Commercial Tenants, The Landlord Is Not Your Friend - LL Remedies When Commercial Tenant's Default
When a tenant defaults under a commercial lease, the landlord is afforded certain remedies under the lease document and by law. A landlord has the option to evict a tenant through a forcible entry & detainer action and may resort to self-help tactics, like entering the premises and changing the locks on the doors. Ohio law recognizes the validity of non-punitive rent acceleration clauses, but also imposes a duty on landlords to mitigate damages of the tenant by re-letting the property. This article shortly explores some of the remedies afforded commercial landlords under law (the remedies provided under individual leases will vary). Eviction; Forcible Entry & Detainer In Ohio, the principal method of recovering possession of real property from one who is unlawfully holding is a forcible entry and detainer action. Ohio Revised Code Chapter 1923 is a summary procedure for evicting a tenant and regaining possession of the leased premises. O.R.C. §§ 1923.01-1923.15; Asbury United Methodist Church v. Bowers, 68 Ohio App. 2d 193, 197, 428 N.E.2d 152, 155 (6th Dist., Lucas Co., 1980) (“lessor of nonresidential premises has available whatever forcible entry and detainer remedies are provided by R.C. Chapter 1923"). However, before a successful forcible entry and detainer proceeding may be obtained against a tenant, the landlord must comply with the following three requirements: (1) serve the tenant with proper notice of the termination; (2) serve the tenant with proper three-day notice of the termination of the tenancy after the notice of the termination of the tenancy has been served; and (3) file a complaint against the tenant in forcible entry and detainer. Sterling Health Care Group, Inc., v. Laughlin, 1993 Ohio App. LEXIS 2659, *9-10 (6th App. Dist. May 28, 1993) (court held that the trial court erred when it found that the landlord of commercial lease could begin a forcible entry and detainer action by service of the required three-day notice prior to the expiration of the 30-day notice to terminate tenancy). Self-Help Repossession Forcible entry and detainer actions are not the only remedy available to commercial landlords who seek to repossess property upon default of its tenant. Landlords of commercial leases also have the right to self-help as a remedy, but this remedy is limited to cases that meet the following requirements: (1) the tenant unlawfully holds over or is in breach of the lease; (2) the landlord gives notice of termination, if such is required, or notice of and an opportunity to cure the breach; (3) a provision in the lease provides for self-help repossession; and (4) the repossession is accomplished without a breach of the peace. Craig Wrecking Co. v. S.G. Loewendick & Sons, Inc., 38 Ohio App. 3d 79, 83, 526 N.E.2d 321 (10th Dist., Franklin Co., 1987); Northfield Park Associates v. Northeast Ohio Harness, 36 Ohio App. 3d 14, 521 N.E.2d 466 (8th Dist., Cuyahoga Co., 1987). As a self-help remedies, a commercial landlord may retake possession of property from a tenant in default of its lease by entering the premises and changing the locks. For example, in Northfield Park, 36 Ohio App. 3d 14, the Cuyahoga County Appellate court affirmed that a landlord lawfully re-entered and took repossession of a commercially leased property. The court found that the tenant was in violation of several provisions contained within the lease, the tenant had adequate notice that it was in default, the lease provided the landlord with the remedy to enter and re-take possession of the premises, and that retaking of possession of the property by changing the locks on the premises and using two security guards to do so (one of which was armed), was not a breach of the peace. See, also, Tie Bar, Inc., v. Buffalo Mall, Inc., 1979 Ohio App. LEXIS 8786, *7-8 (7th Dist. Mahoning Co., April 30, 1979) (“By common law and Ohio statute section 5321.01, a lessor is permitted to lock out a defaulting lessee of commercial premises."); Although Landlords may have the ability to change the locks and take repossession of a property from a tenant in default of its lease, the landlord must do so in a way that complies with the terms of the lease. If the landlord does not give proper notice or improperly takes possession of property on the leased premises, they can be held liable for conversion of tenant’s property or other damages proximately caused from landlords improper eviction. The Strip Delaware, LLC v. Landry’s Restaurants, Inc., 2009 Ohio 1106, 2009 Ohio App. LEXIS 918 (5th Dist., Stark Co., March 9, 2009) (landlord repossessing commercially leased premises by changing locks was proper, however, court found that landlord failed to take precautions to mitigate damages to tenants personal property on the premises); TSH Real Estate Investment Co., 2005 Ohio 5812, 2005 Ohio App. LEXIS 5227, P4 (9th Dist., Lorain Co., November 2, 2005) (tenant in default of commercial lease liable to landlord for unpaid rent, utilities, lock changes and moving expense, but issue of conversion of tenants personal property on the leased premises in violation of the lease was not properly considered by trial court); Wagner v. Weaver, 2010 Ohio 978, 2010 Ohio App. LEXIS 806 (3rd Dist., Hancock Co., March 15, 2010) (tenant awarded damages in an amount comprising of the retail value of tenant’s damaged property reduced by the outstanding amount which the tenant owed to the landlords for the tenant’s unpaid rent and utilities). Rent Acceleration The current trend in Ohio is that commercial lease provisions providing clear and unambiguous terms for both repossession by the landlord and the acceleration of future rents will be enforced as long as the provisions do not impose a penalty. Buckeye Fed. Sav. & Loan Ass’n v. Oletangy Motel, 1991 Ohio App. LEXIS 4048 (10th Dist., Franklin Co., Aug. 22, 1991) (holding acceleration clause valid and enforceable against guarantor of lease); Industrial Leasing Corp. v. Garbage Trash Serv., Inc., 1986 Ohio App. LEXIS 7342 (10th Dist., Franklin Co., June 26, 1986) (lease of personal property, acceleration clause valid and enforceable);Luca v. Volunteers of Am., 1985 Ohio App. LEXIS 8063 (9th Dist., Lorain Co., June 19, 1985). Acceleration clauses that do not bear a reasonably relationship to the actual damages incurred by a landlord will not be enforced. The validity and enforceability of acceleration clauses is also dependent upon recognition in the lease of the landlord’s duty to mitigate damages. Industrial Leaseing, 1986 Ohio App. LEXIS *10-11; Luca, 1985 Ohio App. LEXIS *6-7. If there is no provision for the mitigation of damages, and repossession occurs, the landlord may be entitled only to the unpaid, accrued rent, the interest thereon, and costs. Id. Therefore, to enforce a rent acceleration clause, the clause must be clear and unambiguous, the amount obtained by the landlord must not penalize the tenant, the amount must bear a reasonable relationship to the actual damages incurred, and the clause must contain language that obligates the landlord to mitigate the tenant’s damages if they re-let the property. Landlord’s Duty to Mitigate Damages The Ohio Supreme Court has held that a landlord has an affirmative duty to mitigate its damages. Frenchtown Square Partn. v. Lemstone, Inc., 99 Ohio St. 3d 254 (2003). The landlord is not required to accept any replacement tenant but the landlord’s actions to mitigate damages must be “reasonable." Id. The issue of reasonableness is a question of fact. Id. However, parties may waive the duty of the landlord to mitigate its damages if expressly provided in the lease agreement. Id.; New Town Ltd. Partn. v. Pier I Imports, 1996 Ohio App. LEXIS 3203 (6th Dist., Lucas Co., July 26, 1996). Parties may also negotiate what constitutes reasonable steps to mitigate damages; for example, “parties may stipulate that the landlord is not obligated to lease the defaulting tenant’s premises prior to filing any other vacant space in the building of which the premises are a part or that the landlord is not required to lease the premises to a tenant for a different use." 1-20 Ohio Real Property Law and Practice § 20.18. In UAP Columbus JV326132 v. O. Valeria Stores, Inc., 2008 Ohio App. LEXIS 293 (10th Dist., Franklin Co., Feb. 14, 2008), the court held that listing a premises with a brokerage firm promptly after the tenant abandons the premises and advertising it for rent at the same rate negotiated with the breaching tenant evidences reasonable steps to mitigate damages.