Why lease agreements must properly define ‘rent’ or ‘additional rent’ in commercial leases: a case study

Commercial leasing practical insights, based on law in Florida and generally. Obviously, every commercial lease agreement must specify the amount of rent to be paid by the tenant to the landlord. However, there are often many additional sums that a tenant is required to pay its landlord pursuant to the lease agreement.  In a typical triple net lease, a tenant will pay a fixed base rent, and then additional sums for common area and maintenance (CAM) charges, which includes items such as real estate taxes, insurance, maintenance fees, and management fees. CAM charges are often defined as Additional Rent in a good triple net lease, but some lease forms fail to do so.  Often there are late charges, other miscellaneous charges and other fees called for in a lease that fall outside of CAM, and escape the definition of either Base Rent or Additional Rent even in a good lease form. To fully protect the landlord’s interests, it is imperative that the landlord properly define all sums which may become due under the lease, including these additional miscellaneous charges as “Rent” or “Additional Rent” in its lease agreement. This article focuses on a real-life example of a landlord whose lease did not properly define these miscellaneous charges as “Rent” or “Additional Rent” and what happened as a result of that omission. Facts:

• Landlord purchased a shopping center and was assigned Tenant’s lease agreement, without any changes or amendments. Pursuant to the lease agreement, only the base rent was defined as “Rent.”

• Although Tenant paid its base rent on time, Tenant failed to pay its portion of the maintenance fees and taxes and refused to pay late charges as specified in the lease agreement.

• Additionally, Tenant committed numerous municipal code violations, a direct violation of the lease agreement. As a result of these violations, Landlord issued multiple monetary fines to Tenant, as provided for in the lease agreement. However, Tenant refused to pay these sums.

• After providing the required default notice, Landlord filed an eviction action against Tenant for numerous breaches of the lease agreement, including failure to pay these additional sums, which it considered “additional rent” under the lease agreement.

Lawsuit: Issue Number 1: Pursuant to Florida Statutes § 83.232, Landlord attempted to force the Tenant to pay the unpaid sums into registry of the court pending the eviction action, absent which the Tenant’s defenses to the eviction action would be waived. This statute provides excellent leverage to a landlord seeking to evict a tenant for non-payment of rent, as it requires a defaulting tenant to pay the rent alleged due in order to defend the eviction claim. In this case, however, after an extensive hearing, the judge held that the unpaid amounts were not properly defined as “rent” pursuant to the lease agreement, and therefore did not require the Tenant to deposit those sums into the Court registry.  This allowed Tenant to continue to defend the eviction action without having to post any money into the Court registry. Issue Number 2: Based upon the plain language of the lease agreement which called for these sums to be paid, Landlord then filed a motion for summary judgment alleging that it was entitled to evict the Tenant based upon these unpaid amounts. However, the court denied Landlord’s motion and held that while Tenant may have breached the lease agreement, the breach did not involve failure to pay “rent,” and therefore the breaches were not material enough to warrant eviction. At best, Landlord would be entitled to money damages from the Tenant, an empty victory. What to take away from this case: In their lease agreements, Landlords should always define “Rent” or “Additional Rent” to include all sums owed pursuant to the lease agreement. If the taxes, late charges, and fines were clearly defined as Rent or Additional Rent in the lease agreement, the Landlord would have been able to take advantage of the landlord-friendly statute requiring tenants to pay rent into the Court registry while the lawsuit is pending and would have had a strong argument to support its eviction claims. Additionally, even if a landlord is convinced that its form lease agreement properly defines Rent or Additional Rent and fully protects its interests, landlords should carefully review the existing lease agreements that they assume or take over when acquiring a new property to ensure that those lease agreements include the necessary protections, and if not, negotiate amendments when possible.