Commercial tenant’s refusal to pay a $240.20 late fee ends up costing him $169,297.77 !
In June of 2000 landlord and tenant entered into a five year lease. In March of 2004 tenant informed landlord that tenant was going to exercise the early termination provision of the lease and terminate the lease effective September 30, 2004. The landlord informed the tenant in writing in April the amount of the termination fee, and reminded the tenant that the termination fee needed to be paid on or before September 30, 2004 – the date tenant wanted to terminate early.
On September 10, 2004 the termination fee still had not been paid. The landlord so notified the tenant. The tenant replied that the fee was $240.20 too high and they would not pay. The landlord advised the tenant that if the termination fee was not paid prior to the tenant vacating the premises, they would be in default under the lease and not in early termination.
Further investigation revealed that the $240.20 discrepancy was a late fee for August 2004. On September 30, 2004, the tenant informed the landlord that the check for the early termination fee wouldn’t be ready until October 4, 2004. The tenant alleges that the landlord’s rental agent said “no worries mate.”
The landlord received that early termination fee on October 5, 2004. The check was not deposited. On December 2, 2004, the landlord returned the check, declared that the early termination clause had not been properly exercised and demanded accelerated rent for the balance of the lease term in the amount of $169,297.77.
The court found that as the tenant vacated the premises prior to September 30, 2004, the tenant defaulted on the lease, which defined abandonment as an act of default. The tenant tried to argue that their breach was minor in paying the early termination fee five days late.
The court ruled that the breach was major, abandoning the leased premises while the lease was in full force and effect. The tenant tried to argue that acceleration clauses are unconscionable, the court ruled that where they are written in the lease, they will be enforced. The tenant then argued that the landlord was “double dipping” as he was likely to get a new tenant before the end of the original lease term.
The court ruled that rent acceleration took immediate effect, and tenant’s right to a set off did not arise until the landlord actually received rent from a new tenant for the same rental period. The tenant argued that the landlord failed to mitigate the damages by getting a new tenant. The judge ruled that a commercial landlord has no duty to mitigate damages for unpaid rent.
The tenant also argued that the landlord’s holding tenant’s check for 2 months constituted waiver, but the court rejected that argument, stating that at the time of tender, tenant had already defaulted on the lease, and that as the landlord did not cash the check, the tenant had control of the funds the whole time.
Seemingly small decisions can have large consequences. Please consult your attorney when your next issue arises. Who knows, one phone call could save you $169.297.77.
Brandon of B LLC v. Gotham 55 Associates, 13Fla L. Weekly Supp 583, (11th Judicial Circuit of Miami-Dade County January 10, 2006)