Lease Enforcement: Rights and Remedies Overview
Understanding the options and procedures available in lease enforcement cases is crucial for landlords and tenants. This overview covers key aspects such as terminating tenancy, seeking monetary damages, pre-litigation analysis, self-help actions, FED proceedings, and common defenses.
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Lease Enforcement: Rights and Remedies in the New Economy MAY 11, 2018 Dunn Carney LLP 851 S.W. Sixth Avenue, Suite 1500 Portland, OR 97204 Telephone: 503.224.6440 Facsimile: 503.224.7324 www.dunncarney.com 1
I. OVERVIEW Breach of a lease may result in two distinct, but related remedies: A. Terminate tenancy and retake possession. Accomplished through self-help, FED or voluntary turnover by tenant. B. Recovery of money damages resulting from the breach. Accomplished through demand letter or civil action (separate from FED). Dispute typically focuses on: Tenant s (or guarantor s) ability to pay; and Calculation of damages and mitigation. 2
II. Lease Enforcement Analysis Before Litigation Make sure you have complete copies of all lease documents, relevant prior notices, and a current account statement. Related documents, such as landlord lien waivers, subordination agreements, franchise addenda and the like, may have provisions requiring additional notices and extended cure periods. 3
Analysis Before Litigation Contd. If relying on previously-sent notices, make sure they were correct in both content and manner of delivery. The lock box problem involuntary acceptance of rent from a tenant in default. 4
Analysis Before Litigation Contd. Consider objectives: 1. Salvage tenancy? 2. Retake possession and lease to a successor tenant? 3. Recover amount due and owing? (i) Guarantor(s) (ii) Collectability Financials o Asset Search o 5
III. OPTIONS A. When is self-help available and advisable? B. When is an FED action available? C. When is an ejectment action required? 6
IV. The FED Action What is a FED action? Forms of complaint and summons; mechanics of filing and service; e-filing considerations. The first appearance hearing: court-mandated mediation. Settlement options vs. trial. 7
FED Action Contd The Answer: available defenses and counterclaims? Common equitable defenses: waiver, excusable neglect and defective notice. Discovery available, but seldom used; continuance of trial date. 8
FED Action Contd The Trial where: FED court vs. regular circuit court. Enforcing the judgment of restitution notice of restitution and writ of execution. 9
V. Breach of Lease Action Initial Considerations: Demand Letter? o Venue? o Typically, but not necessarily county where the real property is situated. o Subject to mandatory arbitration? o Money damages under $50,000 (see ORS 36.400 to 36.425) 10
Breach of Lease Elements Elements: 1. Breach by tenant. 2. Performance by landlord. 3. Damages. 11
Breach of Lease Action Contd Damages = designed to make landlord whole. Based upon lease (subject to constraints under Oregon law). Timing of breach in the life of the lease is a factor. 12
Breach of Lease Action Contd Lost Rent and Other Charges: Full remaining value of lease less fair market value during period landlord is able to relet, and full market value for period landlord not able to relet. Translation: whatever is still owed net of successor tenant pays until end of original lease term. If successor tenant pays higher rent, no windfall for breaching tenant. Rent and other charges due and owing, but not paid. Future or anticipated lost rent (taking into account mitigation). Vulnerable because of speculative nature. 13
Damages Contd Other damages. Broker commission. Incentives for replacement tenant, including tenant improvements. Demolition and clean up. Attorney fees. Late fees. Interest. 14
Damages Contd Mitigation. What is required? Landlord not obligated to either: Substantially alter its obligations. Accept lease for less than fair market value. Accept successor tenants with doubtful financial prospects, or whose business competes with other businesses in the same center. Evidence for trial? 15
Reducing Complaint to Final Money Judgment Default judgment; time to answer complaint (ORCP 7 and 69). Award of attorney fees, sometimes as supplemental judgment (ORCP 68) o Reasonableness; sometimes, prima facie showing required Judgment enforcement 16
VI. Tenant Bankruptcy Effect of the automatic stay. Treatment of unexpired leases in bankruptcy. Tenant s ability to assume or reject lease(s). 17
Need More Information Feel free to contact us: Dan Drazan Dan Drazan Direct: 503-417-306-5347 E-mail: ddrazan@dunncarney.com Joshua D. Stadtler Joshua D. Stadtler Direct: 503-417-5507 E-mail: jstadtler@dunncarney.com Dan Drazan and Josh Stadtler are partners at Dunn Carney LLP and members of the real estate team. 18
