Give Tenants a Limited Deadline to Sue You for Lease Violations

Grudges are part of any personal or business relationships. It’s a lesson that most landlords learn when tenants bring or threaten lawsuits over old grievances in a bid to get out of their lease, stall an eviction, or otherwise increase their leverage over you in a current dispute. Defending yourself against ancient claims isn’t easy. Memories fade, witnesses disappear, and documents vanish into oblivion. That’s why you should give serious thought to limiting how much time tenants have to sue you for purported lease violations.

The Value of a Lease-Specific Statute of Limitations

You may be wondering why you’d need language like this when your state already has “statute of limitations” laws requiring a person who’s suing in connection with an incident to start the lawsuit within a certain amount of time after the incident occurs. The statute of limitations period varies depending on the particular state and type of claim involved. Lease claims generally arise under contract law. And the statute of limitations for contract claims in most states is five or six years and as high as 10 years. (See our table below.) That’s a long time, especially given that commercial leases typically last only three to five years.

Example: You agree to make certain improvements to the tenant’s space at the start of the lease. Five years later, the tenant stops paying rent. You sue for the unpaid rent, but the tenant claims that you violated the lease first by failing to properly complete the promised improvements. This is the first time the tenant has ever raised this issue. To refute the accusation and prove that the improvements were made, you need to dig through five-year-old records. That can be a time-consuming and frustrating process, especially if you no longer have the records you need.

A lease clause, like our Model Lease Clause: Shorten Tenant's Time to Sue You for Lease Violations, can prevent these problems by requiring tenants to start a legal action under the lease by a specifically stated period, typically a number of months, before the state law statute of limitations runs out.

Shortened Statutes of Limitations Are Enforceable

In almost every state (Alabama is one exception), parties to a contract are allowed to agree to shorten the statute of limitations governing claims under the contract between them unless:

• The party contesting the clause can show that it didn’t understand the nature of the rights it gave up;
• The contesting party can show that the other party secured its agreement by coercion, deception, misrepresentation, or fraud; or
• The contractually agreed-to statute of limitations is so short that it doesn’t give the would-be plaintiff adequate time to start a lawsuit within the stated deadline.

Example: A lease barred a sandwich shop tenant from suing the landlord (or raising a legal defense) based on any event that had occurred more than six months earlier. A year after signing the lease, the tenant’s business failed and it moved out of the space early. Two years after that, the landlord sued the tenant for unpaid rent. The tenant countersued, claiming that the landlord made material misrepresentations to induce it to sign the lease. The tenant still had enough time to raise the claim under the California statute of limitations. But the landlord contended that the claims were untimely under the six-month limitation contained in the lease. The tenant argued that the clause was unenforceable.

The California court ruled that the clause was enforceable and dismissed the tenant’s counterclaims. It’s perfectly legal for parties to a contract to shorten the statute of limitations as long as the time period they agree to isn’t “unconscionable,” the court reasoned. The six-month limitation in this case wasn’t unconscionable, even though it applied only to the tenant and not the landlord [West v. Henderson, No. C007537, 227 Cal. App. 3d 1578, 278 Cal. Rptr. 570 (Cal. Ct. App. 1991].

Negotiating a Lease-Specific Statute of Limitations

The key to crafting an enforceable lease-shortened statute of limitations is to ensure that tenants understand the rights they’re forgoing and that the abbreviated deadline still gives tenants a realistic amount of time to prepare and file a lawsuit regarding the claim involved.

Enforceable Time Limit: What’s a reasonable time limit? Unfortunately, attorneys say that there are no hard and fast rules on how short you can make the period for starting a lawsuit involving a lease claim. Courts in California have enforced limitations as short as three months (see Capehart v. Heady, No. Civ. 20179, 23 Cal. Rptr. 851). Key factors include:

• The length of the state statute of limitations, as compared to the lease limit;
• The length of the lease;
• The complexity of the lease issues involved and normal time required to prepare and file a lawsuit involving those issues.

Guards Against Unconscionability: Even if the time that the shortened statute of limitations provides for starting a legal action is reasonable, the provision may be unenforceable if the clause is unconscionable. This may be the case if the tenant is rushed or coerced into accepting the clause without getting a proper chance to consult with legal counsel with regard to its implications. That’s why you should include express language acknowledging that the tenant understands, and has consulted with legal counsel, with regard to the rights it’s forgoing and that the purpose of the clause is to shorten the statute of limitations that would otherwise apply to the lease claims the tenant may seek to assert.

The Risk of Mutuality: Tenants may also demand that the shortened statute of limitations apply to both parties. While making the clause mutual might seem fair, try not to give in to this demand. “You may not become aware of certain lease violations for a significant period of time,” cautions a California attorney. “For example, you probably won’t realize that a tenant paid insufficient common area maintenance (CAM) charges in January and February until you audit your CAM records at year end.”

State Statutes of Limitations for Breach of Written Contract Claims

(other than tortious interference)

Source: NOLO