BREACH OF A COMMERCIAL LEASE

When a tenant breaches a commercial lease, the landlord usually has two immediate goals:

(1) Obtain possession of the leased space, and

(2) Recover unpaid rent.

from HSFH newsletter, Winter 2006
"The ability to achieve these goals will vary greatly depending on the working of the lease and the methods employed.
A landlord may retake possession of its property from a tenant through either summary ejectment proceedings or self-help. In either case, there must be a breach for which the lease grants the landlord a right to terminate the right of possession. It is critical that the lease define precisely what defaults result in termination. A failure to pay rent ten days after demand is, by (North Carolina) statute, a forfeiture of the tenant's right to possession regardless of what is written in the lease.
Summary ejectment is a proceeding commenced by the landlord's filing of a summons and complaint. The trial will be held in small claims court without a jury. The landlord must be able to prove that:

a. The lease was breached.

b. The breach is one that results in forfeiture either by the terms of the lease or by statute;

c. It complied with the applicable notice and cure provisions, if any, contained in the lease.

Either party may appeal the decision. The appeal is heard in district court and a jury trial may be requested. Upon appeal, a tenant may remain in the premises by paying to the Clerk the amount of the arrears and signing an agreement to pay rent as it becomes due.
If the landlord desires to recover damages in excess of the jurisdictional limit of the small claims court, presently $5,000, it should only seek to regain possession in the summary ejectment action. If the landlord seeks damages in the summary ejectment up to the jurisdictional amount, such recovery will bar any action for additional damages. A separate action should be brought to recover unpaid rent. Absent a contrary provision in the lease, summary ejectment terminates the lease and a tenant will have no liability for rent to accrue for the remainder of the period.
There are two very important issues to consider when using the summary ejectment process:

I. Does the lease expressly provide that a summary ejectment does
not terminate the tenant's liability for future rent? If the lease does not so provide, then the decision to proceed should be reconsidered.

II. Should the landlord sue for damages? The landlord should not sue for monetary damages in the summary ejectment action unless the total damages sought are $5,000 or less. A separate action for the unpaid back rent should be filed in the appropriate court.

SELF-HELP

Waiver of breach:

A tenant may have a defense if the landlord waives the default. A waiver occurs when a landlord has notified a tenant of default and then accepts a rent payment. The waiver only applies to the landlord's ability to declare forfeiture and dispossess the tenant.
It will not affect the landlord's other remedies such as its right to sue for damages. A commercial lease should include a provision disclaiming a waiver of breach by acceptance of late rent payments.

Failure to strictly follow lease procedures:

A breach may be excused if the landlord fails to follow to the letter the notice and cure requirements in the lease. Notice of default, if required by the lease, must be given in strict compliance with the lease and it must be unequivocal. The landlord should specify in the notice all defaults to be used as grounds to regain possession.

ADDITIONAL REMEDIES
Attorneys' fees:
A landlord may recover its attorneys' fees in an action seeking rent only if the lease provides for such recovery and the landlord gives the tenant a five day written notice of its intention to recover attorneys' fees. The amount of the recovery is limited to 15% of the outstanding balance (again NC law).

Landlord's lien:
Unless the parties agree otherwise, a landlord who has a claim for damages against the tenant may have a lien upon the tenant's personal property. A lease should grant the landlord a security interest in the tenant's property and permit the landlord to file a financing statement covering the property."

For additional information please see: www.houstonrealtyadvisors.net