Sometimes commercial tenants, unable to stay current with their lease obligations, decide to close up shop and abandon their leased premises. In those circumstances, commercial landlords need to know their options. This blog post discusses a commercial landlord’s options when a commercial tenant abandons its lease.
The first question for the commercial landlord is whether the tenant abandoned the lease. Abandonment consists of two elements, (1) vacation of the premises, and (2) a clear intent not to be bound by the lease. Generally, once a tenant vacates the leased premises and refuses to pay rent, these two elements are met. If the tenant has abandoned the lease, and if the lease does not contain a provision covering this situation, the landlord must rely upon Virginia common law regarding commercial leases to answer the second question: whether to allow the property to remain vacant and sue the tenant for damages, or to re-enter and attempt to re-let the property.
Absent language in the lease requiring mitigation of damages, commercial landlords in Virginia do not have a duty to mitigate their damages. On the other hand, at common law the landlord’s re-entry acts as an acceptance of the tenant’s abandonment, which terminates the lease as of the date of the re-entry.
To avoid having to make this difficult decision, commercial landlords should include a provision in lease agreements that permit the landlord to re-enter the property without the re-entry terminating the tenant’s responsibility for future rent payments. Consequently, this rent acceleration provides a remedy if the landlord is unable to re-let the premises. However, collecting that rent could become a challenge, especially if the defaulting tenant files bankruptcy.
The language of re-entry provisions in leases is wide and varied. Some lease agreements may require the landlord to re-enter the premises and re-let. Other re-entry provisions are not mandatory. Commercial leases may permit mandatory acceleration of the rent when the landlord re-enters. This type of provision permits a landlord to claim future rents as damages against the tenant who abandoned the property (although any rent collected from a future tenant should be credited against the tenant’s liability).
In any event it is important to be familiar with your commercial lease agreement so that you understand your options as a landlord and your possible liability is as a tenant. Do not rely blindly upon generic forms downloaded from the Internet. Long-term commercial leases require a large financial commitment from the tenant, and can be risky for the commercial landlord. Make sure you review your lease with an experienced Virginia real estate lawyer.
Tarley Robinson, PLC, Attorneys and Counsellors at Law
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