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What is a Covenant of Continuous Operation?

LandlordTenant

Landlords have the legal right to put certain restrictions on the use of their property. Any restrictions should be negotiated and included within the lease. One common example is that residential landlords frequently include terms that prevent apartment renters from re-listing their place on short term rentals websites such as AirBnB and HomeAway. Another common example is that commercial landlords require tenants to agree to a covenant of continuous operation. Essentially, this is a term that requires a tenant to keep operating their business throughout the entirety of the lease. Additionally, it may require that the business is operated for a minimum number of hours each day or week.

Why a Covenant of Continuous Operation is Important

Landlords typically seek a covenant of continuous operation for two reasons:

  • Many commercial landlords lease out multiple properties that are interdependent on one and other; and
  • Commercial landlords sometimes get into an arrangement where the business agrees to pay a certain percentage of their revenue or profits as part of their rent obligations.

In either scenario, continued business operation is very important from the perspective of the commercial landlord. If a property unexpectedly ‘goes dark’, the landlord could lose out on considerable value. It could also cause major damage to a landlord’s relationship with other commercial tenants. As such, this type of term is frequently included in leasing agreements.

What are the Remedies in the Event of a Breach

If a tenant does breach a covenant of continuous operation, immediate legal action must be taken. If a landlord fails to act in a timely manner, the right to do so may be lost. While the tenant should re-open their business under the terms of the lease, Florida courts are extremely reluctant to order such an act. Indeed, this will almost never occur. A court ordering a commercial tenant to restart operation would be a form of specific performance. While specific performance is a valid contract remedy, it is reserved for the very unique situations where financial compensation would be inadequate as a remedy. Generally, a breach of a covenant of continuous operation is not one of those situations. Still, real financial damage can be done by this type of breach. As such, fair monetary compensation should be awarded to the affected commercial landlord. The amount of financial compensation available will always depend on the specific facts of the case in question. There is an inherent uncertainty in determined contract damages. To eliminate this uncertainty, many landlords and tenants will included a provision for liquidated damages in their commercial lease. This type of provision will clearly lay out the damages for a contract breach. To be enforceable in Florida, a liquidated damages provision must be reasonably related to actually anticipated damages.

Do You Need Legal Assistance in South Florida?

Our West Palm Beach landlord-tenant litigation attorneys are standing by, ready to help. We handle all types of landlord-tenant disputes. To request your free case evaluation, please call us today at 561-291-8298. We represent commercial and residential landlords throughout Southeastern Florida, including in Miami Beach, Coconut Creek and Coral Springs.

Resource:

law.cornell.edu/wex/specific_performance

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