The landlord-tenant relationship can often be of a bittersweet nature. Aside from providing tenants with some basic services and maintaining the property, a landlord is in the business of making money. What happens when the tenant stops paying or fails to comply with lease terms? Is the landlord stuck with a bad tenant because the lease contract is for a year, three years or twenty years? What options does the Landlord have?
We will address these issues from a landlord’s perspective this month and focus on the tenant rights in our next blog post . Like many other areas of business, the levels of experience of landlords vary. There are some that have multiple properties and have had a great deal of experience with tenant issues. On the other hand, there are several new landlords who get into the business simply because they thought they could make some extra money on the side without doing too much extra work. Regardless of the experience level of landlords, they soon find out that being a landlord has its difficulties, but that they are in a much better position if their lease agreements are solid, and they understand their rights.
A common concern for both commercial and residential landlords is the landlord’s rights in a dispossessory action. If the tenant does not comply with the lease terms, pay rent as required, agree to vacate the premises, and return his or her keys to the landlord upon termination of the lease for whatever reason, in Georgia a landlord may only remove its tenant by initiating a dispossessory proceeding. Although, filing the action with the court takes some time and money, it is the best way to ensure that the landlord regains his or her rights to the premises. The landlord should carefully follow the procedural instructions of the county where the dispossessory action will be filed because failure to do so may leave the landlord without any rights.
For example, accepting a payment for the full rent amount due plus reimbursement for any court filing fees from the tenant will result in the landlord waiving his or her right to dispossessory, although this only applies to residential leases. Thus, if the landlord really wants to evict the tenant, the landlord should be careful about accepting money from the tenant prior to the dispossessory hearing.
Commercial landlords also must worry about a few more particular issues that are likely to cause future problems if they are not careful when drafting their leases and if they do not adhere to the local statutes governing them. Let us discuss a few I see most often in both drafting leases, as well as litigation concerning lease defaults.
- Defining the Leased Space
There has been an uptick in litigation regarding square footage in a lease. Some leases base rent, as well as CAM charges (another area ripe for dispute) solely on square footage of the leased space (both usable square feet (“USF”) and rentable in some instances Most office leases require tenants to pay rent based upon “rentable square feet” or “RSF.” Rentable square footage includes both the tenant’s useable square footage and the tenant’s share of the building common areas).
Using RSF or USF can lead to similar issues. What if the actual square footage in the lease is wrong, especially if it is lower than what is spelled out in the lease terms? In a dispute with a tenant often it is not can the tenant demand to be reimbursed for “overpayment,” but rather what the tenant will demand. Simple solution, the following clause:
The Tenant acknowledges that the square footage of the Premise is an estimate only and the Tenant has had the opportunity to measure the Premise. Further, the lease rate and CAM is based not on the square footage but the value of the Premise, and any discrepancy in the square footage of the premise will not give the Tenant any cause of action against the Landlord, nor shall it be a reason to rescind or modify the lease. - Avoiding or Minimizing Americans With Disability Act (“ADA”) Claims
There has been significant litigation over accessibility claims under the ADA. The ADA among other things requires the places of public accommodation (such as shopping centers, office buildings, hotels, etc.) be accessible. While one can differ perhaps over what is accessible, there is significant guidance under federal law and while the ins and outs of the ADA for commercial landlords is beyond the scope of the blog, for basics https://www.ada.gov/topics/title-iii/ is a good start and https://www.ecfr.gov/current/title-28/chapter-I/part-36 for a more in depth study of ADA requirements.
Often, “testers” associated with aggressive plaintiff’s lawyers will do drive-bys or walk throughs of commercial premises to look for ADA violations. While many contractors performing tenant build out are more aware of the obligations under the ADA, often potential violations are missed.
Not only can a landlord liable for a tenant’s violation, as the ADA allows for the Plaintiff to recover attorney’s fees, a minor violation can lead to hefty costs in legal fees. So, sample clause, which is wordy but particularly important:
ADA Compliance.
Tenant shall, at its sole cost and expense, cause the Premises to comply at all times with the requirements of the Americans With Disabilities Act (42 U.S.C. (S) 12181 et seq.), the regulations now or hereafter adopted pursuant thereto, and any and all applicable state or local laws, statutes, ordinances, rules and regulations concerning public accommodations for disabled persons now or hereafter in effect (collectively the “ADA”). Landlord makes no representation or warranties of any kind as to the Shopping Center or Premises’ compliance with the ADA. Tenant shall not cause or permit any violation of the ADA to occur on, or about the Premises by Tenant, its agents, employees, contractors or invitees. Tenant shall indemnify, defend (with counsel of Landlord’s choice at Tenant’s expense) and hold Landlord harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities, or losses (including, without limitation, diminution in value of the Premises, damages for the loss or restriction of use of rentable or usable space, damages arising from any adverse impact on marketing of space, and sums paid in settlement of claims, attorneys’ fees, consultation fees and expert fees) that arise during or after the Term as a result of such violation. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions, or any remedial work required by any federal, state, or local governmental agency or political subdivision because of any ADA violation present on or about the Premises. Tenant shall be permitted to make such alterations to the Premises as may be necessary to comply with the ADA, at Tenant’s sole expense and upon the prior written consent of Landlord. Without limiting the foregoing, if the presence of any ADA violation on the Premises caused or permitted by Tenant results in remedial work on the Premises, Tenant shall promptly take all actions at its sole expense as are required by any authority to comply with the ADA; provided that Landlord’s consent to such actions shall first be obtained, which shall not be reasonably withheld. - Acceleration Clauses
When a tenant moves out or is evicted in certain instances can you accelerate future lease payments, but landlords should be careful to classify them as liquidated damages and not as a penalty for terminating the lease or for defaulting on the lease. Courts do not allow for such penalties against tenants but will allow liquidated damages if they comply with state law standards. The other issue with seeking future lease payments when there is a lease default is judges simply do not like them. Is it fair that a landlord just accelerates the lease payments, when the premises could be re-leased (sometimes at a higher rent)? The issue is easy to see. Bringing the accelerated lease payments down to present value, for example, will help a judge see fit to grant a judgment for accelerated lease payments. As these clauses need to be state specific, seeking legal advice in your jurisdiction is key.
In Georgia, a few things to note is that if you sue just to evict, the lease term ends which most likely ends the landlord’s right to seek future payment. The exception to this rule is a well drafted acceleration clause. The Court has approved such lease terms, such as:
“In case of any such default, re-entry, expiration and/or dispossession by summary proceedings or otherwise all rents and other charges shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration and Landlord may relet the Demised Premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term which may at Landlord’s option be less than or exceed the period which would otherwise have constituted the balance of the Lease Term and Tenant shall also pay Landlord, as liquidated damages for the failure of Tenant to observe and perform said Tenant’s covenants herein contained, for each month of the period which would otherwise have constituted the balance of the Lease Term, any deficiency between (i) the sum of one monthly installment of Minimum Rent . . . and all charges that otherwise would have become due and (ii) the net amount, if any, of the rents collected on account of the lease of the Demised premises for the balance of the Lease Term.” - Default Provisions.
Most leases give a defaulting party a time to cure, after notice. Be careful of the types of defaults and the time after the notice is given to cure the default. Do not lump all the defaults together. Do you really want to give a tenant 30 days to cure a rent default, which might be a reasonable cure time for some other type of default, say a contractor’s lien on the leased space. Different types of defaults can have different time frames to cure, and I would suggest giving a very short, if any time frame to cure nonpayment of rent.
Additionally, look carefully at how notice must be given. As you must make a demand for possession before you can move to evict a tenant, or likewise make a proper demand to cure a default, make the lease clear as to how to provide notice and then follow that notice provision exactly.
