Cure Provision in Commercial Lease

Cure Provision in Commercial Lease

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Can a commercial lease contain a cure provision for a tenant to cure defaults under the lease?  Certainly.  Is it a good idea?  Depends.  From a landlord’s perspective, you want any negotiated cure provision to be narrowly tailored and very, very specific, probably even eliminating any cure provision from the lease altogether.  From a tenant’s perspective, yes, you ideally want a cure provision – the broader the better. 

The case of Pizza U.S.A. of Pompano Inc. v. R/S Associates of Florida, 665 So.2d 237 (Fla. 4th DCA 2017) serves as an example of a cure provision in a commercial lease that was beneficial to the tenant, but not the landlord. This case illustrates a cure provision that a landlord never wants!

The cure provision in the lease provided that the tenant shall have a reasonable time to cure defaults and if there was a difference of opinion regarding a lease obligation, the cure period extended until after the dispute was resolved.  It is uncertain why the landlord would ever agree to such broad cure language, but nevertheless, this landlord did.  The cure provision made the term reasonable an issue of fact and, more importantly, provided that the cure period extended until after litigation resolved the underlying dispute.  Not good for the landlord.  Great for the tenant.

The tenant signed a preconstruction lease for space in a shopping mall. The tenant was not required to pay rent until the mall reached 80% occupancy. Shortly thereafter, the lender of the shopping mall filed a foreclosure action and a receiver was appointed. The receiver demanded that the tenant commence paying rent; the tenant refused stating rent was not due until the mall reached 80% occupancy.  The tenant then agreed to an amendment to its lease that reflected that it would start paying rent which would be based on a percentage of its gross receipts for the first 9 months, and then rent would be paid per the amount set forth in the lease.

Notwithstanding the amendment, the tenant claimed the 80% occupancy provision survived the amendment and its rent still was not due until the mall reached 80% occupancy.  After a new buyer purchased the shopping mall and assumed the existing leases, it closed the mall to complete major renovations.  After the renovations were performed, the tenant tried to reenter the leased space.  The new buyer allowed the tenant to reenter the leased space provided it agreed to pay 15% of its gross receipts against a minimum of $1,500 per month in rent – the same as all other food vendors.  The tenant agreed but another dispute developed because the tenant claimed that the mall changed its hours of operation which caused the tenant to lose potential profit.

The tenant filed suit against the new buyer (landlord) and the new buyer countersued.  A jury found that the tenant defaulted on the lease by failing to pay rent during the pre-renovation period of time and that the landlord did not breach the lease.  A judgment of evication was entered against the tenant.

An issue on appeal, however, dealt with the cure provision in the original lease. As a result of the cure provision, the trial court’s judgment of eviction was improper. The cure provision provided that if there is a dispute (litigation) between the landlord and tenant regarding an obligation, the dispute has to be resolved before a default can be declared against the tenant. Once the dispute has been resolved, the tenant then has a reasonable time to cure the issue prior to any declaration of default.  This means the tenant needs to be given a reasonable opportunity to cure the non-payment of rent determined through litigation (i.e., curing the issue) before a default or eviction can be declared.

Consider this case before a cure provision is agreed to or negotiated in a commercial lease.  As mentioned, this cure provision was great for the tenant.  On the other hand, it was terrible for the landlord.

 

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.