Double Dipping By Cummings Properties Not Allowed In Business Lease Dispute

Appeals Court docket Guidelines That Liquidate Damages Clause Is Unenforceable The place It Allowed For Restoration of Hire For Remaining Time period On High of Hire Acquired From New Tenant

For those who loved the well-known Seinfeld episode the place George Costanza was accused of “double dipping” his chips and dip at a household funeral, you then’ll respect this publish. The case is Cummings Properties LLC v. Hines (Mass. Appeals Court docket Dec. 6, 2022) the place the Appeals Court docket struck down a liquidated damages clause in a industrial lease which purported to permit the owner to get well a big monetary penalty although it was in a position to re-lease the premises.

The case is an efficient instance of what can occur the place a celebration can get a bit too grasping in in search of damages in a industrial lease case. Cummings Properties, one of many largest industrial actual property corporations within the Better Boston space, has a properly deserved status of being a very litigious industrial landlord (in my humble opinion). I’ve handled them a number of occasions, and I can inform you a couple of tales offline. Anyhow, on this case, Cummings leased workplace area to Darryl Hines, who owned a constable/course of serving enterprise. Hines had simply secured a profitable contract with the Mass. Dept. of Income and wanted a bigger workplace for the brand new enterprise. The lease was for five years at round $16,000 yearly. Sadly, solely a month into the brand new lease, the DOR abruptly cancelled the contract with Hines, leaving him in extreme monetary misery. Hines tried to work out a decision with Cummings but it surely refused to launch him from the lease obligations. Hines then defaulted. A yr later, Cummings was capable of finding a brand new tenant and signed a 4 yr lease. Cummings sued Hines, who signed a private warranty, for some $82,000 in damages representing all the steadiness of the 5 yr lease.

The lease offered for a moderately frequent acceleration and liquidated injury provision:

"Within the occasion that . . . LESSEE defaults within the observance or efficiency of any time period herein, and such default isn't corrected inside 10 days after written discover thereof, then LESSOR shall have the appropriate thereafter, with out demand of additional discover, to declare the time period of the lease ended, and/or to take away LESSEE's results, with out legal responsibility, together with for trespass or conversion, and with out prejudice to another cures.  If LESSEE defaults within the fee of any lease, and such default continues for 10 days after written discover thereof, and, as a result of each events agree that nonpayment of mentioned sums is a considerable breach of the lease, and, as a result of the fee of lease in month-to-month installments is for the only profit and comfort of LESSEE, then, along with another cures, the online current worth of all the steadiness of lease due herein as of the date of LESSOR's discover, utilizing the printed prime fee then in impact, shall instantly turn into due and payable as liquidated damages, since each events agree that such quantity is an affordable estimate of the particular damages prone to outcome from such breach."

There was a justifiable share of litigation within the final a number of many years over the enforceability of liquidated injury penalty clauses. These clauses are usually enforceable so long as it isn’t so disproportionate to anticipated damages as to represent a penalty. Courts will usually implement these clauses if (1) on the time the settlement was made, potential damages have been troublesome to find out, and (2) the clause was an affordable forecast of damages anticipated to happen within the occasion of a breach. Massachusetts used to have a “re-assessment” rule the place judges might think about the state of occasions on the time of the breach, nonetheless, the SJC stopped that follow in 1999 in favor of a “single look” method which solely accounts for the circumstances current at contract formation.

The deadly drawback for Cummings on this case was that its liquidated injury provision permitted it to have its cake and eat it too. That’s, it allowed Cummings to re-lease the premises, gather lease from the brand new tenant with out credit score or offset to Hines, then on prime of that, pursue all the lease owed by Hines by means of the top of the 5 yr time period. That is akin to the “double dipping” perpetrated by mentioned George Costanza in Seinfeld. The Appeals Court docket dominated that the clause allowed for such double dipping and was subsequently an unfair penalty.

So what are the take-aways from this case? The plain one for industrial landlords is don’t be a pig and chase a small enterprise proprietor for tens of 1000’s of {dollars} over and above what you obtained in new lease funds. So far as drafting these clauses, it’s a troublesome one as a result of up to now people have been unable to precisely predict future outcomes. I might say that your liquidated injury clause ought to have some sort of caveat that the tenant will get credit score for any lease obtained from a brand new tenant and be chargeable for the differential in lease by means of the top of the time period. Hopefully that might work.

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