Daily Development for Tuesday, June 12, 2007
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

LANDLORD/TENANT; LANDLORDS REMEDIES; HOLDOVER: Court upholds lease provision socking tenant with double rent for period of holding over. 

Brunswick Limited Ptnshp v.  Feudo, 2007 Westlaw 1310260 (Ohio App. 5/4/2007)

What makes this case particularly interesting is that it distinguishes another Ohio case, Village Station v. Geauga, 616 N.E. 2d 1201 (Ohio App. 1992)  that held that a double rent clause was unconscionable and unenforceable when it provided for double rent when tenant became bound to a new month to month lease on holdover but didnt stay for a full month. 

Here the lease provided that if the tenant held over, no new lease would result, and the tenant would be regarded as a trespasser, subject to immediate eviction, and the landlord had the right to charge the tenant double rent for the period of holdover.  The tenant held over for four months, paying the same rent that it had paid under the original five year lease.  The landlord, of course, cashed the checks.  But, when the tenant vacated, the landlord sought the additional double rent.  The court upheld an award for double rent plus expense pass through additional rent (as also provided in the lease) and attorneys fees.

The court noted that other courts had upheld double and even triple rent provisions where the parties knowingly agreed to them in a commercial lease, citing cases in D.C. and Georgia.

Comment 1: It is true that if the landlord and tenant stipulate that a new lease will result from holding over, with a new rental, this amounts to no more than a new lease agreement and certainly is enforceable.  What makes this case a bit different is the express statement that there is no new lease agreement and the tenant is strictly a trespasser.  Thus the provision is clearly a liquidate damages clause, and a stipulation that a reasonable liquidated damages is double rent.  .

Comment 2: The precedent case, Village Station, contained an extremely ambiguous holdover clause that said in one breath that no new lease arose and that the tenant was one at will and at sufferance but then later that the tenant was bound on a month to month basis.  So the landlord, which could arguably have put into the lease that a new month to month lease at a double rental would apply, apparently did not want to be bound even to one rent period of holdover, but wanted the tenant bound to one rent period as damages. 

The current case properly differentiates Village Station, but still is vulnerable to the criticism that double rent is a pretty high figure for liquidated damages.  Norm Guttmacher, the Ohio lawyer who sent the case in, commented: I have rarely come across a case where a court specifically holds that, in a commercial lease situation, a "double rent" provision for a holdover tenant is enforceable and is neither unconscionable nor unenforceable as a penalty. I'm not sure how often this issue is squarely faced by courts; but given the prevalence of this type of provision in commercial leases, it is reassuring - at least to counsel for landlords.

Comment 3: In fact, where the courts see knowledgeable commercial parties agreeing to a specific estimate of damages, they frequently will hold the parties to their bargain, and wont take a second look.  Village Station was the exception because of the obvious disproportionality in the formula itself.  

Comment 4: For an interesting comparison, case, applying a generous liquidated damages analysis to a tenant remedy provision, see: Bates Adver. USA, Inc. v. 498 Seventh, LLC, 850 N.E.2d 1137 (N.Y. 2006). (the DIRT DD for 11/4/06) ( A lease provision entitling a tenant to rent abatement if the landlord fails to complete safety and security improvements as specified is a permissible liquidated damages provision and not a penalty unless the challenging party shows that tenant's actual damages were readily ascertainable at the time of contract or that the provision entitles tenant to a benefit grossly disproportionate to its actual damages. )

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