The Absentee Owner PT. 2
This article is a continuation of part one regarding my Tanning Salon tenant in New York. I had to return to New York to initiate court eviction proceedings against this tenant. Prior to our court appearance, we met with our lawyers to reconcile our differences and come to a mutual agreement. My options were very simple and straightforward. First, the tenant was to pay the rent that was in arrears. Second, provide for his own air-conditioning unit. Third, comply with all his violations. This was to include building out the store with the proper permits, plans and town approval. The lawyer for the tenant advised him that the offer was fair and to agree to our terms. All this was achieved because we had a proper lease well written and clear on all the points. As you may well know, having proper documents and documentation is essential. I know this is a no-brainer but too often many landlords tend to be lax about such things. We on our part agreed to partial payment with the balance to be paid within 2 months. It is past the 2 month limit and the balance has not been paid. Times are difficult now and my tenant has made a 180 degree turn. He has applied for a business loan. Thus far he hasn’t succeeded in getting one. We all know what shape banks are in right now. I can’t imagine the banks will give an unsecured business loan. However, in case he is able to secure a loan, I decided to give him some additional time. My decision was more realistic than alturuistic. Considering the economic situation today, landlords need to be more flexible. Vacancies are difficult to fill including getting a tenant that can ultimately survive and thrive.
After our court appearance, I went to check the other stores in the Shopping Mall particularly the vacated premises of our Gym tenant. We had evicted him in April of this year. He had vacated the premises before the Sheriff’s eviction date. I gave my local real estate agent the authority to take possession of the store. She notified me that the Gym tenant had trashed the store and left it in a terrible condition. At my instructions, she immediately changed the locks on the store. This Gym was a 7200 SqFt. store and it was completely built out to be a gym. It had attending locker rooms for both sexes and all the walls were mirrored. So when I walked into the store I was stunned. The tenant had ripped out everything, I mean everything. The mirrors had been pulled off the wall and the underneath sheet rock was completely damaged and unusable. The urinals in the bathroom had been ripped out, the dividers were torn off, the ceiling tiles knocked out and the list continued. The glass on the doors were cracked what ever he could do to damage the place was done. There was debris everywhere and the internal neon lights had been broken. You can imagine what I was feeling.
When I had regained my composure, I immediately notified our insurance company. We had never put a claim for this building in 30 years of ownership. The insurance company requested we fulfill specific requirements in order to process our claim. We had to first file police reports to establish the facts and sequence of events. The process isn’t very complex as there is a list of specific information required by the insurance firm. We had to provide our Lease document, the courts eviction notice, the date the locks were changed with attending invoices. The insurance company gets a copy of the policy case number and a copy is sent directly from the police department. The police report, indicated that there had been vandalism inside the store. However, they couldn’t decide if it was criminal or civil. If it was criminal, they could go after the perpetrator. An interesting happenstance, as I was filing the report with the police standing outside the store, the evicted tenant was driving on the street adjacent to the parking lot. When he saw the police with me he immediately raced off.
The insurance company adjuster priced out the cost of repairs. Based on his estimation of repairs they will offer a settlement number which you agree to or contest. Several weeks later we received the settlement check which we accepted. This then is the second important item we often neglect as landlords. Adequate insurance coverage! This is very important. We all know how a document collects dust and is never really reviewed for all it’s details. We resent paying the bill and really don’t want anything to do with it. Not to mention we are always looking to get the least so that we can save the buck, even though in NNN leases the tenants pay their portion. We must maintain current and proper coverage. Do you know what it would cost to build your building in today’s dollars? Have you factored in your coverage the rising cost of new construction so that your insurance is up to date with the replacement costs of your building? What is your deductible? Our insurance payment covered only the repairs and not the cost of renovation. Since this store was built out years ago the codes have changed and we now have to comply with stiffer requirements which adds more $$$ to the bottom-line. The insurance company can decide to can go after the vandal. Yet despite the fact that we know who was responsible, it would be very difficult to prove this to be the case.
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