In a significant case affecting commercial leases in Massachusetts, the Massachusetts Supreme Judicial Court recently issued a decision finding that a full rent acceleration remedy in a commercial lease is enforceable under Massachusetts law. The case is entitled Cummings Properties, LLC vs Darryl C. Hines 492 Mass. 867 (2023) (the “Cummings Case”), and involved an office tenant who signed a five (5) year lease but defaulted one month into the lease term. Based on the tenant’s default, the landlord terminated the lease. The default section of the lease contained a full rent acceleration remedy that, by its terms, obligated the defaulting tenant to immediately pay “the entire balance of rent due” for the remaining unexpired term of the lease – which, at that early stage, included more than four years.

Such rent acceleration provisions have been considered by many practitioners as being unenforceable under longstanding common law principles governing liquidated damages; namely, if a liquidated damages clause is not a reasonable forecast of the landlord’s damages, and would result in a significant windfall to the landlord (disproportionate to its actual lost rent damages), it would be considered an unenforceable penalty. Since a landlord can (following a tenant’s default) re-lease the space to a replacement tenant for the remainder of the original tenant’s lease term, it can collect rent to mitigate of the loss of rent that was otherwise payable by the original tenant.

If a full rent acceleration remedy was enforced, the landlord could essentially recover double rent for the same space for the same remaining lease term: (i) full rent from the original tenant (in the form of the full rent acceleration), and (ii) rent from the new replacement tenant under the replacement lease. Because of this potential for “double recovery,” and the likelihood that a landlord would realize a rent windfall disproportionately exceeding the amount of its actual damages (i.e., the “single” rent that it was supposed to have recovered from the original tenant), rent acceleration remedies such as the one at issue in the Cummings Case arguably constitute an unenforceable “penalty” under traditional common law liquidated damages principles. Indeed, in the Cummings Case the landlord did, in fact, quickly secure a replacement tenant for the space and earned rent from the new tenant for the remaining four (4) years of the original tenant’s lease term. Thus, if the rent acceleration remedy was enforced (and the original tenant was forced to also pay full rent for the same four (4) years), the landlord stood to recover duplicative rent from two separate tenants for the same space for the same period.

Despite these penalizing aspects of rent acceleration remedies in general, and despite the fact that the landlord in the Cummings Case had already recovered rent for the remainder of the original lease term, and therefore would (if the rent acceleration remedy was enforced) essentially recover double what it was owed under the original lease, the Massachusetts Supreme Judicial Court nonetheless held that the rent acceleration remedy was enforceable. Accordingly, it is the law of the land in Massachusetts that full rent acceleration provisions in commercial leases are legal, and will be enforced by Massachusetts courts.

Notably, such full rent acceleration remedies have not been common in Massachusetts leases. Well-represented tenants are loath to accept what they view as a draconian default remedy, and in general Massachusetts landlord have not pushed to impose such remedies. The more conventional practice has been to include a modified rent acceleration remedy, whereby the tenant’s obligation to pay the balance of rent due under the lease for the remaining term is offset by the fair rental value of the premises for the same remaining balance of the term.

It remains to be seen whether, moving forward in light of the Cummings Case, commercial landlords decide to push harder to include full rent acceleration remedies in their leases, and conversely, whether commercial tenants will tolerate such remedies, or continue to resist them with vigor, as they have done in the past.