Why lease agreements must properly define ‘rent’ or ‘additional rent’ in commercial leases: a case study

by Bruce Loren on June 10, 2019

Commercial leasing practical insights, based on law in Florida and generally.

Obviously, every commercial lease agreement must specify the amount of rent to be paid by the tenant to the landlord. However, there are often many additional sums that a tenant is required to pay its landlord pursuant to the lease agreement.  In a typical triple net lease, a tenant will pay a fixed base rent, and then additional sums for common area and maintenance (CAM) charges, which includes items such as real estate taxes, insurance, maintenance fees, and management fees. CAM charges are often defined as Additional Rent in a good triple net lease, but some lease forms fail to do so.  Often there are late charges, other miscellaneous charges and other fees called for in a lease that fall outside of CAM, and escape the definition of either Base Rent or Additional Rent even in a good lease form.

To fully
protect the landlord’s interests, it is imperative that the landlord properly
define all sums which may become due under the lease, including these additional
miscellaneous charges as “Rent” or “Additional Rent” in its lease agreement.

This
article focuses on a real-life example of a landlord whose lease did not
properly define these miscellaneous charges as “Rent” or “Additional Rent” and what
happened as a result of that omission.

Facts:

  • Landlord purchased a shopping center
    and was assigned Tenant’s lease agreement, without any changes or amendments.
    Pursuant to the lease agreement, only the base rent was defined as “Rent.”

  • Although Tenant paid its base rent
    on time, Tenant failed to pay its portion of the maintenance fees and taxes and
    refused to pay late charges as specified in the lease agreement.

  • Additionally, Tenant committed
    numerous municipal code violations, a direct violation of the lease agreement.
    As a result of these violations, Landlord issued multiple monetary fines to
    Tenant, as provided for in the lease agreement. However, Tenant refused to pay
    these sums.

  • After providing the required default
    notice, Landlord filed an eviction action against Tenant for numerous breaches
    of the lease agreement, including failure to pay these additional sums, which
    it considered “additional rent” under the lease agreement.

Lawsuit:

Issue
Number 1:

Pursuant
to Florida Statutes § 83.232, Landlord attempted to force the Tenant to pay the
unpaid sums into registry of the court pending the eviction action, absent
which the Tenant’s defenses to the eviction action would be waived. This
statute provides excellent leverage to a landlord seeking to evict a tenant for
non-payment of rent, as it requires a defaulting tenant to pay the rent alleged
due in order to defend the eviction claim. 
In this case, however, after an extensive hearing, the judge held that
the unpaid amounts were not properly defined as “rent” pursuant to the lease
agreement, and therefore did not require the Tenant to deposit those sums into
the Court registry.  This allowed Tenant
to continue to defend the eviction action without having to post any money into
the Court registry.

Issue
Number 2:

Based
upon the plain language of the lease agreement which called for these sums to
be paid, Landlord then filed a motion for summary judgment alleging that it was
entitled to evict the Tenant based upon these unpaid amounts. However, the
court denied Landlord’s motion and held that while Tenant may have breached the
lease agreement, the breach did not involve failure to pay “rent,” and
therefore the breaches were not material enough to warrant eviction. At best,
Landlord would be entitled to money damages from the Tenant, an empty victory.

What to take away from this case:

In
their lease agreements, Landlords should always define “Rent” or “Additional
Rent” to include all sums owed pursuant to the lease agreement. If the taxes,
late charges, and fines were clearly defined as Rent or Additional Rent in the
lease agreement, the Landlord would have been able to take advantage of the
landlord-friendly statute requiring tenants to pay rent into the Court registry
while the lawsuit is pending and would have had a strong argument to support
its eviction claims.

Additionally,
even if a landlord is convinced that its form lease agreement properly defines Rent
or Additional Rent and fully protects its interests, landlords should carefully
review the existing lease agreements that they assume or take over when
acquiring a new property to ensure that those lease agreements include the necessary
protections, and if not, negotiate amendments when possible.

Bruce Loren
Michael Kean, Bruce Loren and Allen Heffner of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale. Loren & Kean Law is a boutique law firm concentrating in construction law, commercial landlord-tenant law, employment law, and complex commercial and real property law. Mr. Loren has achieved the title of “Certified in Construction Law” by the Florida Bar. Mr. Kean has been advising, representing and guiding commercial landlords in a variety of matters for over 25 years. Mr. Kean, Mr. Loren and Mr. Heffner can be reached at mkean@lorenkeanlaw.com, bloren@lorenkeanlaw.com or aheffner@lorenkeanlaw.com or 561-615-5701.
Bruce Loren

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