A recent Ohio Court of Appeals decision highlighted the importance of strong lease terms in commercial leases.
The Commercial Lease Dispute
The case, Scott Holding Co., Inc. v. Turbo Restaurants US, LLC, involved a commercial lease dispute concerning an Arby’s restaurant in Canton, Ohio. Scott Holding Company (landlord) sued Turbo Restaurants (tenant), an Arby’s franchisee, for closing its restaurant and halting rent payments.
The initial lease agreement required continuous operation of the business, timely rent payments, and included an acceleration clause allowing Scott Holding to demand the remaining rent if Turbo defaulted. Additionally, the lease contained a non-mitigation clause, relieving Scott Holding of the obligation to re-lease the property if Turbo defaulted.
A few months after the lease began, Turbo closed the restaurant, stopped paying rent, failed to pay property taxes, and did not notify landlord Scott Holding. The landlord discovered the closure through a city zoning violation letter, declared Turbo in default of the lease, and sued to recover all rent monies for the remaining term of the lease.
Turbo claimed it could not operate its restaurant due to a severe labor shortage and increased crime in the area. Turbo argued it was not in breach and intended to reopen when circumstances in the area improved. The tenant also argued that it did not owe the remaining amount of money for the lease because Scott Holding needed to mitigate its damages by re-leasing the property.
Court Rules in Favor of Scott Holding
Scott Holding filed a motion for summary judgment. The trial court rejected Turbo’s arguments, ruling that Turbo had assumed foreseeable risks about the restaurant, and found no substantial change in crime levels or the labor supply from when the lease originally began. The trial court enforced the lease’s mitigation waiver, meaning Scott Holding was not required to mitigate its damages by re-leasing the property. The trial court also enforced the lease’s acceleration clause which meant that once Turbo was in breach of the lease, it owed the remaining rental payments to Turbo immediately.
The trial court then awarded Scott Holding $1.9 million for unpaid and future rent. On appeal, the appellate court affirmed the judgment against Turbo.
Key Takeaways
This case highlights important clauses for commercial leases. Typically, parties must mitigate their damages. In the landlord-tenant context, that means the landlord must attempt to find a new tenant when a current tenant vacates and stops paying rent. However, in this case, the parties waived mitigation, and the court held that the commercial lease was negotiated between sophisticated parties. Therefore, Turbo already agreed Scott Holding had no duty to find a new tenant. The acceleration clause, common in many commercial leases, was also beneficial for Scott Holding as it allowed it to demand and collect all rent due under the full lease term immediately on Turbo’s breach.
Scott Holding also filed a motion for summary judgment and won. This likely saved significant legal costs of going to trial. Instead, the court was able to rule based on the briefings alone to then argue about the lease, crime rates, and other factual disputes
If you have questions about a commercial lease dispute, please reach out to KJK Litigation attorney Jeffrey R. Vaisa JRV@KJK.com.