Don't Assume Anticipatory Breach Just Because Tenant Vacates

The rule of “anticipatory breach” gives you the right to take immediate legal action against tenants that no longer intend to fulfill their remaining obligations under the lease. The catch: The tenant must make it crystal clear, whether by words or by actions, of its intent to bail on the lease. On its face, vacating the premises mid-lease seems like the kind of thing that would give a landlord solid grounds to claim anticipatory breach. But that’s not necessarily the case.

Landlord Loses Anticipatory Breach Claim

A Minnesota landlord just learned that lesson the hard way. The case involved a Mexican restaurant tenant that shut down operations, moved out, and stopped paying rent five years into its 15-year lease. The landlord claimed anticipatory breach, citing a conversation with the restaurant manager indicating that the tenant planned to vacate as soon as the lease guaranty ran out. He followed that up with an email repeating that “as noted, [tenant] plans on vacating at the expiration of the corporate guarantee but would like to work towards a replacement tenant and coordinate with the landlord.”

Further verbal communications confirmed that the tenant was planning to pack up and move out. The landlord’s response was to send the tenant a notice of default and request for a “written rescission of its repudiation of the lease.” But the tenant ignored the request and vacated the premises a few months later.

To the landlord and its counsel, it must have looked like a no-brainer for anticipatory breach. So, you can just imagine their shock when the trial court disagreed and tossed the claim. The landlord appealed but to no avail.

“Anticipatory breach,” the appeals court reasoned, “may be found only upon a definite and unequivocal manifestation of intention on the part of the repudiator that he will not render the promised performance when the time fixed for it in the contract arrives.” The conversations with the tenant’s manager and subsequent email of the decision to move out didn’t amount to such an “unequivocal manifestation.”

Why not? Answer: Because the lease gave the tenant “multiple ways” to vacate the premises and still meet its lease obligations. For example, the tenant had the right to assign or sublet the premises with the landlord’s consent. In fact, as even the landlord’s complaint acknowledged (specifically, by citing the manager’s email referring to finding a replacement tenant), the tenant was considering that very option.

And because the tenant didn’t engage in anticipatory breach, the landlord had no recourse against the guarantor since the guaranty had expired by the time the tenant moved out [33 City Ctr. Holding LLC v. Rosa Mexicano Minneapolis, LLC, 2019 Minn. App. Unpub. LEXIS 289, 2019 WL 1510857].

Avoid Three Mistakes

The landlord in this case made three mistakes that you should keep in mind and try to avoid if you find yourself in a similar situation.

1. Jumping the gun on anticipatory breach. The first thing the landlord did wrong was fail to recognize that a tenant’s early vacation of the premises doesn’t automatically constitute anticipatory breach, particularly when the lease gave the tenant sublet/assignment rights or other methods of honoring the lease without being physically present.

2. Not following up with tenant’s offer to cooperate. Although it’s not clear exactly what happened, it seems apparent that the landlord ignored the tenant manager’s offer to work together to find a replacement tenant. In the eyes of the court, failing to pursue the sublet/assignment option probably made it look like the landlord’s real aim was to get the remaining balance of rent under the lease from the guarantor.

3. Not resending the default notice and retraction request. The landlord’s initial reaction of sending the tenant a default notice and requesting retraction of the breach was a solid move. The problem is that the tenant ignored it and remained in the premises for several more months. The landlord probably should have resent the notice and request after the tenant moved out. It also should have asked the tenant if it intended to meet its remaining duties under the lease:  If the tenant said no, the landlord would have had a strong case for anticipatory breach. Or, if the tenant said yes, the landlord could have worked with the tenant to find an acceptable settlement.