Accelerated Rent Clauses in Commercial Leases: Drafting and Enforcing Liquidated Damage Clauses

Most commercial leases include provisions that provide accelerated rent to be paid by the tenant to the landlord in the event of a default. Although such arrangements may be standard, the ability to enforce them is often tricky if the contract terms do not abide by the most typical restrictions imposed by law.

Counsel must ensure the contract criteria for accelerated rent meet all required factors, typically an explicit declaration in the lease that the breach would create damages difficult or impossible to estimate when executing the contract. Further, counsel must communicate that parties intend these provisions to serve as damages and not penalties. Finally, the damages must be a reasonable estimate of the probable loss.

Drafting enforceable language in these cases requires skill and understanding of what courts will need to move forward. A strong defense of these claims may limit the majority of a tenant's potential liability in the event of a default. Therefore, landlords' and tenants' counsel must understand and review these provisions.

Listen as our authoritative panel of commercial real estate practitioners discusses drafting and negotiating accelerated rent provisions that meet the criteria for enforcement and provides practical tips regarding pre-commencement improvement, build-out, and functional maintenance and repair, as well as indemnification provisions to allocate risk.