Acceleration Clauses in Commercial Leases

Acceleration Clauses in Commercial Leases

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Commercial leases have (and should have) an acceleration clause that allows the commercial landlord to accelerate the defaulting tenant’s lease payments for the unexpired portion of the lease (i.e., accelerating future rental payments as the result of the breach). These clauses are enforceable. It is important to appreciate how these clauses operate in the context of commercial leases.

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Similar to a tenant vacating the premises, the landlord has 3 options when a tenant breaches: 1) terminate the lease and retake possession on the landlord’s own account; 2) terminate the lease and retake possession on the account of the tenant and hold the tenant liable for damages subject to mitigation (the most common); or 3) do nothing and sue the tenant as the lease payments become due. CB Institutional Fund VIII v. Gemballa U.S.A., Inc., 566 So.2d 896, 897 (Fla. 4th DCA 1990).

While a landlord can accelerate rental payments in accordance with an acceleration clause in the lease, the landlord cannot have its cake and eat it too through entitlement to a windfall. In other words, if the tenant pays, the landlord cannot then retake possession / evict the tenant. Additionally, if the landlord seeks possession / evicts the tenant for the tenant’s account (which generally is the case), the landlord must still credit the tenant for any rental payments it receives from re-leasing the premises to mitigate its damages. See Jimmy Hall’s Morningside, Inc. v. Blackburn & Peck Enterprises, Inc., 235 So.2d 344 (Fla. 2d DCA 1970) (“[O]nce the lesser has accelerated the rent due he cannot also demand possession of the premises. Analogously we hold that, while the appellee was entitled to accelerate the rent payments, it cannot collect the full amount due and then relet the premises to a third party and retain those proceeds also.”).  See also Boulevard Shoppes, A.B. v. Pro-1 Realty, Inc., 605 So.2d 1317, 1318 (Fla. 4th DCA 1992) (“The tenant breached the lease by failing to pay rent and abandoning the premises. Therefore, in addition to the sums awarded, the landlord was entitled to the accelerated rent pursuant to the lease, minus the amount received upon reletting the premises.”)

There is also the argument the landlord can accelerate the rental payments reduced to its present value. For example, in CB Institutional Fund, the commercial landlord filed a lawsuit to retake possession of the leased premises on the account of the tenant. The appellate court held that acceleration of the future rental payments was appropriate since the future rental payments would be reduced to present value (per a formula already in the lease).

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.