The Montana Supreme Court disapproves of acceleration clauses in leases. The Montana Supreme Court has also questioned whether leases should be allowed to specify penalties for lease breaches. (As in lease clauses like, “If tenant moves out early, tenant owes a $400 early termination fee.”)
Because of this, Montana Landlords and Property Managers are no longer putting acceleration clauses in their leases. Also, more and more Landlords and Managers are redrafting their leases so they don’t have specific penalties for various breaches.
The problem with these new practices is that they raise the following question for Landlords and Managers:
What should a Landlord charge a tenant when the tenant breaches a lease?
The following explains what a Montana Landlord or Manager should charge a tenant who breaches a lease:
- The most important concept to remember is that a Landlord is entitled to actual damages. “Actual Damages” is a great legal term because it means exactly what it says.
- The term “actual damages” means the following:Actual Damages are What the Landlord would have been entitled to under the lease if the tenant hadn’t breached, minus the Landlord’s duty to mitigate.
- What this means is that the Landlord is entitled to rent through the date that the property is re-rented (or the lease’s end whichever comes first)assuming the Landlord tries reasonably hard to re-rent the property. This means that the Landlord should promptly clean, renovate the property and advertise it for re-rental. In a recent case, the Montana Supreme Court seemed to imply that the Landlord is required to run specific advertisements for the exact rental unit involved. While this would seem absurd in an instance where a Landlord is already maximizing local print advertisements, it’s no longer an expensive requirement. Advertisement of individual units can be done for free and with very little effort on Craigslist. Obviously, the Landlord should print and retain any mitigating advertisements so that the Landlord’s efforts to mitigate can be proven.
- The next important question is how these actual damages should be charged to the tenant. The Montana Supreme Court opinion has made it painfully clear that the Landlord can only bill the tenant’s security deposit for damages which accrue within 30 days after move out. This creates a significant problem for Landlords since it may take several months or longer to re-rent the unit. However, the Court is clear on this issue. Only damages which accrue within the 30 days after move out can be charged to the security deposit. Other damages including lost rent beyond the 30 days can still be charged directly to the tenant. However, since the damages which accrue outside of the 30 days must be billed outside of the security deposit, those damages will probably be sent to collections to languish