Don't Make These Three Bad Assumptions When Drafting Lease
Even before the case starts, landlords are at a distinct disadvantage when they go to court over a lease interpretation: Because the landlord drafts the lease, courts will read any ambiguity in the tenant’s favor. Regrettably, landlords all too often aggravate this disadvantage by making assumptions that confuse what they think a lease provision means with what it actually says. And it’s not just landlords. Tenants are often guilty of the same mistake. Just this month, we found three cases from around the country in which a landlord or tenant was done in by a bad assumption about the meaning of a lease clause.
Bad Assumption 1: Rent Obligations Accelerate Automatically Upon Default
After a Kentucky shopping center tenant stopped paying rent and abandoned the premises, the landlord retook possession and billed the tenant for the roughly $3.211 million in unpaid rent remaining through the end of the lease. The tenant admitted to being in default but contested the landlord’s right to accelerate the rent because the lease didn’t say anything about acceleration. The court agreed, citing cases in the state ruling against accelerated rent clauses where the rent payment dates were set by the lease. Since the lease in this case did set specific payment dates and didn’t provide for acceleration in the event of the tenant’s default, the landlord had to collect each rent payment as it came due [Anchor v. Kinnucan Enters., 2019 U.S. Dist. LEXIS 210626].
Bad Assumption 2: Tenant’s Duty to Maintain Premises Includes Structural Repairs
A landlord asked the court to issue a judgment declaring that its tenant had a duty to make structural repairs to the sidewalk vault next to the premises. But the New York court said it had no such duty and tossed the case. The duty to make structural repairs must be spelled out and can’t be implied. And all the lease in this case said was that the tenant had to “maintain” the vault, which, without more, wasn’t enough to find the tenant under an obligation to repair the sidewalk structurally [Cast Iron Co., LLC v. Cast Iron Corp., 2019 N.Y. App. Div. LEXIS 8375, 2019 NY Slip Op 08354, 2019 WL 6120114].
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Bad Assumption 3: Landlord’s Structural Repair Duty Includes Duty to Indemnify Tenant
The third bad lease assumption was made by a tenant in a case that began when a customer slipped and fell on a sidewalk next to a Dollar Store. The customer sued Dollar Store for negligence, and Dollar Store sued its landlord for indemnification. Nobody denied that the lease clearly obligated the landlord to maintain the sidewalk in a safe condition. The question was, assuming the landlord violated its duty to do so, did it have to indemnify Dollar Store for the losses it incurred as a result?
The Kentucky court said no. Indemnification is required only where the parties demonstrate a clear intent to indemnify. But the lease didn’t say anything about indemnification. And the duty to make structural repairs wasn’t enough to imply the required intent of the parties to have the landlord indemnify Dollar Store [Adams v. Family Dollar Stores of Ky., LP, 2019 U.S. Dist. LEXIS 198525, 2019 WL 6107857].
The Takeaway: Expressly Spell Out What You Mean
In all three of these cases, the losing parties made the same basic mistake by assuming that a lease provision imposing a duty on one party also provided an implied remedy to the other in the event of breach. In each case, this assumption was shot down. Bottom Line: You must expressly state your intentions about what a clause means and how it should be enforced and not count on a court to gather this critical information by reading between the lines.