Office Landlords Have To Decide What To Do With Remaining Tenant Property

2/26/2020 | Articles & Alerts

Office landlords must sometimes have to decide what to do with property left behind by a tenant. Usually the tenant is delinquent in its rent payments and shuts down its business suddenly due to financial and legal pressures. The vacated space may contain a wide variety of items ranging from expensive fixtures to office equipment, furniture, files, artwork and other personal items.

First and foremost the landlord should try to determine who besides the defaulting tenant might have rights to the property left behind. The landlord should review its lease file for some indication as to whether the tenant financed its equipment or furniture. For example the file may contain a landlord’s waiver agreeing to give a lender the opportunity to remove items which the lender financed. The landlord should also order lien searches against the former tenant in the state where the tenant was incorporated or organized and in the county where the leased space is located. These searches will disclose publicly filed statements containing the names and addresses of anyone with liens or ownership rights in property which was under the possession of the former tenant. The filings will indicate whether all of the former tenant’s assets or only specific items are subject to a lien or lease.

If a lender does have a legitimate interest in assets of the former tenant, then the landlord should notify that lender and provide a reasonable opportunity to remove the assets. The landlord, being in physical control of the space and its contents, will have the prerogative to establish the terms under which the lender will be allowed to access the space and remove the items to which it is entitled. But this also may present the landlord with an excellent opportunity to buy out the interest of the lender who may want to forego the cost of removing used property which has limited resale value.

If the former tenant’s assets are unencumbered, then the landlord can acquire them by legal process. The landlord must obtain a judgment against the former tenant. In Pennsylvania this can be done by confession if the lease contains appropriate provisions. Otherwise the tenant must be sued for its unpaid lease obligations. Once the landlord obtains a judgment, then he can force a sale of the tenant’s assets to satisfy the judgment. Ordinarily the landlord will acquire the assets this way since there are not likely to be other bidders.

If the former tenant is in bankruptcy the situation will be greatly complicated and so the landlord may experience delays while the former tenant and its creditors sort out their rights and obligations in bankruptcy court.

For further information, please feel free to contact William K. Stewart, Esquire at (610) 941-2555 or wstewart@kaplaw.com.