CREJ - Property Management Quarterly - February 2015
Once upon a time, a tenant failed to pay rent, and so the story goes. Unfortunately, commercial property owners and managers are all too familiar with this tale, and rarely, if ever, does it end happily. Instead, in most instances, landlords are left holding the proverbial bag after spending significant sums on attorney fees and writs of restitution in order to retake possession of their leased property, monies that they will unlikely recoup from their defaulting tenants. Moreover, landlords are then left to mitigate their own damages by finding a new tenant, ultimately resulting in additional commission and tenant improvement costs, which also are unlikely to be recovered. Property managers with any level of experience know that once a determination is made to proceed with an eviction action, the first step in the process is to serve the defaulting tenant with a statutory notice and demand for compliance or possession, or what is more commonly known as a “three-day demand.” The three-day demand is a condition precedent to an eviction action, which often is considered trivial and given little thought. The Colorado Forcible Entry and Detainer Statutes, which dictate the permitted bases and process for evicting a tenant, include specific requirements and time frames. In order to prevail on a claim for possession of leased property, one must strictly comply with each requirement. Furthermore, and particularly in the context of a commercial lease, a lease may include added requirements that must be satisfied in addition to the statutory requirements in order to prevail on a claim for possession. A three-day demand, which strictly complies with both the statutory and lease requirements, is essential to the eviction process, and a misstep could result in additional costs and significant delays. By way of example, in a contested eviction action, the failure of a landlord to deliver a copy of the three-day demand in compliance with the notice provisions of the subject lease, which could, for example, require a certified mailing, and in compliance with the applicable statute, which generally requires posting or hand delivery to the leased property, could result in the court’s ruling in favor of a defaulting tenant at a possession hearing. For reference purposes, an uncontested-eviction action usually takes three to four weeks, beginning from service of a three-day demand and concluding upon restoration of possession of leased property to a landlord by the sheriff. If a landlord is forced to restart the process by serving a new three-day demand after losing at a possession hearing for failure to give proper notice, the extra step could add three weeks to the eviction process, increasing the time frame for obtaining possession of the leased property from three to four weeks to six to seven weeks. Perhaps even more disturbing is the possibility that a defaulting, nonpaying tenant who is successful at a possession hearing on the basis of a notice technicality could be entitled to an award of its attorney’s fees and costs on the basis of a “prevailing party” contract clause contained within the lease, which is not an uncommon provision. Needless to say, this would be a less than desired result.
The pitfalls of a noncompliant three-day demand can, in most instances, be avoided by following these simple steps: 1. Review the default section of the lease to confirm whether a tenant must be given a demand letter before being served with a three-day demand. Remember that a three-day demand is served after a default has occurred. In a well-negotiated lease, a tenant may be entitled to written notice that rents have not been paid and given an opportunity to cure before the tenant is considered to be in default. 2. Review the notice section of the lease to determine whether the three-day demand must be served on the tenant by mail or any other method in addition to the statutory requirements. Generally, posting or hand delivery to the leased property is the common method. 3. Review the lease to determine whether the statutory three-day period was extended by the agreement of the parties. The three-day statutory period may never be waived or reduced by the agreement of the parties, but it may be extended. Although this type of language is rare, it’s something that should be considered. 4. Review any personal guarantees to confirm whether the guarantors are entitled to receive a copy of the three-day demand, and, if so, how notice is to be given. 5. Be sure that the three-day demand complies with C.R.S. § 13-40- 106, which requires, among other things, that the demand be in writing; describe the grounds of the landlord’s right to possession, identify the leased property, specify the time when the property must be surrendered; and be signed by the party claiming possession or his agent or attorney. 6. Perhaps more obvious, but must be stated for the purpose of being comprehensive, the three-day demand should identify the tenant and all persons entitled to possession of the leased property. 7. Finally, and perhaps most importantly, if a landlord intends to pursue a tenant for rents accruing for the balance of the lease term, the three-day demand should make it clear that although the tenant’s right to possession will terminate if the tenant fails to cure within the three-day period, the tenant’s obligations for rents accruing for the balance of the lease term will remain in full force and effect. At the end of the day, an eviction cannot be filed until after a three-day demand, which complies with the lease and the statute, is properly served. Preparing a three-day demand does not require a magic wand or a fairy godmother, but an oversight could cost time and money, both of which become precious commodities when a tenant defaults.