Minnesota Lawyer and Finance & Commerce – Partner Content
Author: Phil J. Kaplan
Most commercial leases provide for a broad range of remedies that the landlord can exercise if the tenant defaults. Sometimes, the lease allows the landlord to accelerate and immediately recover all of the breaching tenant’s rent for the balance of the lease term. A tenant who is subject to a rent acceleration clause may question whether it constitutes an unenforceable penalty.
I recently represented a landlord in a case where a tenant challenged the validity of a rent acceleration clause. The Court ultimately decided the clause was enforceable as a matter of law and awarded my client accelerated rent on summary judgment. But each lease is unique. Although the Court correctly upheld the landlord’s contractual remedies in that case, it is unclear how the Court would have ruled if it had been presented with different lease language.
Courts analyze acceleration provisions like liquidated damages provisions. See, e.g., In re Grodnik’s, Inc., 128 F. Supp. 941, 942-43 (D. Minn. 1955). Under Minnesota law, a liquidated damages provision is enforceable if (1) the amount fixed by the contract is a reasonable forecast of just compensation for a breach of the contract, and (2) the harm caused by the breach is impossible or very difficult to accurately estimate. Gorco Const. Co. v. Stein, 99 N.W.2d 69, 74 (Minn. 1959).
Minnesota courts have enforced rent acceleration clauses in commercial leases, at least where the tenant’s future rent is discounted to present value and the tenant will be credited for rent the landlord receives from a replacement tenant. See Lariat Companies, Inc. v. Baja Sol Cantina EP, LLC, 2013 WL 4404589, *4-6 (Minn. Ct. App. Aug. 19, 2013); 1975 Robert Street Partners v. SR Shingle Creek LLLP, 2008 WL 2020480, *6 (Minn. Ct. App. May 13, 2008). Courts in other states also enforce rent acceleration clauses that reasonably approximate the landlord’s actual damages for the tenant’s breach. See, e.g., Aurora Business Park Associates, L.P. v. Michael Albert, Inc., 548 N.W.2d 153, 155-58 (Iowa 1996) (collecting cases); Restatement (Second) of Property, Landlord & Tenant, § 12.1, cmt. k and Illustration 12 (1977).