The Ubiquitous “Excess Rent” Provision

The boilerplate “excess rent” or “rent differential” clause appears in many commercial leases.  Usually buried in a voluminous lease, no one pays much attention to it until the tenant vacates and the landlord sues for damages.  All of a sudden, the excess rent clause assumes critical importance as the landlord tries to prove up its damages.  The rent differential/excess rent section generally provides that when a tenant prematurely vacates commercial property, the landlord can recover the difference between (A) the present value of lease rent owed through the unexpired lease term and (B) the fair market rent for the unexpired term (rent through the balance of lease at lease rate minus market value of rent through lease expiration).  St. George Chicago, Inc. v. George J. Murges & Associates, Ltd., 296 Ill.App.3d 285 (1st Dist. 1998).  In Illinois, these rent differential terms are enforceable and will satisfy the lessor’s statutory duty to mitigate set forth in Section 9-213.1 of the eviction statute.

So if the breaching tenant was paying $1,000 a month under its lease, and the landlord can only find a replacement tenant who pays $600/month – the landlord can recover $400/month ($1,000 minus $600) times the numer of months left on the defaulting tenant’s lease.  Of course, if the market value is now $1,500/month – $500 more than the lease amount – the landlord cannot recover anything.  Instead, the landlord’s recovery will be limited to its damages incurred through the date the replacement tenant begins paying rent.

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.

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