Make Tenants Who Leave Space Unrentable Pay Consequential Damages
It happens to countless landlords, and sooner or later, it’s bound to happen to you. A tenant moves out at the end of the lease. You take possession of the property and discover that it’s in a totally unrentable condition.
The good news is that your lease probably requires the tenant to pay the costs of necessary repairs. The bad news is that this may not be enough to protect you.
Making repairs is all well and good. But it takes time. And during this time, the space sits vacant and generates no rent. Meanwhile, you’re stuck paying taxes and utilities. Justice dictates that the tenant reimburse you for these losses. But unless your lease contains the right language, a court probably won’t let you collect these additional losses.
Court Nixes Owner’s Claim for Consequential Damages
An Illinois landlord learned this lesson the hard way. The problems began when the landlord inspected the property at lease’s end to discover the massive damage inflicted by the previous tenant, a paper company. The property was in such bad shape that it caused the prospective tenant that had agreed to lease the space to back out of the deal. Repairs took six months. When they were complete, the landlord sued the paper company for not only its repair costs, but also “consequential damages,” including lost rent, taxes, and utilities it paid on the property while it was being repaired.
The court found that the landlord was entitled to repair costs because the lease made the tenant responsible for repairing the damage it did to the space. Unfortunately for the landlord, the lease didn’t say anything about consequential damages for the period after the lease ended. The landlord insisted that the parties intended for the tenant to be liable for such damages. But the court disagreed. If that was really their intention, the landlord and tenant could have easily included language to that effect in their lease. The fact that they didn’t was telling, especially since the lease agreement was so long and technical [General Electric Company v. Leslie Paper Company, 1992 U.S. Dist. LEXIS 1820].
Solution: Ensure Lease Covers All Post-Lease Losses
The moral of the story is not simply to require tenants to pay for repairs but all post-lease losses you incur as a result of the damage they inflict, including lost rent, utilities, and taxes. An effective way to accomplish that objective is to require the tenant to pay consequential damages incurred until the space is returned to rentable condition.
Consequential Damages: Tenant shall be responsible for all consequential damages to Landlord as a result of Tenant’s failure to surrender the Premises in the condition and in accordance with the terms of this Lease, and this clause shall survive termination of the Lease.
Negotiating strategy: A savvy tenant may try to limit how long after the lease you have to sue for consequential damages. It’s okay to agree to a time limit, provided that it gives you a reasonable window of opportunity. Attorneys advise that you suggest 18 months and negotiate downward from there.