Is a commercial tenant liable for all rents owed under a lease agreement when they breach a settlement agreement calling for payment of a lesser amount?

Creditors Adjustment Bureau, Inc. v. Imani

Facts: A commercial tenant enters into a lease agreement. The tenant defaults on rent payments and vacates the property before the lease term expires. The landlord assigns their interest in the lease to a creditor. The creditor pursues collection of all rent due and unpaid for the full term of the lease. The tenant and creditor enter into a settlement agreement calling for the tenant to pay a discounted amount, conditioned on the tenant’s liability under the lease agreement for all unpaid rent if the tenant defaults on any payment under the settlement agreement. The tenant defaults on the settlement agreement and the creditor demands payment of all rents unpaid under the lease agreement.

Claim: The tenant claims they are only liable for the discounted payment amount called for in the settlement agreement since payment of all unpaid amounts of rent on a default is unrelated to the missed payment under the settlement agreement and thus an unenforceable liquidated damages provision.

Counterclaim: The landlord claims the settlement agreement does not constitute a liquidated damages situation and the tenant is responsible for paying the full amount owed on the lease agreement since the settlement agreement was terminated by the breach.

Holding: A California appeals court holds the tenant is responsible for paying the full amount of the lease agreement since the tenant, per the settlement agreement, is to pay all rents unpaid under the lease agreement when the settlement agreement is breached. [2022-22, Creditors Adjustment Bureau, Inc. v. Imani (2022) 82 CA5th 131]

Read Creditors Adjustment Bureau, Inc. v. Imani.

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