Acceleration of Rent: 4 Commercial Lease Clauses

Rent acceleration clauses allow landlords to demand the full outstanding rent balance from tenants who breach the lease agreement. Discover the diverse phrasing and circumstances that can trigger these clauses and which ones carry harsher terms.

By
Nichole Stohler
|
Last Updated
May 15, 2024
Acceleration of Rent: 4 Commercial Lease Clauses

If you've ever signed a commercial lease, you've probably come across rent acceleration clauses. These provisions allow landlords to demand the entire remaining rent for the lease term to be paid immediately if a tenant violates the agreement.

Whether you're a landlord looking to protect your investment or a tenant trying to understand your liability, you'll want to understand how these clauses work, as they can have costly consequences. This article breaks down rent acceleration in detail, illustrating how landlords can write these clauses into leases as well as the legal nuances surrounding their enforceability.

With real examples illustrating the varying structures, this article gives both landlords and tenants a solid understanding of this double-edged sword buried in many commercial property leases.

Common rent acceleration clauses

Rent acceleration clauses may vary in wording and specifics, but here are some common examples showing how landlords might structure them in lease agreements:

1. Standard rent acceleration clause

This clause says that if the tenant fails to follow the lease rules, the landlord can collect rent for all the remaining lease amount. Formal language surrounding this can look like:

In the event of default by the Tenant, including but not limited to non-payment of rent, the Landlord shall have the right to accelerate and demand immediate payment of all sums due under this lease for the remainder of the lease term.

2. Conditional rent acceleration clause

A conditional rent acceleration clause is specific to rent. If the tenant fails to pay rent on time, the landlord will issue them a written notice and provide 10 days to remedy the issue before demanding payment for the entire lease. An example is:

Upon Tenant's failure to pay rent when due, and after providing Tenant with written notice and a 10-day cure period, if Tenant fails to remedy the default, Landlord may accelerate and declare all remaining monthly rent payments immediately due and payable, with further notice. The accelerated rent amount, including any additional rent, expense installments, or charges, shall be calculated based on the present value of the remaining lease payments without further notice.

3. Comprehensive rent acceleration clause

If the tenant violates any lease terms, the landlord will notify them and give them a chance to correct it. This clause doesn't give a specific timeframe, but if the tenant fails to resolve the issue, the landlord can immediately demand all future rent payments. Here's one such clause:

Should Tenant breach any term of this lease, including failure to pay rent, failure to maintain insurance coverage, or violation of use provisions, Landlord may, after providing appropriate notice as required by law and the failure of Tenant to cure such breach within the allowed time, accelerate the rent. All future rents under this lease shall then become due and payable immediately, with further notice. The accelerated rent amount shall be calculated based on the present value of the remaining lease payments.

4. Modified rent acceleration for partial payments

If the tenant is late on rent and doesn't catch up on payments within the allowed timeframe, the landlord can choose to demand all or some of the remaining lease payments at once. This accelerated rent clause takes into account any partial payments the tenant has already made. Language can be:

If Tenant fails to pay any month's rent in a timely manner and such failure continues beyond the period provided for cure, Landlord may, at their discretion, accelerate the payment of rent. This acceleration can include all or part of the remaining rent for the term of the lease, taking into account any partial payments previously made by Tenant, with further notice. The accelerated rent amount, including any additional rent or charges, shall be calculated based on the present value of the remaining lease payments.

Enforceability of rent acceleration clauses

In situations where tenants dispute these clauses, the courts will consider the following:

  • Legal compliance: The clause needs to follow state and local laws, which may restrict or condition its use.
  • Reasonableness: The clause must be fair and not punitive. An appeals court has noted in prior cases that rent acceleration clauses can be enforceable if they have a reasonable estimate of damages.
  • Clarity: The lease should clearly define when the clause triggers.
  • Notice and cure: Landlords need to give tenants proper notice and a chance to fix the issue before enforcing the clause.
  • Lease type: These clauses are more commonly enforceable in commercial leases than in residential.

Deconstructing accelerated lease terms

Rent acceleration clauses offer landlords a way to recover losses from tenant defaults but also present a major financial risk for tenants.

The phrasing and structure of these clauses differ substantially. Some allow more leeway, while others take a stricter, more comprehensive approach. Tenants must recognize potential consequences, while landlords need to consider leveraging acceleration against reasonableness standards.

Market dynamics and legal shifts may impact how these clauses operate in the future, but for now, they underscore that both parties must uphold their end of the lease agreement.

Acceleration of rent FAQs

Can a landlord accelerate rent in Texas?

A landlord can accelerate rent in Texas if specified in the lease agreement.

Is accelerated rent legal in Florida?

Yes, accelerated rent is legal in Florida if it's in the lease agreement.

What is rent acceleration?

Rent acceleration is a clause in a lease agreement. It allows a landlord to demand the full remaining rent if the tenant breaches the lease, typically by vacating the property before the end of the lease term.

Important Note: This post is for informational and educational purposes only. It should not be taken as legal, accounting, or tax advice, nor should it be used as a substitute for such services. Always consult your own legal, accounting, or tax counsel before taking any action based on this information.

Nichole Stohler

Nichole co-founded Gateway Private Equity Group, with a history of investments in single-family and multi-family properties, and now a specialization in hotel real estate investments. She is also the creator of NicsGuide.com, a blog dedicated to real estate investing.

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