Brief Fact Summary.
The Iowa Supreme Court ruled that an accelerated damages clause may be enforced so long as it is reasonable in comparison to the actual harm caused by the breach.
Synopsis of Rule of Law.
If a lease contains an accelerated damages clause, the clause may be enforced by the landlord so long as it is reasonable in comparison to the anticipated or actual loss that may be caused or was caused by the breach.
Aurora Business Park Associates (Plaintiff) granted a lease to Michael Albert Inc. (Defendant) to operate a business. The parties agreed to a five-year lease, however, after two years Defendant abandoned the premises. The lease contained an acceleration clause which would allow the Plaintiff to collect the unpaid rent in anticipation of Defendant failing to abide by the lease. Plaintiff was unable to find someone new to lease the premises. The clause stipulated that the Plaintiff has an obligation to find someone to take over or create a new lease in order to mitigate the damages. Upon finding no one, Plaintiff filed suit to recover the unpaid rent as well as the cost of searching for a new tenant. Defendant moved to dismiss claiming that the Plaintiff failed to reasonably search for a new tenant or alternatively, that the court should reduce the damages to the fair market value. The trial court ruled against the motion to dismiss and awarded plaintiff the remaining rent plus costs. The trial court ultimately reduced the award to the present value of the future accelerated rent payments. Defendant appeals claiming Plaintiff is in a better position than if the lease had not been breached while also arguing the clause was an unenforceable penalty.
If a lease contains an accelerated damages clause is it enforceable so long as it is reasonable in anticipation or actual loss resulting in damages ultimately caused by the breach?
Yes. If the enforcement of the accelerated damages clause is reasonable in anticipation or actual loss of value resulting in damages caused by the breach of the lease. However, the court notes that a landlord must take reasonable steps in finding a new tenant in order to mitigate the damages. The Court further notes that a landlord cannot receive the unpaid rent from the breached tenant and receive payments of rent for the new tenant.
In this state we are committed to the doctrine that when a tenant wrongfully abandons leased premises, the landlord is under a duty to show reasonable diligence has been used to relet the property at the best obtainable rent and thereby obviate or reduce the resulting damage.View Full Point of Law
The Court notes that the landlord can recover damages for a breach from a lease but may not impose penalties.