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Important Consideration Once the Collection Process Begins

On Behalf of | Jun 27, 2014 | Uncategorized

In the third installment of “An Ounce of Prevention for the Commercial Landlord“, Kevin J. Mahoney explains important considerations once the collection process begins.

Interest, Late Fees and Attorneys Fees

A well drafted lease will provide for interest, late fees and attorneys fees to be charged against the tenant when rent is not paid on time. The lease should clearly set out how these fees are calculated and when they may be imposed. Many leases include notice provisions to the tenant before a fee can be charged. Landlords should be familiar with these notice requirements and comply with them if they expect to collect interest, late fees or attorneys fees. The lease should classify these charges as “additional rent.” Many courts have taken the position that only “rent” can be awarded in a Failure to Pay Rent action. As such, unless these charges are classified as “additional rent,” they may not be awarded by the court.

The lease should provide that the landlord may collect actual attorney fees and expenses as opposed to the generic reference to “reasonable attorneys fees.” Some courts have been interpreting reasonable attorneys fees as 15% of the unpaid rent if the lease does not provide otherwise. In many cases, the actual attorneys fees are considerably higher than 15% of the unpaid rent. In those cases, the landlord is absorbing that additional cost. A well drafted lease will pass the entire cost on to the delinquent tenant.

If the landlord wishes to charge interest, a specific interest rate should be contained in the lease. Many leases contain a provision which allows the landlord to charge interest up to the maximum allowed by law. Maryland courts have held that interest as high as 24% is not usurious and is, therefore, legal. However, without a specific reference to an interest percentage, District Court judges have awarded as little as 6% to 10% on prejudgment interest. If a lease does provide for a specific interest percentage rate, the landlord should request that the court impose post-judgment interest at the contract rate rather than the legal post-judgment rate of 10%.

Acceleration Clauses

As with interest, late fees and attorneys fees, the lease should contain a clear acceleration clause. That is, if the tenant is in default, the landlord has the right to accelerate all rent payments due under the lease. In almost every instance, there will be a notice requirement to the tenant of the landlord’s decision to accelerate the rent. Again, landlords should be intimately familiar with the requirements of these provisions so that proper notice is sent to the tenant on a timely basis.

Waiver of Jury Trial

Many leases contain a provision for the waiver of a jury trial by the tenant. If the landlord/tenant action is filed in the District Court and the amount in question exceeds $15,000.00, the tenant may pray a jury trial and have the case transferred to the Circuit Court. Even if the tenant is currently delinquent for less than $15,000.00, courts have interpreted a tenant’s right to a jury trial based on the amount of rent which would be owed over the term of the lease. Therefore, as long as the total balance for the full term of the lease exceeds $15,000.00, the tenant may have a right to a jury trial. Many tenants pray jury trial simply to delay the entry of a judgment or an eviction proceeding. Landlord should consider including a waiver of jury trial provision in the lease to avoid this delay.

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