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Tenant Default and Landlord Remedies: Default Provisions in the Lease

April 30, 2014

 

Every commercial lease contract will have default provisions that will allow the landlord to seek default remedies against the tenant, whether through eviction, damages, injunctive relief or some combination of all three. The default clause will typically define in some detail what constitutes a tenant’s default, and in equal detail the landlord’s remedies and how to exercise them. However, even in the absence of specific default provisions, Oregon law gives landlords statutory remedies as well.

 

The most basic default is the nonpayment of rent. A well-written default provision will state that the tenant is in default if rent remains unpaid within a specified number of days after it is due, with no written notice required. In Oregon, it is wise to make that time period 10 days to correspond with the same statutory time limit to pay rent found in the Oregon statutes.


Under the statutes, landlords should be careful to note that the time period begins running the day after the rent is due. Therefore, if the lease states that rent is due on the first day of the month, an eviction action cannot be filed until after the time period for payment expires at midnight on the 11th day (i.e., file the FED [“Forcible Entry and Detainer”] eviction action on the 12th of the month).


Beyond rent defaults, every lease should have a provision allowing the landlord to give written notice of other nonpayment defaults to the tenant, such as CAM charges and other pass-throughs. For example, a typical lease would state that the tenant is in default if the landlord gives written notice to the tenant requiring payment in 20 days, and the tenant then fails to pay the charge by the deadline.


It is also common to specify that any other defaults will require written notice to the tenant, along with a 20 or 30 day remedy period to cure the default. In most cases, the lease will require the written notice to specify the nature of the default, and sometimes require the landlord to also specify the remedy that must be undertaken by the tenant to cure the default. Some leases will state that if the default cannot reasonably be cured within the remedy period, the default will be deemed cured if the tenant undertakes curative steps before the deadline and completes the steps with “reasonable diligence and good faith” thereafter.


Bankruptcy is another contingency that should be accounted for in the lease. The lease should specify that the tenant will be considered in default if bankruptcy is declared or an assignment is made for the benefit of creditors.


Remedies on Default


Once a tenant is in default, the lease should specify the landlord’s remedies. Every good lease will give the landlord the right of self-help. The lease should state that the landlord has the option of reentering and taking possession of the premises with reasonable force and without liability for damages. This allows the landlord to perform a lockout on the premises, taking back the rented property and avoiding the time and expense of pursuing an eviction action.


A self-help remedy should only be performed with an abundance of caution, however, since it may expose the landlord to liability for wrongful eviction. An experienced landlord-tenant attorney should be consulted to ensure that all of the proper steps are taken to avoid any such liability.


Leases should also contain language giving the landlord the explicit right to pursue an FED eviction action, although even in the absence of such a clause, state law gives the landlord the right to file an FED. If it becomes necessary to file an eviction, a knowledgeable attorney is essential, since the process is designed to move quickly through the courts, typically within approximately three weeks.
Most leases will specify that in addition to an eviction remedy, the landlord also has the right to pursue the tenant for damages. However, damage claims should be pursued separately from the eviction case. Combining the two will result in the FED case losing its summary nature, significantly delaying the landlord’s ability to regain possession of the premises.


The damages available to the landlord should be listed in the lease. They would typically include: (1) lost rent from the date of default until a new tenant is found, (2) the costs of reentering and reletting the premises, (3) broker’s commissions, (4) the cost of new tenant improvements, and (5) any other expenses caused by the tenant’s default. However, the landlord has a duty to mitigate damages by renting the premises again as soon as reasonably possible, or the tenant will have a defense in any action for damages.


Landlord Default and Tenant Remedies

 

In long-term or high-value leases, where the tenant has negotiating leverage, the lease may contain specific provisions detailing the tenant’s rights and remedies in the event of a landlord default. These provisions will largely govern the tenant’s default rights. In leases that do not contain tenant-friendly default provisions, the tenant will nonetheless have remedies inherent under state law – whether statutory remedies or equitable remedies found in case law.

 

Among the common clauses found in those leases with tenant-friendly provisions are landlord warranties under the lease. Each lease will have different landlord warranties, of course, based upon the nature of the rented premises and the tenant’s business needs.

 

In the event the landlord defaults on a lease warranty or other provision, the lease may spell out some of the tenant’s remedies. First and foremost would be the right to withhold or abate rent payments under the lease, which would usually require the tenant to give written notice to the landlord explaining the nature of the landlord’s default. Not all leases will contain a rent abatement provision, simply because most landlords believe it gives too much power to the tenant to withhold rent. Again, only tenants with some sort of negotiating leverage will succeed in inserting any such clause in the lease.


Another common tenant remedy is the right to perform the landlord’s obligations and withhold the cost for doing so from the rent, or with the cost to be offset against any damages that the landlord may later seek against the tenant. The lease would also likely contain a provision allowing a tenant the option to sue the landlord for damages or specific performance of the lease terms breached by the landlord.


The ultimate tenant remedy is the right to terminate the lease for a landlord’s breach. This would typically be coupled with the right to sue for damages, which might include relocation expenses and the difference in rent. If these remedies are specifically included in a lease, the landlord would most likely insist on lease language requiring advance written notice from the tenant and an opportunity to cure before exercising any lease termination remedy.


Finally, and although rare, some leases might even indicate that the tenant has the right to consider the landlord’s breach a “constructive eviction,” which would also give the tenant the right to vacate the rented premises and perhaps sue the landlord for damages. Even if a lease does not specify this remedy, however, it is generally available to tenants under Oregon law.


To constitute constructive eviction, the tenant must be deprived of a substantial part of the leased premises and elect to surrender possession. The interference to the tenant’s use of the premises must be substantial, and the tenant must act promptly and without unreasonable delay. The tenant can affirmatively plead constructive eviction as a claim against the landlord, or as a defense if the landlord sues the tenant for damages for breaching the lease.

 

 

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