and they all opine that you will lose, you may want to reconsider your options. Further, you may want to think twice about hiring a lawyer to "champion your cause" if s/he does not believe you have a good chance of success. If the lawyer does not believe you will win; it may be difficult for him/her to convince a judge or jury that you should win.

Finally, you should discuss attorney's fees: how they will be charged, when they must be paid, etc. You should not base your selection of an attorney on the fee charged, but, the truth is, if you cannot pay the fee up-front, your choice of attorney may be determined by which attorney will take your case on a contingency fee basis. Ideally, however, your choice of attorney will be driven by a careful analysis of the foregoing information and your subjective like or dislike for the attorney. Remember, you may be working with this person for months or years; make sure you can get along with your attorney.

Once you have made a decision, make sure you reduce your agreement to writing (i.e., the scope of the attorney's representation of you and the fee structure). Also, make sure you give your attorney all the facts. This applies whether the attorney is merely drafting a document for you or is handling your lawsuit. Seemingly insignificant facts may require different/additional language in a document and/or drastically alter the outcome of litigation. If you are withholding information because you do not trust your attorney, you have hired the wrong attorney -- go to the beginning of this article and start again.

Hiring an attorney is an important decision. The attorney you hire will have an impact on the results obtained. Devote time and resources to the attorney selection process proportionate to the magnitude of the matter you need handled. If you adhere to the recommendations above, you will achieve superior results and, equally important, you will "feel good" about your decision.

How to evict a residential tenant for nonpayment of rent

One of the most common, but frequently misunderstood, types of civil litigation is eviction of a residential tenant by a landlord for nonpayment of rent. Simple civil litigation, even in justice court, can take from three months to over a year to complete. Fortunately, the Arizona Residential Landlord and Tenant Act (the "Act") affords landlords an expedited procedure for evicting a tenant for nonpayment of rent. The procedure is fairly simple and straightforward, but you must properly complete each step. Properly done, the landlord can have the tenant out of the rental unit and have a money judgment against the tenant for past due rent within three weeks after rent first became overdue. Improperly done, the court may dismiss the action, allow the tenant to stay in the unit and award the tenant a judgment against the landlord for the tenant's attorney's fees (if the tenant hired an attorney).

The proper procedure is best illustrated by an example. Terry Tenant has a written rental agreement with Larry Landlord. The agreement provides that rent is due on the first day of the month and that late fees begin to accrue after the fifth day of the month at the rate of $10.00 per day. Today is second day of the month. Terry Tenant has not yet paid his rent and Larry Landlord wants to begin eviction proceedings.

The first step in an eviction for nonpayment of rent is delivery of a Five-Day Notice to Pay or Quit (the "Notice") by the landlord (or his agent) to the tenant. The Notice must state that rent is overdue and that the landlord intends to terminate the tenant's rental agreement if rent is not paid within five calendar days (not business days) after delivery of the Notice (do not count the day the Notice is delivered). A.R.S. § 33-1368(B) and (H). The Notice may be served on the first day that "rent is unpaid when due." A.R.S. § 33-1368(B). Our rental agreement states that late fees will not accrue until after the fifth, but clearly states that rent is due on the first day of the month. Although late fees and the rental due date are related, they are separate and distinct dates. Even if a landlord does not charge a late fee at all, rent still is due on a certain date and may be evicted if rent is not timely paid. The language of the rental agreement controls when rent is due and overdue. Therefore, in our example, Larry may serve the Notice on or after the second day of the month. In the case of an oral agreement or a written agreement that does not specify the due date, rent is due "at the beginning of each month" (i.e., the first day of the month). A.R.S. § 33-1314(C).

Larry serves the Notice upon Terry by hand-delivering it to him on the second day of the month. Larry could have had someone else deliver the Notice (i.e., a friend, property manager, process server, etc.) or could have sent the Notice by certified mail. If the Notice is served by mail, the five days begin to run the day after: (1) actual receipt by the tenant, or (2) five days after the Notice is mailed, whichever occurs first. A.R.S. § 33-1313(B).

If Terry does not pay the rent within the five days, then, on the sixth day of the month, Larry may file the eviction action (properly called a "special detainer" action, but commonly referred to as a forcible detainer action). A.R.S. §§ 33-1368, 33-1377.

 

If the total amount of past due rent sought does not exceed $10,000.00, then Larry may file the special detainer action in justice court, which is typically were most eviction actions are filed. A.R.S. § 22-201(C). If the total amount due is over $10,000, then Larry must file in superior court. A.R.S. § 22-201(C).

To file a special detainer action, Larry completes a form called a Complaint and files it with the court. The court then issues a Summons for each tenant/defendant named in the Complaint (this is somewhat of a misnomer -- Larry will actually fill out the Summons form, the clerk of the court merely writes in the date and time of the "return date" (discussed below), stamps the form and gives it back to Larry). In some courts (i.e., justice court), the Summons and Complaint forms have been combined into one form.

Larry then gives the Summons and Complaint to a process server, who, in turn, "serves" (i.e., hand-delivers) a copy of the Summons and Complaint upon Terry. The Summons and Complaint must be served on each named tenant/defendant at least two (2) days before the return date. A.R.S. § 33-1377(B). Alternatively, if personal service is attempted but not successful, service may be effected by the process server by posting a copy of the Summons and Complaint on the subject property (i.e., on the front door) and, on the same day, mailing a copy of the Summons and Complaint via certified mail, return receipt requested, to the tenant's last known address, which is usually the rental property address. A.R.S. § 33-1377(B). Posting and mailing (commonly referred to as "nail & mail" service) must be accomplished, however, within one day of issuance of the Summons. A.R.S. § 33-1377(B).

Larry then goes to court on the return date specified on the Summons, at the time and place indicated. The "return date" is the date specified on the Summons by the clerk of the court at the time the Summons was issued. Terry will enter his plea -- guilty or not guilty -- on the return date. In justice court, trial may follow immediately after entry of the tenant's plea or be set for a few days later. In superior court, if the tenant pleads not guilty, a trial date will be set for a few days later. In both justice court or superior court, if the tenant pleads guilty on the return date, judgment will be entered that day.

On the trial date, whether or not Terry shows up, Larry must present evidence to the court that indicates he is entitled to possession of the rental unit and, if applicable, a money judgment for past due rent. If Terry does show up, Terry will be permitted to explain why rent was not paid. "Hard times" (i.e., loss of job, disability, etc.) will not be an acceptable defense. Acceptable defenses available to tenants include:

a.  The rent was not yet due when the tenant was served with the Five-Day Notice or the Notice itself was defective (i.e., lacks required information).

b.  The Complaint was filed before the five day period (after service of the Notice) expired.

c. The special detainer action was filed in the wrong court.

d.  The Summons and/or Complaint was improperly served.

e.  The tenant no longer lives in the rental unit and the landlord has accepted surrender of possession.

f.  The special detainer action is an unlawful retaliation against the tenant (i.e., retaliation for reporting building code violations, etc.).

g.  There was a justification for nonpayment of rent, based on some type of breach of the rental agreement by the landlord (i.e., failure to repair, failure to provide heat/cooling, etc.).

h.  The rent has been paid or part of the rent was paid and accepted after service of the Five-Day Notice.

i. The landlord inconsistently enforces of the terms in the rental agreement (i.e., s/he allows some tenants to be late with the rent, but not others). Provided the tenant can demonstrate to the court that s/he is the victim of "selective enforcement," the court may dismiss the landlord's action.

j. The language of the rental agreement provides (or suggests) that the landlord must accept partial rent payments and the tenant has offered a partial payment, but the landlord has refused to accept it.

If Larry wins, he is entitled to a judgment for possession of the rental unit and a money judgment for past due rent. Larry will not receive actual possession of the rental unit, however, until five business days (not calendar days) after entry of judgment. A.R.S. § 12-1178(C). If Terry does not voluntarily move out of the rental unit on or before the fifth business day, Larry may pay a fee and obtain a Writ of Restitution from the court. Larry may then give the writ to the sheriff or constable, who will forcibly remove Terry from the rental unit. Larry must then arrange to have the locks changed and all personal property left in the unit, if any, moved and stored.

And that is all there is to it. Okay, so it doesn't sound all that simple. The first one never is. You now have two choices: (1) hire an attorney to do it for you, or (2) do it yourself. If you decide to prosecute a special detainer action yourself, at a minimum, you should consult with your attorney at two stages: (1) before you file the action, to ensure that you have complied with all the procedural requirements, and (2) any time you have a question or run into a problem. You must also make a point of obtaining and reading the "Rules of Procedure for Eviction Actions," which became effective January 1, 2009. These rules require that certain language be included in the special detainer Complaint and on the judgment form and that various other procedures are followed. You can get a copy of these rules here (right side bar).

Comply with the Act and the Rules of Procedure, follow the steps above and you will do fine -- you can do this.

What is the maximum security deposit a landlord may collect?

A landlord cannot collect a security deposit equal to more than one and one-half month’s rent. For example, if the monthly rent is $1,000.00, then the maximum security deposit a landlord may legally collect is $1,500.00. Sounds simple, but it’s not.

A security deposit does not include nonrefundable cleaning or redecorating fees, but DOES include refundable cleaning, redecorating and/or any other type of refundable deposit (i.e., refundable pet deposit, refundable key deposit, etc.). Incidently, security deposits are ALWAYS refundable deposits; there is no such thing as a "nonrefundable security deposit."

Consequently, a landlord MAY: In the same example above, the landlord may collect a $1,500 security deposit, a $250 nonrefundable cleaning fee, a $250 nonrefundable redecoration fee, and a $25 nonrefundable application fee. But that same landlord COULD NOT collect a $1,500 security deposit and a $1 key deposit, because then the amount of deposits the landlord would be holding exceeds one and one-half month’s rent.

Hang on, we’re not done. Same example, but the landlord collects a $1,000 security deposit and a $500 refundable cleaning deposit. So far, the landlord is okay. But the tenant leaves at the end of the lease term and owes $2,000 in past due rent. There is no property damage and the property is left cleaner than when the tenant moved in. The landlord will want to apply all $1,500 to the past due rent, but he can’t. Under the Act, "‘security’ means money or property given to assure payment or performance under a rental agreement." (See A.R.S. § 33-1310(14)). The tenant left the property clean – the tenant is legally entitled to return of the $500 cleaning deposit. If the landlord holds onto that deposit, then the landlord has "wrongfully withheld" part of the tenant’s refundable deposits and the tenant can sue the landlord for the $500 deposit, plus statutory damages equal to twice the amount wrongfully withheld (i.e., $1,000), plus attorney’s fees and court costs. A really bad result for the landlord.

The solution is simple. The landlord should collect only one deposit – a security deposit. I always recommend that my clients collect only a security deposit (not to exceed one and one-half month’s rent) because the landlord may apply the security deposit to any amounts owed by the tenant: rent, property damage, cleaning, whatever. Under the Act, and as stated above, the landlord can also collect fees and charges (i.e., nonrefundable) for cleaning, redecorating, etc. The only restrictions on fees and charges are: (1) they must be "reasonable" (whatever that means) and (2) the purpose of the nonrefundable fee/charge must be stated in writing (i.e., in the rental agreement or some other written document).