Commercial leasing disputes are very common in today’s market where many businesses are struggling. Here are a few steps to consider as a tenant or former tenant who faces a landlord seeking to collect rent for the balance of an unexpired commercial lease term.
1. Personal Guarantee: Determine whether someone associated with the business executed a personal guarantee. This is important because if the business is insolvent (cannot pay its debts) the landlord my try to collect for the balance of the lease term from any guarantors. Sometimes the guarantee will be reduced over the life of the commercial lease, this is something that you will want to investigate.
2. Is the Landlord Mitigating Damages?: The landlord has a duty to mitigate damages. That means the landlord must actively try to re-lease the premises to avoid incurring additional lost rent. The landlord’s steps in mitigating damages can include advertising the property for lease, listing the property for rent with a real estate broker, and taking all other reasonable steps to find a new tenant for the premises.
3. What is the Total Amount of Future Rent Damages the Landlord Seeks?: The landlord may be seeking the balance of the rent due for the unexpired lease term. For example, if the tenant walks away from the lease in year 2 of a 10 year lease the landlord may demand the rent due for the remaining 8 years of the lease, subject to the landlord’s duty to mitigate damages (see section 2 above). The demand, however, in addition to being subject to the landlord’s duty to mitigate damages, must also be reduced to present value. This means the landlord can only try to collect the balance of the rental amount due after it is reduced to the present value of the money.
There are a lot of other key tools for the defense of a commercial leasing dispute available to a tenant. Many of these defenses are not readily apparent from a simple reading of the commercial lease. Instead, these tools required a trained eye to locate them within the California commercial lease and to understand the interplay between the lease and the applicable provision of the California Civil Code.