Appeals Court Decision May Affect Rent Acceleration Clauses in Massachusetts Leases
December 22, 2022
In an important recent decision for Massachusetts landlords, the Massachusetts Appeals Court determined that a rent acceleration clause in a commercial lease constituted an unenforceable penalty where it permitted the landlord to keep both accelerated rent and the rent received from reletting the premises without a credit to the original tenant.
In Cummings Properties, LLC v. Hines, the tenant defaulted on its rent obligations two months into a five-year lease. The landlord relet the premises to a new tenant for a four-year term. Nonetheless, the landlord brought suit against the guarantor of the lease seeking to recover all accelerated rent from the date of the default through the lease term.
Under established Massachusetts law, “a rent acceleration clause, in which a defaulting lessee is required to pay the lessor the entire amount of the remaining rent due under the lease, may constitute an enforceable liquidated damages provision so long as it is not a penalty.” Liquidated damages that are grossly disproportionate to a reasonable estimate of actual damages made at the time the parties entered the lease are considered a penalty and deemed to be invalid on grounds of public policy.
In this case, the Appeals Court determined that the accelerated rent clause did not bear a reasonable relationship to the landlord’s expected damages in the event of payment default, because the clause allowed the landlord to retake possession of the premises, relet it, collect rent from the new tenant and recover all the remaining rent due through the lease term from the original tenant with no credit for rent received.
The Appeals Court noted that commercial landlords in Massachusetts are not required to mitigate their damages where the lease contains an enforceable liquidated damages provision. However, while the landlord may not be obligated to relet the premises (assuming the lease does not require it) if the landlord opts to relet the premises, it may not recover liquidated damages while also collecting rent from the new tenant.
As a result of this decision, commercial landlords should take a close look at their rent acceleration provisions to make sure that they require a credit to the tenant if the landlord relets the premises and collects rent from a new tenant.
James Radke and Zachary Gregoricus are commercial litigators in Boston who represent commercial landlords throughout Massachusetts. They can be reached at firstname.lastname@example.org and email@example.com.