14 Dec Landlord Best Practices and Remedies under Commercial Leases
Landlord Best Practices and Remedies under Commercial Leases
Landlords often contact us to negotiate complex commercial leases and to analyze their rights and remedies for dealing with tenant breaches. Because a tenant breach under a commercial lease can have significant economic effects for a landlord, close attention must be paid to drafting the default and remedy provisions. This article will address the different types of tenant breaches, landlord best practices, and possible solutions for commercial landlords, with a focus on Wisconsin law.
Tenant breaches under a commercial lease such as an office, warehouse, retail, or industrial lease are largely governed by the specific terms and conditions of the lease agreement. Typical tenant breaches may include monetary breaches, such as failure to pay rent or other charges, and non-monetary breaches such as failing to open and operate, using the premises for purposes restricted under the lease, filing bankruptcy, conducting liquidation sales, incurring mechanics liens on the property, and failing to return the premises in the condition required. The type of lease and breach will determine landlord’s best course of action.
For monetary breaches, it is important that a commercial lease provides specifically that a landlord can recover future rent even after possession by tenant is terminated, and that landlord can accelerate the rent and recover the difference plus reasonable costs after re-renting the premises. Unless these terms are specifically contained in a lease, in many states, landlord’s right to collect rent after possession has terminated and accelerate rent may be limited by law.
For non-monetary breaches, landlord should carefully consider whether tenant will have the right under the lease to cure certain breaches, such as failure to operate and use restrictions. Often, tenant is not granted a right to cure for failure to open. It may be advisable to also add a provision that tenant is required to pay an amount as additional rent within five or ten days of demand for each day that tenant fails to open or operate. If the tenant does not pay such additional rent it will be in monetary default as well.
Despite any tenant breach, the commercial lease should also contain a statement that landlord will mitigate its damages, and landlord should take reasonable actions to diminish its losses, which is a legal requirement in many states, including Wisconsin.
Finally, landlords should proceed very cautiously and under the direction of an experienced attorney to evaluate whether, based on the language of the lease and the applicable state laws, it can engage in any self-help remedies, such as reentering the premises and removing the tenant. In Wisconsin, self-help remedies are not specifically prohibited by statute for commercial leases, though they are prohibited for residential leases.
Above all else, a well-drafted commercial lease agreement by real estate counsel who understands the issues and risks that are unique to their client is the best possible way to ensure enforceability of landlord remedies in the event of a tenant breach.
This article is a publication of MWH Law Group LLP and is intended to provide general information regarding legal issues and developments to our clients and other friends. It should not be construed as legal advice or a legal opinion on any specific facts or situations. For further information on your own situation, we encourage you to contact the author of the article or any other member of the firm.
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