Owner Can Keep Liquidated Damages and Sue Tenant Too

A lease-purchase agreement had a liquidated damages clause that said the owner could keep a $15,000 payment if the tenant violated the terms of the agreement. At the end of the lease, the tenant decided not to buy the building. The owner kept the $15,000, claiming that the tenant had violated the agreement because the building had been extensively damaged and wasn't returned in acceptable condition. The owner then sued the tenant, claiming that it had violated Missouri's anti-waste law, which bars tenants from permanently damaging leased property. The tenant argued that the liquidated damages clause barred the owner from suing it for damages for violating the anti-waste law.

A Missouri appeals court ruled that the owner could keep the $15,000 in liquidated damages and the tenant had to pay an additional $33,000 in damages. The liquidated damages clause didn't bar the owner from suing the tenant for violating the anti-waste law, the court said. The law says that an owner can sue a tenant that permanently damages its property unless the tenant had the owner's permission to do so (for example, the tenant had permission to remove a wall during renovations). In this case, the tenant had no such permission. Also, nothing in the lease waived the owner's rights under the law, the court added. So the owner could not only keep the liquidated damages but also collect damages as permitted by the anti-waste law, the court said. In this case, the damages equalled three times the amount of the actual damages suffered [Brizendine v. Conrad].