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What are a commercial landlord's options when a tenant breaches a lease agreement?
Posted on Tuesday, January 21, 2014
Commercial landlords regularly face situations where a tenant fails to pay rent or otherwise breaches the lease between the parties. Generally, unless the landlord wishes to be rid of the tenant, the first step to address the situation is to contact the tenant to demand that the lease default be cured. If the tenant is unable or unwilling to remedy the situation, more dramatic efforts may be needed. How a landlord initially deals with a lease default can have consequences as to how the situation is ultimately resolved.
Under Connecticut law, when a tenant breaches a commercial lease and fails to cure the default, the landlord has two options:
(1) Terminate the lease, begin eviction proceedings, and seek to recover money damages, such as for unpaid rent or damage to the property; or
(2) Sue to enforce the lease terms and refuse to accept the tenant’s surrender of the premises.
Under the first option, the landlord will be required to bring two separate lawsuits: one to evict the tenant from the premises and one to recover money damages. The two actions may not be combined. Once the landlord recovers possession of the property, the property may be rented to a new tenant. In the lawsuit for money damages, the landlord will normally be entitled to collect any unpaid past rent as well as future rent for the balance of the lease term. The future rent calculation, however, may depend on whether the landlord has attempted to find a new tenant, and if a new tenant is found, the amount of rent the new tenant is paying. For example if at the time of the eviction, there are two years remaining on the lease with rental of $1,000 per month and new tenant signs a two year lease with rent at only $700 per month, then the landlord is entitled to recover the missing $300 per month for the two year term from the first tenant.
Under the second option, suing to enforce the lease terms, the lease is not terminated and no eviction action is commenced. Instead, the tenant is permitted to remain at the property and the landlord commences an action to force the tenant to comply with the terms of the lease. If the tenant default is for unpaid rent, then the landlord is normally entitled to recover unpaid rent for the balance of the lease term, regardless of whether the tenant actually remains at the property. In this case, the landlord is not required to “mitigate damages” by attempting to obtain a new tenant. Naturally, if the lease is never terminated, then the tenant may be entitled to sublet the premises in order to satisfy the continuing rental obligations.
The decision on whether or not to terminate the lease often comes down to whether the landlord wishes to control the re-renting of the premises. If the landlord terminates the lease, he will then have complete control over who takes over the premises. If, on the other hand, the lease remains in place, the landlord will have less ability to reject a prospective tenant. Most commercial leases require a tenant to obtain a landlord’s consent to sublet to a new tenant, however, such consent may not normally be unreasonably withheld.
It must be remembered that the terms of the lease itself may affect the factors discussed above. For example, a lease may require a landlord to mitigate damages in any suit for future rent. Additionally, if a tenant is insolvent, then there is little point in suing to enforce the lease since the landlord is unlikely to ever collect the past and future rent. In that case, the lease should be terminated as soon as possible.
In any specific case, there are usually other variables which may ultimately affect how a landlord should react to a tenant default. If you have a problematic tenant, discussing your situation with a competent attorney is a critical first step. If I can be of assistance in analyzing your landlord-tenant issues, or if you have questions relating to other areas of business law, please feel free to call or email me.
James A. Lenes
Willinger, Willinger & Bucci, P.C.
855 Main Street, Bridgeport, CT 06604