MAR Online Blog

A recent decision by the Massachusetts Appeals Court addressed the question of whether a rent acceleration clause in a commercial lease operates as a legitimate liquidated damages provision or is unenforceable as a penalty.   

In the case at hand, Cummings Properties, LLC v. Darryl C. Hines, the tenant defaulted on his rent payments just two months into a 5-year lease. Pursuant to the liquidated damages clause in the lease agreement, the landlord sought to collect the full rent for the remainder of the lease term. Following the tenant’s default, the landlord was able to relet the property within the year. The lower court, ruling in favor of the landlord, concluded that because the tenant was “sufficiently sophisticated,” he should be held to the terms of the lease, including the rent acceleration clause. The lower court judge also determined that the rent acceleration clause was an enforceable liquidated damages clause because it was a reasonable estimate of the landlord’s anticipated damages. 

Existing Massachusetts case law has upheld rent acceleration clauses so long as it does not operate as a penalty.  A liquidated damages clause will generally be enforceable if: 

1. At the time the agreement was made, potential damages were difficult to determine, and 
2. The clause was a reasonable forecast of the anticipated damages in the event of a breach. 

Where the stipulated liquidated damages are disproportionate from the actual damages incurred, the damages then act as a penalty and are unenforceable. In this case, the Massachusetts Appeals Court found that the rent acceleration provision bore no reasonable relationship to the anticipated damages and was therefore an unenforceable penalty. The Court proceeded to explain that if the liquidated damages provision had included language to account for rents received by the landlord from a new tenant, this likely would have constituted a reasonable estimate of expected damages.  

Allowing a landlord to collect both the liquidated damages and rent from the new tenant is contrary to longstanding public policy principles followed by the courts. While the landlord is unable to collect the stipulated damages from the tenant in this case, he is still entitled to collect any actual damages incurred as a result of the breach.  

So, what does this mean for REALTORS®? The biggest takeaway from this case for REALTORS® should be to encourage parties to a transaction, whether it be residential or commercial, purchase or lease, to work with an experienced attorney in drafting the contract terms to ensure enforceability. As a reminder, unless you are a licensed attorney, REALTORS® should not be providing legal advice to clients or drafting contract language.