August 2017 — Landlords have a variety of remedies available to them for a tenant’s noncompliance with the terms of the lease. Although fewer in number, effective remedies are also available to tenants for the landlord’s breach of the lease provisions.
Remedies Available to the Landlord
Commercial leases are frequently written by landlords with innumerable covenants, conditions, and requirements for the tenant to meet. Many of these can be negotiated. Complying with the lease is usually not only a condition of the tenant’s continued possession of the leased premises, it may also be a condition of other tenant rights, including the right to extend the lease term. If a tenant is in default, the landlord has a number of remedies at its disposal. Some of these remedies are conferred by statute. Others are available through terms negotiated in the lease document itself. The landlord may exercise more than one remedy, either concurrently or in the future.
In most cases, a lease allows the landlord to terminate the tenant’s possessory interest in the leased premises upon a tenant’s default. Because the lease termination may end the tenant’s obligation to pay rent, a landlord may not immediately want to terminate the lease. Landlords should include a survival clause in their leases that converts the rent obligation into an obligation to pay damages due to the tenant’s breach. With such a provision, the landlord can continue to collect rent as damages.
Eviction is the legal act of expelling a person from real property, most often for a breach of the lease. When a tenant is evicted by the landlord, the tenant is no longer liable to pay rent, unless the lease states otherwise. However, the landlord can still ordinarily sue for collection of the rental amounts owing under the lease as damages if the landlord cannot relet the premises for the same rental amount for the balance of the lease. Statutory remedies are generally available to the landlord to institute and effect an eviction; the practices and procedures of evictions vary from state to state and jurisdiction to jurisdiction.
Lawsuit for Rent and Damages
A landlord can file a suit for unpaid rent and other damages after or instead of evicting the tenant for failure to comply with the lease terms. This type of suit can be filed without requiring that the tenant be removed from the property.
Distraint and Distress for Rent
Under the common law, the landlord had a right of distraint and a remedy known as distress for rent, whereby the landlord could enter the tenant’s property, seize the tenant’s goods, and hold them for public sale. The landlord was then authorized to apply the proceeds of the sale to unpaid rent. Obviously, this remedy was drastic and could put a tenant out of business. As a result, this action for unpaid rent has not been favored in the United States and has been abolished in most states. In other states, distraint has been modified by statute to curb the potential for landlord abuses or has been replaced by a statutory lien for the benefit of the landlord.
Landlord’s Lien on a Tenant’s Property
The landlord may have a lien against the tenant’s property that is stipulated in the lease or granted by statute. Ordinarily, the landlord has no independent right to seize and sell the property of a tenant to satisfy a lien for unpaid rent; the lien must be enforced by judicial proceedings. In many cases, a landlord asserts in the lease the right to a security interest in the tenant’s personal property, and such a security interest, if perfected, would be subject to enforcement in accordance with the UCC. Additionally, any security interest granted to a landlord, at least in a commercial context, is customarily subordinate to the tenants’ lenders’ security interests.
Under the common law, a landlord had the right to recover his or her property by force. Because of the need to maintain the peace, many states enacted statutory remedies for removing tenants that replaced self-help remedies. Other states continue to permit the landlord to make peaceful entry or use reasonable force to expel a tenant and its property from the premises. Because a speedy hearing for possession is available in all of the states, courts generally do not favor landlords who resort to self-help remedies.
The tenant’s security deposit can be applied by the landlord to unpaid rent or to remedy damage to the premises. The use of security deposits is common in all states and jurisdictions and can be found in many types of leases, whether industrial, office, or residential. The amount of a security deposit, or whether one is required, is a decision made by the landlord based upon the creditworthiness of the tenant and the bargaining strengths of both parties.
Remedies Available to the Tenant
The number of tenant remedies appears more limited than that available to landlords. But a tenant is not without recourse when a landlord defaults.
Tenant’s Cure Rights
A tenant’s response to a landlord’s default depends on whether the lease covenants are dependent or independent. If the obligations are independent, then the tenant must continue to abide by the lease terms but may seek damages in court. If the obligations are dependent, then the tenant does not have to abide by the lease terms (such as payment of rent) until the landlord cures any defaults. In some instances, a tenant with enough negotiating leverage can insist a clause in the lease that permits the tenant to cure the landlord’s default and then to deduct the cost of the cure from rental payments. Of course, sometimes this is impractical. For example, a small tenant in a shopping mall cannot be expected to cure the landlord’s nonpayment of its mortgage. However, the tenant’s cure rights can be an important self-help remedy that should not be ignored.
Constructive eviction can be used by a tenant as a defense for nonpayment of rent or as a justification for termination of the lease. As noted above, a constructive eviction occurs when a landlord substantially interferes with a tenant’s use or enjoyment of the leased premises, as opposed to an actual eviction where a landlord takes steps to deprive the tenant of the possession of the leased premises. For a landlord’s conduct to constitute a constructive eviction of the tenant, it is essential that the tenant actually vacate the leased premises.
Lawsuit for Damages, Reformation, or Rescission
If a tenant suffers damages as a result of the landlord’s default, the tenant may sue the landlord to recover those damages. In addition, under certain circumstances, a tenant may sue for the equitable remedies of reformation or rescission. If a lease is signed but is later determined to be based on a landlord’s fraud or mistake, then a court may, under its general equity powers, reform the lease to make it reflect the parties’ true intentions. Alternatively, the court may assert its equitable authority to void the lease through its powers of rescission. These are rare remedies in the landlord–tenant relationship.
Alternative Dispute Resolution
Because arbitration and mediation are generally considered faster and cheaper than litigation, many landlords and tenants agree in their leases either to arbitrate or mediate their disputes. The agreement to arbitrate or mediate must be drafted into the lease itself, or in the absence of such a lease clause, the landlord and tenant must mutually agree to arbitrate or mediate a claim after it arises. Arbitration and mediation can cover a range of landlord–tenant disputes, such as determination of common area maintenance costs and operating expenses, or the rent payable during the term of a lease extension.
Before agreeing to arbitration or mediation, thought should be given as to what areas of dispute should be covered. For example, in jurisdictions that give landlords prompt judicial remedies for tenant defaults, a landlord will probably not want to agree to a broad arbitration provision. Landlords and tenants need to look at their respective goals and determine the most appropriate ways to meet them. While arbitration and mediation can be useful tools, they may not always be the best solutions.
This article is adapted from BOMI International’s Law and Risk Management, part of the RPA designation program. More information regarding this course or BOMI International’s new High-Performance Sustainable Buildings credential (BOMI-HP™) is available by calling 1-800-235-2664. Visit BOMI International’s website, www.bomi.org.