California Civil Code Section 2938 provides that, under certain circumstances, a commercial tenant is required to pay the rent to the landlord’s creditor rather than the landlord. The triggering procedures are set forth in California Civil Code Section 2938 and include: (1) the appointment of a receiver; (2) the lender obtaining possession of the rents; (3) delivery of a demand letter (the contents of which are statutorily defined and set forth in the code) to the tenants to pay the rent to the creditor; and (4) delivery of a demand to the borrower to pay over the rents collected.

If the notice for demand of rent is properly written on the statutorily prescribed form and signed under penalty of perjury, it is effective upon actual receipt by the tenant. If a commercial tenant receives multiple demands, the tenant is not required to determine which of the competing lenders has priority. However, a commercial tenant who fails to pay their rent to the lender in accordance with the lender’s demand (if properly written) may be subject to double exposure for payment of the rent.

Commercial tenants who receive a notice demanding that their rent be paid over to a third party creditor that is signed under penalty of perjury of law must take that notice seriously, and should consult with a real estate attorney if there is any uncertainty about what they should do next.