All too frequently, a commercial tenant will abandon its leased premises prior to the expiration of the lease term. When this happens, the landlord has four primary options.
- Because Georgia does not require mitigation of damages in lease contracts, the landlord’s first option is to leave the premises vacant and attempt to collect rent from the tenant as if the tenant had never abandoned. From a practical perspective, however, this option is unlikely to be effective, as tenants are generally reluctant to pay rent for a space they are not occupying, despite their legal obligation to do so.
- The landlord’s second option is to reclaim the premises and relet the space to a new tenant. The landlord may then hold the original tenant liable for any deficiency in rent income.
- Third, the landlord may terminate the lease, although doing so would trigger the landlord’s duty to mitigate damages, requiring the Landlord to make reasonable efforts to relet the premises.
- Finally, in certain circumstances the landlord may terminate the tenant’s right to possess the property without terminating the lease agreement. Presumably, doing so would circumvent the landlord’s duty to mitigate damages.
One of the most common questions our landlord-clients ask us is whether they can recover future rent due following the tenant’s abandonment. The answer is yes, and landlord’s have two primary methods for doing so.
- First, the landlord may accept the abandonment and file suit for the difference between the rent due under the lease agreement and the reasonable rental value of the premises at the time of the breach.
- Second, the landlord can refuse to accept the abandonment and treat the lease as remaining in full force and effect. Under this scenario, the landlord may to attempt to collect rent from the abandoned-tenant while leaving the premises vacant or the landlord may relet the premises to a new tenant and hold the original tenant liable for any deficiency in rent collected.
Rent Acceleration Clauses:
Commercial lease agreements often contain rent acceleration clauses, which allow the landlord to collect future rent due at the time the tenant defaults on the lease. Georgia courts treat these clauses as liquidated damages, and they are generally enforceable, assuming they satisfy the three-part test articulated in Southeastern Land Fund, Inc. v. Real Estate World, Inc., 237 Ga. 227 (1976):
- First, the injury caused by the breach must be difficult or impossible to accurately estimate;
- second, the parties must intend to provide for damages rather than for a penalty; and
- third, the sum stipulated must be a reasonable pre-estimate of the probable loss.
The key to this three-part assessment is the reasonableness of the acceleration clause. Thus, a provision that reduced the accelerated rent due to present value and deducted from that amount the reasonable rental value of the premises at the time of the breach would be more likely to be enforced than a provision that failed to account for such considerations.
Georgia landlord/tenant law is complicated. Please do not hesitate to contact our firm if you have a question or are interested in representation. We are here to help.