This article contains a brief summary of remedies available to a commercial landlord upon a tenant’s default in payment or performance obligations under a lease.
Upon a tenant’s material lease default, with proper notice, a commercial landlord can terminate the lease. The failure to pay rent or perform other financial obligations will ordinarily entitle a landlord to terminate a lease. A late payment of rent will generally not support a termination, as courts have determined that late charges compensate the landlord and termination is too drastic a remedy.
A material default does not automatically terminate the lease, even if expressly provided in the lease. Forfeiture must be enforced by the landlord, and requires notice and an opportunity to cure the default. Absent an express provision to the contrary in the lease, the notice of default and demand for performance is a condition only to eviction proceedings. If the tenant has vacated the premises, or if the tenant remains in possession without landlord’s consent after expiration of the lease term, notice is not required. Notice is also not required when the landlord is merely seeking damages from the tenant, and is not seeking possession.
Upon a material default, usually the landlord has three alternatives: (1) disregard or waive the default and keep the lease in effect; (2) rely on the default to terminate the lease and seek to recover possession through unlawful detainer proceedings; or (3) elect not to terminate the lease, and instead sue to collect damages for the breach and/or delinquent rent. If landlord chooses alternative (3), it must notify tenant in writing that it is not electing to terminate.
Unlawful detainer enables landlord to recover possession. The notice of default and opportunity to cure must specify the breach, demand the cure, require tenant to vacate if the cure is not made timely, and state that failure to cure will result in lease termination If the default is for nonpayment of rent, the notice will be defective and will not support an unlawful detainer action, unless the notice includes a statement of the amount of rent due (or a reasonable estimate thereof), or if the notice overstates of the amount due. If the notice does not include an option for the tenant to cure the default by paying the unpaid rent, the landlord cannot recover such unpaid rent in the unlawful detainer proceedings, and recovery will be limited to unpaid rent for the period from termination of the lease to when tenant is dispossessed. Recovery of other damages, including the discounted value of present rent, will require a separate lawsuit.
If the lease expressly provides, a landlord can elect not to terminate the lease in the three day notice to quit, however absent an express intention not to terminate, the delivery of a three day notice will generally constitute landlord’s election to terminate.
A landlord is entitled to recover damages in an amount by which the unpaid rent for the remainder of the original term of the lease exceeds the amount of rent loss the tenant is able to prove could reasonably have been avoided by the landlord, discounted at the Federal Reserve Bank of San Francisco discount rate, if permitted in the lease. The landlord does have a responsibility to try to mitigate its damages, but it is tenant’s burden to show landlord did not mitigate.
Where the landlord elects not to terminate, the landlord can continue to collect rent as it becomes due. This remedy must be expressly provided in the lease, and the lease must enable the tenant to assign or sublease its interest, either without restriction or subject to reasonable conditions. Where the landlord elects not to terminate the lease, the duty to mitigate damages falls upon the tenant.
VIEWS EXPRESSED ARE THE PERSONAL VIEWS OF THE AUTHOR AND DO NOT REPRESENT THE VIEWS OF ROBERT THORNBURGH, KIDDER MATHEWS, LOCKE LORD LLP, ITS PARTNERS, EMPLOYEES OR ITS CLIENTS. FURTHERMORE, THE INFORMATION PROVIDED BY THE AUTHOR IS NOT INTENDED TO BE LEGAL ADVICE AND DOES NOT CREATE AN ATTORNEY-CLIENT RELATIONSHIP.