Property Law Developments—Joseph William Singer

Many courts uphold acceleration clauses in commercial leases that require tenants to pay the rest of the rent due for the remainder of the lease term if the tenant breaches the lease. Such clauses are usually not enforced in the context of residential leases because they disclaim the duty to mitigate damages. The only issue for acceleration clauses in commercial leases is whether the amount exceeds a reasonable estimate of the likely damages from breach and thus constitute an invalid “penalty” rather than a valid liquidated damages clause. See, e.g., Cummings Properties, LLC v. National Communications Corp., 869 N.E.2d 617 (Mass. 2007). Many courts make this determination by assuming that the landlord still has a duty to mitigate damages by attempting to relet the premises and thus the remaining rent will be invalid if it far exceeds the damages that would be sustained if the landlord found a replacement tenant. See HealthSouth Rehabilitation Corp. v. Falcon Management Co., 799 So. 2d 177 (Ala. 2001). However, some courts hold that the duty to mitigate damages is irrelevant in this context. NPS, LLC v. Minihane, 886 N.E.2d 670 Mass. 2008). The Massachusetts Appeals Court recently explained that this means that it does not matter when the breach occurs during the course of the lease, i.e., at the beginning when many months or years of rent are left and the landlord might be able to obtain a replacement tenant and mitigate damages, or at the end of the lease when replacement of the tenant might be impossible within the remaining time. The only thing that matters is whether the figure chosen by the parties in the acceleration clause (the remaining rent for the lease term) is a reasonable estimate of the damages that might be sustained upon the tenant’s breach. Although this is a difficult determination to make, the court explained that acceleration clauses in commercial leases are presumptively enforceable and should be disregarded only if they are clearly unreasonable. Panagakos v. Collins, 80 Mass. App. Ct. 697, 2011 WL 5067707 (Mass. App. Ct. 2011).