The question is often asked, “What are the pros and cons of terminating or not terminating a commercial lease due to tenant default?”
When a tenant defaults on a commercial lease, Florida law provides the landlord with the right to recover possession of rented premises only:
- In a County Court action for possession or other civil action in which the issue of right of possession is determined;
- When the tenant has surrendered possession of the rented premises to the landlord; or
- When the tenant has abandoned the rented premises.
The first instance applies when there has been a default and the tenant remains in possession of the property. The landlord has given notice to the tenant that full payment of rents must be paid, or the tenant is to vacate the property within three days of service of the notice. If neither occurs, then the landlord may file an action in the county court for eviction of the tenant. This is the sole procedure under Florida law for the removal of a tenant from the property for the tenant’s failure to make timely rental payments to the landlord.
The second instance applies when there has been a surrender of the lease term by mutual agreement or by operation of law. To surrender a lease term of more than one year in Florida, there must be a written surrender document signed by the tenant and witnessed by two subscribing witnesses. A surrender by operation of law is valid when the tenant relinquishes possession and the landlord resumes possession with an intent to terminate the landlord-tenant relationship.
The finding of such intent by a court can be prevented by including language in the lease to the effect that tenant surrenders by operation of law will never be intended by either party, nor will a surrender relieve the tenant of future liability under the terms of the lease, without the written consent of the landlord. The landlord may also give notice to the tenant at the time of the indicated surrender that the surrender is not accepted; therefore the landlord will take possession of the property for the account of the tenant, subject to liability for future rents.
The third instance permits the landlord to take possession of the property upon abandonment by the tenant. Abandonment may be presumed if the landlord reasonably believes that the tenant has been absent from the premises for 30 consecutive days; the rent is due; proper notice has been given and 10 days have elapsed since service of the notice.
Once the landlord recovers possession of the property, Florida case law has established three options to secure the landlord’s rights in that property:
- Terminate the lease and take possession of the premises for the landlord’s own account;
- Take possession of the premises for the account of the tenant and hold the tenant liable for damages for future rents due, subject to any mitigation by a reletting of the premises by the landlord; or
- Do nothing and sue for rent as installments become due, or for the whole when it becomes due. Although there is a split in authority, the Florida courts have generally held that the landlord has no duty to mitigate damages. The solution is to include a provision in the lease clearly stating that the landlord has no duty to mitigate, which will by upheld by the courts.
The second option is the one that is utilized in most commercial cases. Whether by court order and eviction or by abandonment, the landlord takes possession of the property for the tenant’s account. The landlord may then accelerate the rents due for the remainder of the rental term, adjusted to present value.
Should the landlord choose to relet the property, collection on the acceleration clause cannot occur while simultaneously receiving rental payments from the new tenant. Courts will only award a judgment on accelerated future rents if deficiency results between the rents received from the new tenant and the rents due from the breaching tenant. A tenant may petition the court for a partial satisfaction of judgment, if a judgment is entered for accelerated rents and the landlord, at some later time during the initial term of the lease, relets the property. The landlord will not terminate the lease but will take possession for the account of the tenant. Absent a lease provision holding otherwise, by terminating the lease, the landlord is precluded from accelerating rents. A lease provision permitting the landlord to terminate the lease and accelerate future rents will be upheld by the courts.
The final outcome of terminating or not terminating a lease is that any lease enforcement action will be reviewed by the courts and subject to the specific clauses of the lease in question. The best way for a landlord to ensure maximum protection from tenant default is to incorporate language within the lease agreement that provides the widest latitude for enforcement and collection under Florida law.
Martin J. Shuham
The statements made and advice given in this article should not be considered legal advice. The articles on this website provide general educational information. Please contact Marty Shuham at (954)370-9550 to discuss the facts of your specific case before taking any action.
