The economy is still uncertain, especially for business owners who rely on lease payments, land contract payments, promissory notes, or other installment-type payments for their income are in for tough month. Payees may very well be unable to make payments on time or at all. What are your options to protect your rights? It is a good time to find those documents and contact a business attorney to review your options. While every document is different, here is a general overview of some key provisions and concepts:
- When is the payment actually due? More often than not, a payment clause in a note or lease has a built in “grace period” – usually between 3 and 10 days after the due date for the payee to “make up” any missed payment without penalty. Importantly, many agreements also require written notification that a payment is late or has been missed – it is critical to review the documents in question, determine exactly when a payment is considered late, and to send out notice to preserve your rights.
- Document any modifications in writing. If you do agree to a reduced payment, different payment deadline, or some other modification with your tenant or debtor, make sure to document the agreement in writing. Most contracts (including leases) have provisions that require that any amendment be in writing. And, you don’t want to be accused of agreeing to something that you did not actually agree to later on. Further, a written record goes a long way from protecting you against any future argument of “waiver” or that you simply abandoned your rights by failing to insist on strict adherence to the contract.
- Find out what happens if there IS a default. Despite your best efforts to work with a tenant or a note payee, there may come a situation where they simply cannot make the payment or refuse to agree to a reasonable modification of their obligation. In that case, you need to review the default provisions with your attorney and give prompt, written notice of default. Here are some special considerations:
- Promissory note: (a) determine whether there is a default interest rate that entitles you to higher interest in the event of default; and (b) if the note is secured by collateral, determine the status and location of such collateral. Talk to an attorney immediately if you think the collateral may be destroyed or otherwise impaired.
- Land contract: A land contract is unique because the seller retains ownership of the property and the deed until the land contract is paid in full. However, land contract forfeiture is not automatic – there is still a requirement that proper notice be given and the landlord go through the other steps required by Michigan law before actually retaking possession of the premises.
- Lease: Michigan law provides for summary proceedings to recover premises and evict non-paying tenants – a useful process where a landlord wants a paying tenant to take the place of a delinquent. Summary eviction is still available as a remedy – but a new tenant is not a given, judicial proceedings are delayed, and there may be other considerations to discuss with your attorney before filing those court papers.
- However, you can still file a lawsuit to preserve your rights. You can still file a lawsuit to enforce a default on a note or lease. Remember, in addition to (or instead of) an order of eviction, you can get a money judgment for unpaid rent. Now it is more important than ever to retain qualified counsel to protect your rights in these uncertain times.
© 2020 Artaev at Law PLLC. All rights reserved.