“Acceleration of Rents” in a Commercial Lease
While this article is geared towards commercial lease disputes, the principles may be applied to residential leases in Virginia in some instances. If you have questions about this article, please do not hesitate to contact my office.
As commercial leases tend to contemplate an extended lease term, often as much as ten years, a dispute may arise between the commercial landlord and tenant when the tenant leaves the property prior to the end of the lease term. Under common law principles, typically a landlord cannot immediately recover future rents from the tenant. However, the commercial lease is usually written to include an “acceleration of rents” clause.
What is an “acceleration of rents” clause in a commercial lease?
An “acceleration of rents” clause usually states that, should the tenant default on the lease, the landlord is entitled to demand payment of all rents for the remainder of the lease. Some rent acceleration clauses are broadly worded and demand the entire rent due for any tenant default , regardless of whether the default is remedied.
Will a court enforce an accelerated rent clause in my commercial lease?
This question is largely unsettled in Virginia and often depends on the specific facts of the case. Virginia law does recognize acceleration clauses in the commercial lease context. However, the analysis depends on whether the trial court considers the acceleration clause a valid liquidated damage or an unenforceable penalty. To my knowledge, the Virginia Supreme Court, has not specifically ruled on this issue. The case law which I am aware of is from various jurisdictions in the Virginia Circuit Courts.
What factors will a court consider when assessing an accelerated rent clause in a commercial lease?
The court must consider is whether the landlord has reentered the property. If the landlord is in possession of the property they will have a more difficult time showing that they are entitled to a large lump sum payment of accelerated rent. Under Virginia common law, the landlord has no duty to relet the premises. In other words, the landlord could leave the property vacant and sue the tenant upon a showing that the property has sat vacant for “X” amount of months.
Generally speaking, under the law of contracts, when a damages clause in a contract is unreasonably in excess of a landlord’s actual damages, it is an unenforceable penalty. Courts will not provide an award to a party in a contracts case based on an accelerated rent clause if the amount would equal a windfall for the landlord. In most cases, the landlord’s actual damages will not be known until the end of the lease term. At that time, the landlord will be able to definitively show exactly how long the property sat vacant.
Commercial lease law is extremely fact sensitive.
If you have questions about an accelerated rent provision in a commercial lease, you should contact my office. Most of these issues depend on the reasonableness of the claims of the parties. You should prepare a timeline of facts and gather all documents and correspondence between the landlord and the tenant. Whether you are the landlord or the tenant, you will want to proceed with caution so that you protect all of your rights.