When a commercial tenant feels that it cannot timely pay its full rent obligation, this potentially creates issues for both the tenant and the landlord. A landlord can begin taking action or can allow the tenant to pay late and/or pay less than the full rent. Both landlords and tenants need to know that, when the latter happens, that step potentially triggers certain legal ramifications, such as the waiver of terms and/or the creation of a “quasi-new agreement.” As a Georgia commercial landlord, you should make sure you’re consulting with a knowledgeable Atlanta commercial leasing lawyer before you acquiesce to nonpayment, late payment, or partial payment of rent.
The Georgia Court of Appeals addressed that issue last year. In that circumstance, the contract was a commercial sublease agreement in Atlanta. The subtenants, two law firms, allegedly fell behind in paying rent, so the sublessor, an insurance company, eventually took them to court.
The sublessor won in the trial court. The trial judge granted summary judgment in its favor on its claims, as well as all of the subtenants’ counterclaims. The insurance company had a problem, though, and the subtenants used it to score a success in their appeal.
For several years, the subtenants paid as required by the sublease. However, from January through October 2018, the subtenants made only partial rent payments. After October, the subtenants’ rent payments ceased entirely.
Despite the nonpayment, the sublessor didn’t raise the issue until mid-April 2019, when it sent the subtenants a demand letter for the unpaid rent. That delay by the insurance company was a problem, one that undermined its summary judgment and entitled the subtenants to argue their case at trial.
Allowing Nonpayment or Noncompliant Payment May Change the Terms of the Lease
Georgia law says that when one party to a lease deviates from the stated terms of the agreement — and the other party acquiesces to that departure — then the two sides may have a “mutual departure” that creates a waiver and a “quasi-new agreement suspending the original terms of the agreement.”
The Supreme Court said in 1979 that repeated nonpayments or non-compliant payments create a dispute of fact (that requires a trial to resolve) about whether those nonpayments and non-compliant payments created a quasi-new agreement. In that case, a vehicle seller repeatedly accepted “late, irregular payments” from the purchaser. Those facts meant the seller was not entitled to summary judgment on its contract case, the Supreme Court ruled.
Although a different transaction type, the logic underlying the Supreme Court’s decision in 1979 “is identical to the issue at hand” in the subtenants’ case, according to the appeals court. The sublessor failed to object to non-compliant payments and nonpayments until 16 months after those deviations started. That means that, for more than a year, the sublessor accepted the noncompliance on rent. That acquiescence created an issue of whether the sublessor had waived its right to receive full rent and had instead entered into a quasi-new agreement.
Additionally, the court stated that the presence of an anti-waiver clause in the written sublease agreement did not save the sublessor. The sublessor’s acceptance of rent noncompliance created a factual dispute as to whether that acquiescence triggered a waiver of the anti-waiver clause, in addition to a waiver of the rent provision.
For landlords, this case highlights the importance, when accepting a partial payment, a late payment, or a missed payment, of prompting notifying the tenant of the landlord’s intent to enforce the lease precisely as written in future months. Failure to do this may amount to waiving certain contractual rights.
Whether you’re a commercial tenant or landlord, you need to know your rights under the law and your lease contract. It’s also essential to understand the ramifications for you of deciding to “work with” the other side when they fail to comply with the agreement’s written terms. Count on the experienced Atlanta commercial lease attorneys at Poole Huffman, LLC to provide you with the thoughtful and knowledgeable advice you need to make informed choices, and the diligent advocacy necessary to protect your interests. Contact our attorneys online or by calling (404) 373-4008 to schedule your confidential consultation today.