Legal Options Available When Your Tenant Breaches a Commercial Lease

Posted on December 8, 2011 at 3:40pm by

2010 may be one of the best years ever for businesses seeking a new location. Commercial property owners are desperate to fill their vacant properties and are more likely to offer attractive terms and prices to new tenants. However, many businesses enter into commercial leases without fully understanding their terms. Commercial leases are significantly different from residential ones to which most people are accustomed. There are fewer laws that protect businesses. Additionally, commercial leases are rarely standard. They are subject to a great deal of negotiation. Regardless of whether your business is the landlord or tenant in a commercial lease, a Kansas City bankruptcy attorney at the Sader Law Firm can provide the business law expertise you need to construct or sign the best commercial lease for your needs.

Commercial Lease Breach Determination

Being in breach of a commercial lease is a legal determination. There are usually specific conditions that trigger a breach and enable the landlord to take action. The following are some of those typical conditions:

  • Notice. Usually the law requires that the landlord give the tenant notice that the landlord considers the tenant’s action or inaction a breach and will be resorting to remedies shortly.
  • Nonpayment. Nonpayment may be a clear instance of tenant breach but issues arise when a landlord has permitted late payment in the past. Tenants can prevail by saying that their landlord permitted late payment consistently. Landlords should be careful to have strict payment deadlines and to let tenants know, in writing, that they will not accept late payments under any conditions.
  • Continuous Operations. Many commercial leases have a clause that requires that the tenant business remain in operation. Landlords should make efforts to make sure that what constitutes ‘continuous operations’ is clear to avoid courts’ erring on the side of the tenant.

Remedies in the Event of a Commercial Lease Breach

Landlords have a variety of legal options at their disposal in the event that one of their tenants breaches the commercial lease.

  • Contractual Remedies. The lease may call for particular types of remedies available to the landlord (for example, shutting off utilities, or removing the tenant’s property).
  • Liquidated Damages. These damages are a type of contractual remedy that some leases contain. They specify an amount in the lease to which both sides agree that the tenant will pay to the landlord in the event that the tenant breaches the lease.
  • Lawsuit for Finding a New Tenant. Generally, a landlord will have the duty to mitigate damages when a commercial tenant is in breach; that is, the landlord must attempt to lease the space to a new tenant. The landlord can then sue the breaching tenant for the difference between what that tenant had been paying and what the new tenant pays, assuming the new lease is cheaper.
  • Lawsuit for Damages. Even if the landlord finds a new tenant, there may be costs associated with the prior breach. For example, if the landlord lost several months of rent while diligently searching for a new tenant, the landlord can sue for the rent during that time that the breaching tenant would have paid. The landlord can also recover any overdue rent from the breaching tenant before the landlord found a new one.

If your business is entering into a commercial lease, contact a Kansas City bankruptcy lawyer at the Sader Law Firm to protect your interests.