Owner Can't Sue for Future Rent Without Acceleration Clause
Facts: After a flood damaged its store in a strip mall, a sporting goods tenant announced that it would be closing its store and moving out. The tenant informed the owner that it was no longer able to get and maintain adequate insurance as required by the lease. The tenant was also concerned that the flooding would occur again, and claimed that the previous owner of the shopping center from whom the tenant first rented its space hadn’t disclosed that the location was in a flood-prone area. For several months after announcing it would close, the tenant paid rent but didn’t operate in its space. Eventually, it stopped paying rent. The owner sued the tenant for anticipatory breach of its lease, among other claims. It asserted that it was entitled to all future rent payments. The tenant asked the district court to dismiss the claim.
Decision: A New York district court dismissed the claim for anticipatory breach of the lease.
Reasoning: The district court pointed out that New York law states that absent an acceleration clause in a lease, the breach of a lease doesn’t entitle an owner to make a claim for all future rents under the lease. The court noted that, here, it is undisputed that the lease doesn’t contain a rent acceleration clause. In fact, the lease specifically prohibits acceleration of rents. It says: “Notwithstanding anything to the contrary contained in this Lease, Landlord shall not have any right to accelerate Base Rent, Percentage Rent, or Additional Rent hereunder.”
The owner argued that despite the absence of an acceleration clause, it is nevertheless entitled to "damages" in the form of future rents and diminution in value of the premises, because the tenant committed an “anticipatory breach.” That is, since the tenant has informed the owner that it will no longer fulfill its obligations under the lease, including the payment of rent, the owner is entitled to damages for total breach.
But the court disagreed with the owner. It noted that, under the doctrine of anticipatory breach, if one party to a contract repudiates his duties thereunder prior to the time designated for performance and before he has received all of the consideration due him under the contract, such repudiation entitles the other party to claim damages for total breach. However, the doctrine of anticipatory breach hasn’t generally been applied to all types of contracts, said the court. And it didn’t apply to this lease. There’s a "general principle accepted in New York that, absent an acceleration clause, an aggrieved party to a contract for the payment of money in fixed installments may not, as a general matter, obtain acceleration by a claim of anticipatory breach," concluded the court.
Thus, where, as here "there is no acceleration clause in the lease entitling the owner to future rents upon a breach thereof, the owner’s right to future rent has not yet ripened and recovery may only be had for past due rent," the court stated.
- U-Slip LLC v. Gander Mt. Co., February 2014