What to Do When Your Retail Tenant Stops Paying Rent: A Step-by-Step Guide for NYC Landlords

By R&E Member Andrew R. Gottesman and Counsel Brendan Derr.

Retail rent defaults are rising—and NYC commercial landlords need a clear plan of action. Whether due to economic headwinds, shifting consumer habits, or post-pandemic fallout, many landlords are facing tenants who have fallen behind on rent or stopped paying altogether. Navigating this situation demands a firm understanding of lease enforcement rights, summary proceedings, and even bankruptcy law.

This guide walks NYC landlords through each critical step—from assessing the situation to filing a proof of claim in bankruptcy court.

What We’re Covering: Retail Default, Step by Step

1. Know Your Goal: Recovery or replacement? Collect the rent or clear the space?

2. Call Counsel Early: Legal notices must comply with lease terms and state law.

3. Review the Lease: Key provisions will shape your strategy.

4. Serve Proper Notice: Choose between a default notice or a 14-day rent demand.

5. Terminate If Needed: Leverage termination clauses if rent remains unpaid.

6. File a Summary Proceeding: Start a holdover or nonpayment case in court.

7. If Bankruptcy Occurs, Act Fast: Learn your rights under Chapter 7 or 11.

8. File a Proof of Claim: Secure your place in line if the lease is rejected.

1. Determine the Desired Outcome

Start by clarifying your objective. Is your goal to collect back rent, evict the tenant, or negotiate a workout? Ask:

• How much is owed and for how long?

• Is there a lease guaranty?

• Can you draw on a security deposit or letter of credit?

• Would keeping the tenant long-term still serve your interests?

Why it matters: Your answers will dictate whether you move toward eviction, negotiation, or a legal collection strategy.

2. Contact a Real Estate Attorney

Don’t go it alone. Landlords often try to serve default notices themselves to save on legal fees—but the risk of noncompliance is high. NYC’s summary proceeding laws and notice requirements are highly specific.

Why it matters: Even minor missteps in notice or timing can delay eviction or weaken your legal standing.

3. Review the Lease Carefully

This is the most important step. Examine:

• Rent due dates and late fee provisions.

• Default and termination clauses.

• Notice provisions—how and where must notices be served?

• Security deposit and guaranty terms.

Why it matters: The lease will determine your legal remedies, notice periods and rights in
any subsequent bankruptcy case.

4. Serve a Default Notice or 14-Day Rent Demand

Depending on your strategy:

• Serve a lease-based default notice if aiming to terminate or trigger default remedies.

• Serve a 14-day statutory rent demand under RPAPL § 735 if pursuing unpaid rent through court.

Why it matters: Choosing the right notice—and serving it correctly—sets the stage for eviction or litigation.

5. Terminate the Lease (If Needed)

If the tenant fails to cure the default by the date specified in the notice, and your lease permits it, you can terminate the lease and tenancy.

Why it matters: Once terminated, you can proceed with a holdover proceeding to regain possession of the space. Terminated leases are better positioned for recovery in a bankruptcy case.

6. Commence a Summary Proceeding

If rent remains unpaid or the tenant refuses to vacate:

• File a nonpayment proceeding if the lease is still in effect.

• File a holdover proceeding if the lease was terminated.

Why it matters: Summary proceedings in NYC civil court can help landlords recover possession quickly—but procedural missteps can slow the process significantly.

7. What If the Tenant Files Bankruptcy?

Retail bankruptcies are common, and they trigger an automatic stay on eviction efforts.

Steps to take:

• Identify the type of bankruptcy (Chapter 7 or 11).

• Determine who filed (tenant, guarantor, or both).

• Review whether the lease was terminated before the filing.

• Assess how much is owed and how the lease may be treated (assumed vs. rejected).

• Understand how security deposits are handled—sometimes they can be offset.

Why it matters: Bankruptcy limits timing and your ability to evict or collect—but it also opens new avenues to file claims and protect your interests.

8. File a Proof of Claim

Unless your lease is assumed and cured in full, you’ll need to file a proof of claim to participate in any distributions.

Deadlines matter—courts set a claim filing deadline or a “Bar Date.”

Why it matters: Missing the claim deadline can mean forfeiting your right to collect anything from the estate.

Market Impact: CRE Implications of Retail Tenant Defaults

Retail rent defaults aren’t just legal issues—they’re business risks. NYC landlords are increasingly grappling with:

• Longer vacancy periods, particularly in secondary retail corridors.

• Increased legal and turnover costs tied to eviction and re-leasing.

• Pressure on valuations, especially if anchor tenants fall behind.

But there’s opportunity too. Replacing underperforming tenants with new, creditworthy occupants—or repurposing the space—can offer long-term upside.

By the Numbers: Key Figures for NYC Landlords

• 14 days: Minimum notice required in a statutory rent demand under RPAPL § 735
• $5,000–$25,000+: Typical legal costs associated with default enforcement and summary proceedings
• 3–6 months: Average time from default to possession in NYC, depending on court delays
• Chapter 11 vs. Chapter 7: Chapter 11 allows lease assumption; Chapter 7 almost always leads to rejection
• Cash deposits: Often treated as part of the bankruptcy estate—but may be partially recoverable

Take Action Before a Default Becomes a Vacancy

When a retail tenant stops paying rent, every day counts. From lease review to bankruptcy response, a misstep can delay recovery or weaken your negotiating leverage. With proper legal strategy and timely action, NYC landlords can protect their assets and minimize disruptions.

Need help navigating a retail default?
Contact Rosenberg & Estis, P.C. today—our experienced attorneys can evaluate your lease, serve compliant notices, and represent you in court proceedings to secure the best possible outcome.