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Publications & Seminars
Related Articles: Commercial Landlord
This article
is intended to provide general information on Virginia law, and is not intended
to be relied upon as a substitute for legal advice for specific situations. The
contents of the article may be out-of-date, since it was produced at a specific
time and may not have been updated.
Accelerated Rent: Dead or Alive
Many commercial leases have provisions that permit the landlord
to accelerate all rent owed for the remaining term of the
lease in the event of default. No definitive case in Virginia
has upheld the unilateral enforceability of these acceleration
provisions. Does a landlord take a risk by attempting to enforce
these provisions over other available remedies that may ultimately
result in less money damages awarded to the landlord?
Can businesses negotiate uncertain damages?
In tenBraak v. Waffle Shops, the Fourth Circuit Court
of Appeals upheld the proposition that commercial leases could
provide for the recovery of future rents even though
such recovery was not available under the common law. It seemed
the attitude of the court was to permit businesses to negotiate
their respective default rights. After all, the actual losses
to the landlord when the default takes place are very difficult
to determine, and the landlord should not have to spend a
lot of money litigating damages when the parties have agreed
to a formula. When the Virginia Supreme Court addressed several
cases involving acceleration provisions in commercial leases,
they upheld by implication the principle that these clauses
were enforceable. Unfortunately, no case on appeal has clearly
and unequivocally found that these clauses can be enforced,
even if the amount required to be paid would exceed the actual
damages suffered by the Landlord.
Are acceleration damages a penalty?
In the Fairfax County Circuit Court case of Teachers Retirement
Sys. v. American Title Guar., Judge Thomas S. Kenny struck
down an acceleration clause as unenforceable because "it calls
for damages in excess of Plaintiff's actual damages." Judge
Kenny under the facts of the case deemed the acceleration
sums sought to be a "potential windfall" and an "unenforceable
penalty." Judge Kenny indicated that the landlord's actual
damages was the difference between the amount that should
have been paid by the tenant and the amount of rent actually
collected if the premises is relet, plus cost associated with
reletting. However, the lease was so poorly drafted that Judge
Kenny declined to rewrite the lease in order to provide some
amount for future losses caused by the default. Thus, the
landlord received no award for future damages.
Practical Advice
Mandatory acceleration provisions or damages grossly in excess
of actual losses will be problematic. The remedies portion
of the Lease needs to be carefully crafted to permit the landlord
several options in the event of default. If the losses will
be uncertain and difficult to ascertain, then the entire lease
should support the proposition that an advance stipulation
of damages is needed. The Lease could contain a provision
which requires an independent appraiser to set the amount
of damages, whose decision would be difficult to dispute.
When attempting to obtain a judgment after default, the landlord
should calculate realistic actual and projected losses. If
such a calculation is not possible, it may be better to utilize
Virginia Code §8.01-128 which permits a landlord to evict
a tenant without losing the right to recover for any later
deficiency in rent after making an effort to minimize the
damages by renting to another tenant; under this statute a
landlord can come back to court for later judgments as the
damages accrue.
Final Advice
Have an experienced Landlord/Tenant lawyer draft or review
your standard lease.
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