Commercial rent acceleration clause invalid if it is a "penalty"

The Massachusetts courts say that there is no duty to mitigate damages in commercial leases but they sure look like they recognize such a duty when a lease has an acceleration clause (requiring the full remaining rent for the rest of the lease to be paid if rent payments are missed). In the case of Cummings Props., LLC v. Hines, 2022 WL 17409280 (Mass. App. Ct. 2022), a commercial tenant defaulted only two months into a five-year lease and the landlord demanded the tenant pay the full rent for the rest of them five-year lease term in accodance with an acceleration clause in the lease that required this. The rent was $1364.50 per month and the damages would have been $74,000.

The court recognized that acceleration clauses were valid and enforceable but applied ordinary contract doctrine that enforces liquidated damages (damage amounts set in contracts) only if they are a reasonable advance estimate of likely damages. Since it was unlikely the landlor could not re-rent the property for five years, the $74,000 amount was a "penalty" rather than a reasonable estimate of damages. Instead, the landlord was able to collect actual damages, including the unpair rent, the rent the landlord would lose between the first tenant moving out and a new one moving in, the cost of finding a new tenant, any difference in the old and new rent, etc.

While the acceleration/liquidated damages issue is distinct from the duty to mitigate damages, refusing to enforce the acceleration clause in this instance does mean that the landlord has no right to wait until the end of the lease, leave the premises vacant, and sue the tenant the past rent due. That is exactly what the duty to mitigate damages would prevent.