7 Common Issues in Commercial Lease Litigation
The commercial leasing relationship presents legal and financial risks for both parties. While most commercial leases will run their course without significant strife, in some cases these risks will manifest in the form of litigation.
Commercial lease litigation (and alternative dispute resolution (ADR) mandated under commercial lease agreements) can involve a variety of issues. But, certain issues are more likely to lead to formal legal disputes than others. Here are seven examples of common issues in commercial lease litigation:
1. Non-Payment of Rent
Non-payment of rent is among the most common causes of action in commercial lease litigation involving lessor claims against lessees. Rent payments are the primary financial driver behind commercial leasing, and if a lessee isn’t paying rent, the lessor may need to take legal action to collect payment.
In some cases, non-paying lessees will abandon the leased premises. But, when they don’t, lessors may also need to take legal action to force lessees to vacate the property. While there are some restrictions on evicting commercial tenants for rent defaults in Florida, these restrictions are minimal compared to those that apply in the residential setting.
The amount of unpaid rent a commercial can collect in litigation depends on the terms of the lease and potentially various other circumstances as well. Lessor-friendly leases will often entitle lessors to full payment for the remainder of the lease term, while negotiated leases may include a cap, duty to mitigate, or other lessee protections.
2. Non-Payment of CAM Charges and Other Expenses
Non-payment of common area maintenance (CAM) charges and other expenses is a common issue in commercial lease litigation as well. For large facilities, these charges and expenses can be substantial, and it will often be well worth it for lessors to pursue damages in court.
Litigation involving CAM charges and other expenses can present some unique issues of its own. For example, lessees will frequently dispute lessors’ calculation of the amount owed, and they may seek documentation verifying their lessor’s calculation of their percentage of financial responsibility. Resolving issues related to the calculation of CAM charges and other expenses requires a careful examination of the lease and familiarity with the relevant accounting principles. If the lease’s calculation method is ambiguous or unclear, this can lead to issues as well.
3. Disputes Regarding Maintenance and Repair
Disputes regarding liability for maintenance and repair costs can arise out of contractual ambiguities as well as questions regarding the root cause of the issue leading to the costs in question. For example, if a commercial lease states that the lessor is responsible for maintaining the exterior of the structure while the lessee is responsible for interior repairs, the parties may reasonably disagree as to which one is responsible for repairing water damage to the lessee’s ceiling if the roof leaks. If the lease is not absolutely clear, this can lead to litigation, and each party will need to make an informed decision about whether to pursue litigation (or ADR) or attempt to negotiate a resolution.
4. Indemnification for Third-Party Claims
Similar issues can arise with respect to indemnification for third-party claims. The most common scenario involves a customer or employee getting injured on the leased premises. While commercial leases should include indemnification clauses that clearly specify when the lessor is liable to indemnify the lessee for property-related claims, indemnification clauses often do not receive the attention they deserve. Ambiguities are common, and when a relevant scenario arises, this can create an open question as to which party (or which party’s insurance company) has to pay. Since third-party personal injury claims can present risks for substantial liability, disputes regarding lessors’ indemnification liability will often lead to litigation as well.
5. Efforts to Terminate the Lease Prematurely
Unilateral efforts by either party to terminate the lease prematurely present a high risk for litigation. In many cases, if one party is prepared to move forward with pursuing early termination, this will mean that the parties have already been in disagreement for some time. Alternately, a lessee’s decision to leave early or a lessor’s decision to try to force a lessee out may come as a surprise, and this too presents a high likelihood for conflict. In this scenario, each party’s appetite for litigation will typically depend on the terms of the lease, the treason for the early termination effort, the parties’ respective financial conditions, the parties’ respective alternatives to preserving their leasing relationship, and various other factors.
6. Disputes Regarding Renewal
In a typical commercial lease, the lessee’s right to renew will be conditioned on several factors—including certain factors that may be beyond the lessee’s control. Lessor approval is typically the final hurdle for lessees seeking to renew, and the terms of the parties’ lease will determine exactly how much discretion the lessor has in its decision-making capacity. In most cases, litigation arising in relation to renewal results from the lessor’s refusal to renew. Disagreements over whether the lessee has met all conditions for renewal and disputes regarding whether the lessor is acting reasonably (or even has an obligation to act reasonably) are both common.
7. Disputes Regarding Transfer
Lessees’ attempts to transfer their commercial leases can give rise to issues similar to those arising at the time of renewal. Commercial leases almost universally subject transferees to lessor approval, and leases typically give lessors broad discretion to decide whether they are willing to accept substitute lessees. When a lessee needs to get out of a commercial lease, the lessor’s refusal to approve a seemingly appropriate transfer will often trigger legal efforts to force a reversal.
Contact Our Commercial Real Estate Lawyers in Miami or Fort Lauderdale
The commercial real estate lawyers at Edelboim Lieberman Revah represent lessors and lessees in commercial lease disputes throughout Florida. If you have questions about pursuing (or defending against) litigation under a commercial lease, we invite you to call 305-768-9909 or tell us how we can reach you online to arrange a confidential initial consultation.