Rent Acceleration Clause Is an Unenforceable Penalty

What Happened:     An accounting firm signed a five-year lease on new office space after securing a lucrative government contract. But the government pulled the plug on the contract and the tenant ended up having to default on its lease obligations just two months into the term. Citing the accelerated rents clause of the lease, the landlord contended that the tenant’s guarantor was on the hook for rent over the entire five years even though it was able to relet the premises less than a year later.

Ruling: The Massachusetts court tossed the claim, ruling that the accelerated rents clause was an unenforceable penalty.

Reasoning: Liquidated damages clauses are designed to cover losses the landlord could have reasonably expected as a result of the tenant’s breach. But the clause in this case let the landlord have it both ways, allowing it to relet the premises and collect rent while also holding the original tenant and its guarantor liable for the remaining rent without accounting for the rent collected from the new tenant. Bottom Line: The landlord was entitled not to liquidated damages but actual damages compensating it for the real losses it incurred as a result of the breach.

• Cummings Properties, LLC v. Hines, 102 Mass. App. Ct. 28, 2022 Mass. App. LEXIS 118, 2022 WL 17409280