Does Your State Law Limit Percentage Rent Suit?

Does Your State Law Limit Percentage Rent Suit?

If you sign a lease for space with an owner that entitles the owner to percentage rent, but you move out before the end of your lease, you may be surprised if the owner decides to not immediately sue for the overdue percentage rent that you stopped paying when you moved. How long do you have to look over your shoulder, waiting for it to file such a lawsuit? That can depend on state law. If the owner waits several years to sue you, it may lose its chance to recoup all of the percentage rent it’s owed.

If you’re dealing with a lawsuit years after you moved, you could ask the court to dismiss the owner’s lawsuit, arguing that the owner waited too long to sue for the unpaid percentage rent. In a significant commercial real estate case in federal court in Mississippi, the court ruled that an owner could not sue for all of the unpaid percentage rent it was owed.

Mississippi law bars the owner from making claims for percentage rent that becomes due more than three years before the start of its lawsuit, noted the court. The owner knew that the tenant had vacated its space in 1993. There was “no good reason” why the owner should be allowed to wait until 2006 to file its lawsuit, said the court. The court added that more discussion was needed to determine whether the retailer owed the owner any percentage rent, because the retailer didn’t generate any gross sales from the space after vacating the space [Southgate Shopping Center v. Walmart Stores, Inc., November 2006].

Not a subscriber? Click here for a free trial issue!