News & Insights

By Steven Otto

When drafting a lease, a landlord may include language that creates alternative remedies for a tenant breach and abandonment of the premises to help minimize the financial fallout to the landlord.

In most California leases, specific language identifies the landlord’s remedies in the event the tenant breaches and abandons the premises before the end of the term, or if the tenant’s right to possession is terminated due to a breach of the lease. Those provisions usually mirror, or are substantially similar to, the language set forth in California Civil Code Section 1951.2. Most landlords and tenants know this language, even if they do not know the statutory section. However, some landlords may want remedies beyond those described in 1951.2.

Civil Code Section 1951.2 defines the remedies with regard to the “worth at the time of award” of unpaid rent (1) at the time of termination, (2) after termination and until the time of award, (3) after the time of award through the balance of the term, plus (4) amounts necessary to compensate the landlord for amounts that are detrimentally caused by the tenant’s failure to perform under the lease. The foregoing remedies have requirements further described in 1951.2.

However, there are times when a landlord wants the tenant’s obligation to pay rent to continue — regardless of the tenant’s breach and abandonment of the premises — and does not want to be required to “avoid” rental losses, as required by 1951.2. Unfortunately, those same landlords will frequently want to restrict the tenant’s ability to assign and/or sublet the lease. Landlords who know the statutory language of 1951.2 understand that it begins with “[e]xcept as otherwise provided in Section 1951.4 …”

California Civil Code Section 1951.4 is only available if the lease clearly includes that remedy. If the lease expressly invokes 1951.4, and the tenant has breached the lease and abandoned the premises, then the landlord has the right to enforce all of landlord’s rights and remedies under the lease — including recovery of rent as it becomes due — as long as the landlord does not terminate the tenant’s right to possession and any of the following conditions are satisfied in the lease:

• Tenant has the right to assign and/or sublet the premises.
• Tenant has the right to assign and/or sublet the premises, “subject to express standards or conditions, provided the standards and conditions are reasonable at the time the lease is executed and the lessor does not require compliance with any standard or condition that has become unreasonable at the time the lessee seeks to sublet or assign.” If the parties engage in dispute resolution, there is a presumption that an express standard or condition is reasonable. The tenant then would need to rebut the presumption.
• If the tenant’s right to assign and/or sublet the premises is subject to the landlord’s consent, such consent. cannot unreasonably be withheld. If the lease is silent as to a standard, it will be presumed that the landlord could not unreasonably withhold consent.

If the landlord relies upon 1951.4, the following actions by the landlord are permissible and do not constitute a termination of the tenant’s right to possession (the threshold requirement of the statute):

• Landlord may engage in acts of maintenance or preservation of the premises.
• Landlord may engage in efforts to relet the premises.
• Landlord may initiate the appointment of a receiver to protect the landlord’s interests.
• Landlord may withhold its consent to subletting or assignment of the lease, so long it satisfies the consent requirements described above.

It is important to note that the inclusion of 1951.4 in the lease, “does not preclude the lessor from terminating the right of a defaulting lessee to the possession of the property and then utilizing the remedy provided by Section 1951.2,” as stated by the California Court of Appeal, First District, in Walt v. Superior Court (1992).

In the event of a tenant default, the landlord’s decision to invoke the benefit of 1951.4, versus reliance upon 1951.2 and its more traditional remedies, will necessarily require an evaluation of the financial viability of the tenant. Imposing continuing rent obligations on a tenant without financial viability is unlikely to result in the income stream the landlord is expecting. If a tenant has breached the lease and abandoned the premises and is not financially viable, the better alternative may be to pursue remedies pursuant to 1951.2, where the landlord may lease the premises to a third party, even at lesser rent, and continue to pursue the tenant for lost rent that could not be reasonably avoided.

Section 1951.4 is a valuable remedy for the landlord, particularly those landlords who wish to continue charging rent to the tenant after breach and abandonment of the premises. But the landlord’s ability to exercise that remedy necessitates its express inclusion in the lease, and compliance with its requirements thereafter.

Steven Otto is a partner with Crosbie Gliner Schiffman Southard & Swanson LLP (CGS3), a Southern California-based commercial real estate law firm. His legal expertise spans the acquisition, development, licensing, and sale of office, industrial and retail portfolios; power plants (traditional and renewable energy) and mixed-use office/retail projects.

The article was published in The Daily Journal and The Daily Transcript (subscriber only).