Many commercial landlords are faced with a tenant’s surrender of the premises. When a tenant breaches a commercial lease by abandoning the leased premises, landlords often wonder whether they can sue the tenant to collect the remaining rent owed through the end of the lease term.
If the commercial lease allows the landlord to recover “accelerated rent” (and if it contains the appropriate liquidated damages language), then the landlord may be able to recover a lump sum from the defaulting tenant. However, the landlord’s claim for accelerated rent could be jeopardized if the landlord accepts the tenant’s surrender of the premises.
What does it mean to accept a tenant’s surrender of the premises? That question was the subject of a recent case before the Georgia Court of Appeals. In CPI-Phipps, LLC v. Billboard Corp., et al., the Court of Appeals considered whether a landlord accepted a tenant’s surrender of the premises, and therefore forfeited any claim to rent after that date. (A22A1285)
A Tenant’s Surrender of Premises: Facts
The underlying case involved a popular Buckhead restaurant known as The Tavern at Phipps.
The restaurant continuously operated at the Phipps Plaza mall until March 2020, when it closed due to the COVID-19 pandemic. The Tavern reopened in May 2020, with limited operating hours and additional restrictions on its operations. The parties continued to negotiate the terms of operations but were unable to reach an agreement. In October 2020, the Tavern permanently closed.
The Tavern mailed the keys to Phipps in early October 2020. Phipps responded with a letter acknowledging the Tavern had vacated the premises and requesting that the Tavern remove its personal property from the premises. Phipps refused to allow the Tavern to remove its sign from the exterior of the building and stopped sending monthly rent statements. The premises remained vacant.
Phipps eventually filed suit, seeking past due rent, future rent, attorneys’ fees and costs. In the trial court, the Tavern filed a motion for summary judgment, arguing that Phipps accepted the tenant’s surrender of the premises in October 2020.
After the trial court granted the motion for summary judgment with respect to the tenant’s surrender of premises, Phipps appealed. On appeal, Phipps argued that a surrender of the premises must be mutually agreed upon between landlord and tenant so as to terminate a lease. The landlord argued that the evidence in the underlying case was inconclusive to show Phipps intended to terminate the lease.
The Court of Appeals distinguished a surrender, in which a landlord accepts possession with the intent to terminate the lease, from an abandonment, in which the tenant acts alone, without the landlord’s acquiescence. For a surrender to have occurred, there must be either:
(1) an express agreement between landlord and tenant, or;
(2) circumstances showing landlord exercised exclusive control over the premises. See Savannah Yacht Corp. v. Thunderbolt Marine, 297 Ga. App. 104, 111 (2009) and Meek v. Mallory & Evans, Inc., 318 Ga. App. 407 (2012).
The Court of Appeals analyzed the facts in the underlying case. It found Phipps’ acceptance of keys and demand for the Tavern to remove its property from the premises were insufficient to demonstrate an intent to accept the surrender of the premises. After a tenant abandons the premises, the landlord is allowed to take steps to secure the premises without being deemed to have accepted the tenant’s surrender.
The Court of Appeals further found that the exterior of the premises was never under the Tavern’s control, so Phipps’ failure to allow the Tavern to remove its sign was consistent with the parties’ respective obligations under the terms of the lease.
Finally, the Court of Appeals found there was a question of fact as to whether Phipps accepted its tenant’s surrender of premises. Accordingly, the Court of Appeals reversed the trial court’s grant of summary judgment and remanded the case to the trial court. At this time, the case remains pending in the trial court.
How Can We Help?
If you are a commercial landlord and you need advice regarding a tenant’s surrender of premises or a dispute with a tenant, please reach out to me.
Katherine Silverman is a business litigator with a unique depth of experience in handling commercial real estate disputes.