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Default and Remedies

The default and remedies clause defines what constitutes a default breach of the lease by both Tenant and Landlord, and lays out the remedies both parties can take to resolve the other’s breach. The clause defines the:

1. Rights of Landlord.
2. Rights of Tenant.
3. Mitigation of damages.

Standard Clause
1. Tenant Default. The occurrence of any one of the following events shall constitute a default of Tenant:

a. The abandonment of the Premises by Tenant for a period of thirty (30) consecutive days;
b. Failure to pay Rent or any other monies due and continuing for a period of ten (10) days after the same is due;
c. A general assignment by Tenant for the benefit of creditors;
d. The filing of a voluntary petition in bankruptcy by Tenant;
e. Receivership, attachment, or other judicial seizure of substantially all of Tenant s assets on the Premises;
f. Failure of Tenant to execute and deliver to Landlord any estoppel certificate, subordination agreement, or lease amendment within the time periods and in the manner required;
g. An assignment or sublease, or attempted assignment or sublease, of this Lease or the Premises by Tenant, unless,
i. such assignment or sublease is expressly conditioned upon Tenant having received Landlord s consent;
h. Failure in the performance of any of Tenants agreements or obligations in this lease;
i. Chronic delinquency by Tenant in the payment of Rent, or any other periodic payments required to be paid by Tenant under this Lease.

2. Landlord Default. The following events shall constitute a default of Landlord:

a. Fails to perform or observe any condition or obligation of this Lease to be performed by Landlord within thirty (30) days following written notice to Landlord of such failure, provided that
i. If the nature of such default reasonably requires more than thirty (30) days, Landlord shall not be in default hereunder if Landlord has promptly commenced such cure and is diligently pursuing the same, and;
ii. If the nature of such default poses an imminent danger to persons or property, then such period of time shall be a reasonable period of time in light of the circumstances.

3. Landlord Remedies. In the event of Tenant default, Landlord has the following remedies:

a. Terminate this Lease;
b. Re-enter the Premises, terminate Tenant's right of possession of the Premises without terminating this Lease, and re-let all or any part of the Premises;
c. Cure such event of default for Tenant at Tenant's expense;
d. Apply the Security Deposit toward unpaid monetary obligations of Tenant;
e. Pursue any other remedy now or hereafter available to Landlord under the law

4. Tenant Remedies. In the event of Landlord default, Tenant has the following remedies:

a. Use any remedies available to it at law;
b. Cure the default on behalf of Landlord, and the reasonable costs of such cure shall be paid to Tenant by Landlord upon written demand.

5. Mitigation. Both parties agree to mitigate their damages upon default.


Optional Additional/Alternative Clauses

1. Continuing Obligations. While this is implied, the lease can expressly state that any liabilities and obligations do not end with a repossession of the Premises by Landlord.

Example: Except as expressly set forth above, no repossession of or re-entering upon the Premises or any part thereof, and no re-letting of the Premises or any part shall relieve Tenant or any Guarantor of its liabilities and obligations hereunder, all of which shall survive such repossession or re-entering. In the event of any such repossession of or re-entering upon the Premises or any part thereof by reason of the occurrence of a default, Tenant will continue to pay to Landlord Rent required to be paid by Tenant.

2. No Waiver. The lease can also explicitly state that any payment Landlord accepts does not waive their rights given by this clause in the event of a default. This helps keep both parties clear of their rights.

Example: Landlord's acceptance of the payment of rental or other payments hereunder after the occurrence of an event of default shall not be construed as a waiver of such default unless Landlord so notifies Tenant in writing.

3. Interest. The lease can also include an interest provision to help deter late payments that could lead to a default.

Example: If any monthly installment of Base Rent or Excess Expenses, or other amount payable by Tenant or Landlord hereunder is not received by the other party within ten (10) days after the date when due, it shall bear interest at the Interest Rate set forth from the date due until paid.

Analysis

1. Rights of Landlord. Most default and remedies clauses focus on the rights of the Landlord. Here it specifically lays out what events constitute a default of the Tenant, and also lays out what the Landlord can do to remedy the default. This is the case because in the event of a Tenant default the Landlord then has an asset that is not profitable. By listing the most common defaults and still leaving a general default provision, this clause best protects the Landlord’s right to make money through their ownership of the Premises. It also gives the Landlord the right to terminate the lease, which the Tenant does not specifically have.

2. Rights of Tenant. The rights of the Tenant are defined as more general. With a lease, the Tenant negotiates for the right to use the Premises, while the Landlord negotiates for rental income. It is more difficult to predict in what way the Landlord can default and affect the Tenant’s use of the Premises. Because of this most clauses keep it general to best protect the Tenant’s rights.

3. Mitigation of damages. An important aspect of this clause is the obligation of both parties to try to minimize the damages that occur because of a default. Both the Tenant and the Landlord have to do all they can to keep performing their duties in the lease. This helps keep disputes from getting out of control.

Discussion

” Leases, like any other contract, contain default and remedy clauses. However, since the possible consequences of a default under a lease can be catastrophic, remedy clauses in leases deserve even more careful scrutiny than remedy clauses in other kinds of contracts. From the landlord’s perspective, landlords do not believe that they should be required to negotiate with tenants about what the landlord may or may not do if the tenant fails to perform its agreed-upon obligations and defaults. From the tenant’s perspective, while a landlord certainly should be entitled to take whatever steps it believes are necessary to protect itself following a tenant default, the landlord should also take such steps as are reasonable under the circumstances to minimize its own losses and thereby mitigate the damages for which the tenant will be liable.” What To Do In the Event of Default: Remedies for Breach of a Commercial Lease, Buckley Law PC, Feb 24, 2010.

“A variety of common law remedies are available to a tenant for a landlord’s breach; but the best time to think about a landlord’s breach is before the lease is signed. A commercial landlord will seek contractually – and perhaps subtly – to minimize the tenant’s common law remedies. For its part, the tenant will want provisions in the lease ensuring the availability and adequacy of its remedies.” A Primer on Remedies For Landlord Defaults, John W. Daniels and Michael J. Ostermeyer, Quarles & Brady, May 2004.

“Eviction of the tenant is justified under the right circumstances, but only if all of the proper notices are sent, and then, only if all of the statutory rules and procedures are followed. Like any legal remedy, attention to detail is required and retaining the services of a qualified real estate attorney can be the best decision the landlord makes.” Landlord's Remedies on Tenant's Default under Commercial Lease, Phillip BoykoFebruary 13, 2010. 
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