Owner Wins Chance to Prove Accelerated Rent Claim at Trial

What Happened: Six years into its 10-year term, an owner exercised its lease right to adjust a dental clinic tenant’s rent. But the clinic refused to pay the increase and moved out. The owner claimed the clinic was in default, terminated the lease, and demanded $1.5 million in accelerated rent due over the rest of the term. The clinic argued the accelerated rent clause was an unenforceable penalty and asked the court to dismiss the claim.

Ruling: The Mississippi federal court denied the motion, saying that a trial was necessary to determine if the owner could accelerate the rent.

Reasoning: The court treated the owner’s claim for accelerated rent as a liquidated damages claim. And, as in most states, liquidated damages clauses are allowed in Mississippi as long as they represent a reasonable pre-estimate of damages, rather than a penalty. The question of whether $1.5 million was a fair estimate or a voidable penalty would require a trial addressing the parties’ intentions at the time they signed the lease. The fact that the tenants defaulted on the lease was evidence enough to warrant such a trial. The good news for the clinic is that the court didn’t feel the same way about the owner’s claim for punitive damages, which it did dismiss without a trial.

• Affordable Care, LLC v. JNM Office Prop., LLC, 2020 U.S. Dist. LEXIS 110633, 2020 WL 3453746