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Commercial Real Estate Leases in Litigation: Landlords Beware

Typical Springfield, Missouri, litigation related to commercial real estate leases goes like this. The tenant, known as the lessee, has signed a long-term lease with the owner of commercial real estate. The owner is typically known as the landlord or lessor. After a time, the tenant cannot pay the rent due and the lessor sues the tenant for eviction from the real estate and for unpaid rent due under the lease. At trial on the breach of the lease, the landlord’s real estate litigation attorney simply introduces the lease into evidence and asks the court to award a money judgment for unpaid rent through the last month of the lease. Often commercial real estate leases have a term of three to five years or more, so the damages requested by the landlord may run into tens of thousands of dollars.

Standard Procedure for Litigating Commercial Real Estate Leases

I had such an encounter when I represented a lessee. I was asked to represent a tenant who was being sued for breach of a commercial real estate lease. The lease required monthly payments of over $5,000.00 per month which terminated in 2017. Unfortunately, the tenant’s business tanked in the economic downturn caused by the Great Recession. The landlord sued for unpaid rent in the amount of $150,000. At trial, the landlord’s attorney had the landlord's real estate manager testify about the unpaid rent and identify the commercial lease signed by the tenant. The landlord’s attorney then placed the lease into evidence. This is standard procedure for presenting evidence in litigation of commercial real estate leases. We presented no evidence. In oral arguments at the end of the trial, the landlord’s attorney asked for over $150,000 in damages, the amount of unpaid rent through the end of the lease in 2017. Then it was my turn to argue the amount of damages owed to the landlord―and the landlord got the first inkling of a problem with its case against my client.

I told the court that, although the landlord had made a case for $50,000 in damages resulting from unpaid rent due through the time of trial, the landlord had wholly failed to make a case for the remaining $100,000 damages they were claiming for future damages under the lease.

Which was true.

Proper Measure of Future Damages in All Real Estate Litigation

It was an interesting situation. I was asking the judge, who by the way is a fine judge, to award the landlord $100,000 less than what the landlord was requesting for damages.

Although the landlord’s lawyer introduced into evidence the amount of future rental payments due under the lease, $100,000 in this case, the landlord must, also, reduce that amount by the reasonable rental rate the landlord could receive from another tenant over the time remaining under the lease.  That amount must, further, be reduced to its present value. To provide that kind of testimony, the landlord needed two experts to testify at trial: an expert on commercial real estate rental values and an economist. The landlord in the case I defended had neither.

Typically, a judge in this kind of a case enters judgment for damages immediately after the trial, largely because the tenant does not appear at trial and contest the landlord’s evidence. In this case, the judge would have entered a judgment for over $150,000 had we not contested the amount of damages. However, our case languished on the court’s docket for nearly a year waiting for the judge to enter a judgment. The wait ended when the landlord advised the court that the landlord had a new tenant. The court, then, entered judgment for about $90,000, the amount of unpaid rent, $50,000 at the time of trial plus an additional $40,000 that had accumulated while the case languished on the court’s docket.

If you need a Missouri real estate attorney to help you in real estate litigation or a commercial lease dispute, I welcome you to contact our Springfield law office. I am committed to putting my years of experience to work for you and your real estate's best interests.

 

Categories: Real Estate

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