December 20, 2022

Accelerated Rent Clauses in Massachusetts Commercial Leases

Holland & Knight Retail and Commercial Leasing and Development Blog
Nadya N. Makenko
Retail and Commercial Development and Leasing Blog

Massachusetts' highest court, in its 2007 opinion in Cummings Properties, LLC v. National Communications Corp., 449 Mass. 490, 494 (2007), shocked commercial leasing lawyers by announcing that accelerated rent clauses (i.e., provisions allowing landlords to terminate a tenant's lease and collect all rents through the end of the term in a lump sum) are enforceable and acceptable liquidated damages provisions. The legal community then agreed that the National Communications decision was a typical example of bad facts making bad law.

Now 15 years later, the Massachusetts Appeals Court considered the same provision in a commercial lease with the same landlord in Cummings Properties, LLC v. Darryl C. Hines, No. 21-P-1153, and held in its Dec. 5, 2022, opinion that "[a] provision such as this bears no reasonable relationship to expected damages and is thus unenforceable as a penalty." The Appeals Court confirmed what the Massachusetts Supreme Judicial Court back in 2007 should have done – that the scenario which allows "[landlords] to retake possession of the premises, relet it and collect rent from the new tenant, and recover all the remaining rent owed by [defaulting tenant], without having to account for the rent received from the new tenant during the term of the original lease" is "unreasonably and grossly disproportionate to the real damages from a breach."

Unfortunately, the National Communications decision remains good law and could not be overruled by a lower Appeals Court in this Hines decision. In reaching its decision, the Appeals Court had to find a creative way to distinguish the facts in the Hines case from those in the National Communications case. The Appeals Court found that the National Communications decision "did not address in that case whether a rent acceleration clause is a penalty if it allows the landlord to collect both the full amount of rent owed under the lease and rent from a new tenant."

The distinction made by the Appeals Court is tenuous at best, but the writing is on the wall that the last day of the National Communications decision is coming. Therefore, all commercial landlords will be best served by drafting their default remedies in Massachusetts commercial leases based on the differential between total rental reserved for the remainder of the term over the fair market rental for the same period.

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