Default

Hello landlords and tenants, I’m here to discuss “default” and the consequences of having one (or more) in your commercial real estate lease. I’m Jenna Zebrowski the attorney behind at LawByJZ.com.  A default is what happens if somebody doesn’t follow what’s in the commercial lease, it could be either the landlord or the tenant.

Trust me, Tenant, this section will be long enough to protect all of the Landlord’s rights, but who knows if there’s anything in the lease that protects the tenant?  In that case, you have to do some legal research to figure out what to do if Landlord defaults.  Even worse, what if Tenant waived some of the legal default rights and remedies?

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Commercial Real Estate Case Study

Default: What Happens When The Lease Is Breached

Fredrick owned a small machine shop with an office staff and a few workers.  He had a great relationship with his landlord and had never been late with rent or any other payment.  Until the month when some people retired, some people were on vacation, there were new hires to train, and the ball got dropped and the rent check didn’t get cut and sent.

The second day of the month, when he didn’t get his check, his landlord is on the phone insisting that he will lock the company out of the space and terminate the lease because they weren’t paying rent.  Fredrick was really upset, he had worked for decades to run this business and to be a good tenant and had never failed to make payments.
The minute the error was discovered the company had written the check and hand-delivered it to the landlord. They had proof that the check was cashed so the landlord had received the money, even though it was late. It didn’t seem fair that the landlord could just call him on the phone because rent was a day late and end the lease in the middle of the term.

They also knew they had a great rent rate and that the tenant next door wanted to expand and would pay a higher rent for their space.

Fredrick had his attorney review the lease, and the default section was where all of the relevant information was found. The default section stated that any default required written notice from the landlord that there was a breach of the lease, and then time to cure the breach.  This means the landlord had to tell Frederick’s company that there was a mistake, in writing, and give them time to fix the error; he didn’t have the right to call up the tenant and end the lease right then.

The default actually didn’t happen, since the default was corrected before the landlord gave written notice. Even if the landlord had provided the right notice, Fredrick’s company would have had the set amount of time stated in the lease to correct the error before the landlord could take any action, such as locking the business out or terminating the lease.

Fredrick did pay a late fee because the rent was late, but the landlord didn’t have the right to terminate the lease.  Frederick was able to keep his leased location without a rent increase.