August 27, 2009

RE Basics: Lease Remedies

This summary includes a list of considerations for Minnesota tenants and landlords in contemplation of, or reacting to, a lease default. In dealing with a lease default, it is always critical to review the terms of the lease itself to ascertain what rights the landlord or tenant has been granted.

Landlord Default

Self-Help and Rent Offset

If the lease so provides, the tenant may cure the landlord's default and set off the cost of doing so from the rent to be paid by the tenant under the lease. Absent self-help and set-off provisions in the lease, the tenant's only option may be to sue the landlord for damages, and a tenant risks being declared in default of the lease if it attempts to self-help and set off from the rent.

Remedies at Law

Residential tenants are provided numerous helpful remedies under Minnesota law, including the right to abate rent in certain circumstances, such as lack of habitability (see Minn. Stat. §504B.001 et. seq.). Commercial tenants benefit from far fewer remedies at law, but are protected in circumstances of lock-outs or intentional disruption of utilities (Minn. Stat. § 504B.225) and retaliatory evictions (Minn. Stat. § 504B.285).

Tenant Default

Eviction

Upon a tenant default under a lease, the landlord may repossess the premises by evicting the tenant in accordance with Minnesota law. An eviction action is designed to resolve the sole question of who is entitled to possession of the premises, and thus claims for damages must be made separately. Minnesota law does not permit the landlord to use self-help to dispossess the tenant (by, for instance, changing the locks) (Minn. Stat. § 504B.281).

An eviction proceeding in Minnesota can be completed from start to finish in a month or less. A landlord may commence an eviction by filing a complaint with the court and serving the tenant with a summons issued by the court (Minn. Stat. § 504B.321). The court will then schedule a hearing in either district court or in a separate housing court (in the case of Hennepin and Ramsey counties) within seven to 14 days after the issuance of the summons, unless there is a basis for expediting the hearing (Minn. Stat. § 504B.321). If the landlord obtains an order of recovery at the court hearing, unless there is a reason why the tenant must vacate the premises immediately, the court may allow the tenant a reasonable time to vacate the premises, not to exceed seven days (Minn. Stat. § 504B.345). If the tenant does not comply with an order to vacate the premises, a county official must enforce the order (in Hennepin and Ramsey counties, the county sheriff would do so) (Minn. Stat. § 504B.365).

If the landlord's eviction action is brought solely on the basis of nonpayment of rent, the tenant may prevent the eviction at any time prior to the landlord's recovery of possession of the premises by paying the amount of rent in arrears, with interest, costs of the action and other amounts (Minn. Stat. § 504B.291). If the tenant makes any partial payments of rent that are accepted by the landlord while the eviction action is underway, absent a written agreement to the contrary, the landlord may be deemed to have waived its eviction action (Minn. Stat. § 504B.291).

A landlord should carefully decide when it is appropriate to evict a tenant because Minnesota law may consider an eviction as an "acceptance" of the tenant's surrender of the premises, and impose upon the landlord a duty to mitigate its damages (see "Accelerated Rent," below).

Action for Damages

A landlord may sue the tenant for any damages incurred by the landlord resulting from the tenant's default. Most leases provide that the tenant will be obligated to pay the landlord's attorneys' fees incurred in connection with a tenant lease default. If the lease has not been terminated and if the landlord has no duty to mitigate its damages, the tenant's obligation to pay rent on a monthly basis continues and the landlord may sue for such amounts as they come due. In the case of a nonmonetary tenant default, a Minnesota court is unlikely to order that the tenant specifically perform under the lease, and damages may be difficult to prove unless the lease contains a liquidated damages provision.

Accelerated Rent

Most leases provide that the landlord is entitled to its expectation damages following a tenant default. If the landlord has terminated the lease and evicted the tenant, the lease may provide for accelerated rent that the tenant would otherwise have paid had the tenant not defaulted.

In Minnesota, a landlord is in general not obligated to mitigate its damages (by, for example, releasing the premises), but eviction by the landlord probably triggers a duty to mitigate (see Condor Corp. v. Arlen Realty and Dev. Corp., 529 F.2d 87 (8th Cir. 1976); Provident Mutual Life Ins. Co. v. Tachtronic Instruments, Inc., 394 N.W.2d 161 (Minn. Ct. App. 1986)). However, some leases automatically require a landlord to mitigate its damages by explicitly providing so, or stating that the amount of future rent that a tenant must pay to the landlord following a default will be reduced by the amount the landlord could reasonably obtain from releasing the premises or the amount that the landlord actually obtains from releasing the premises.

Security

If the tenant has given a security deposit to the landlord and if the lease so provides, the landlord may apply the security deposit to offset any unpaid rent or costs incurred by the landlord in curing the default. If a person or entity has guaranteed the tenant's obligations under the lease, the landlord should consider when and whether it is appropriate to look to the guarantor to cure the tenant's default. Minnesota law does not permit a landlord to seize the tenant's personal property for payment of delinquent rent, unless the landlord has a properly perfected security interest in the property under the Uniform Commercial Code (see Minn. Stat. §504B.101).

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Further details are necessary for complete understanding of the subjects covered by this article. For that reason, the specific advice of legal counsel is recommended before acting on any matter discussed in these pages.

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