What Constitutes a Breach of Contract?
The term, "breach of contract" is used very often by rental acquaintances and even by our friends. So, what does it really mean? Let’s look at the definition of a breach of contract. A breach of contract is a violation of a party’s contractual obligations to the other party. Violation of one or several items of the contract is sufficient to constitute a breach. Generally, a party to a contract must demonstrate that the other party: (1) breached a contractual obligation; (2) caused damages; and (3) that the damages were caused directly by the other party’s breach . So, in a nutshell, a breach occurs any time a promise in the contract is broken.
For example, using a rental contract, a breach occurs as follows: Tenant knocks out a hole in his apartment wall, violating paragraph 21.A. Therefore, Tenant must pay damages for the costs to fix the hole. This is a simple example of what a breach of contract is. However, while not as simple, most rental contracts have very clear definitions of the terms used, such as when a breach occurs or verifying something as being a breach. Breach of contract cases are also outlined under the Uniform Commercial Code (UCC), which covers breach of warranties.
Common Contract Terms in a Lease Agreement
The "terms" of tenancy are the conditions that both the landlord and tenant must abide by under the lease. The violation of these terms by landlord or tenant may result in the landlord’s ability to evict the tenant or the tenant’s ability to withhold rent. Examples of common terms include the following:
Rent – This is the amount of money the tenant will pay the landlord for the use of the property. The due date of the rent, as well as any grace periods and penalties for late payment, should be clearly stated in the lease.
Security Deposit – This is the amount of money a landlord may require at the outset of a lease and may be used to cover any unpaid rent, or expenses related to damages to the property. In addition, while a landlord is legally permitted to assess a "pet deposit" and charge for cleaning and repair of damage by cats/dogs, a condo association’s pet deposit policy requires express permission from the Association to make such an assessment. As such, the condo association’s pet deposit policy does not replace the landlord’s right to contractually require a "pet deposit" from a tenant for their dog/cat.
Length of Term – Determining the length of a lease is also important. There are two types of leases: Fixed term leases, which last for a specified time period (i.e., 6 months) and may not be terminated before the end of the lease term without prior written consent of the landlord; and month-to-month leases, which are in effect until either party terminates the tenancy in writing. By statute, a landlord must provide "reasonable notice" of their intention to terminate a month-to-month lease. The statute requires that the landlord give "reasonable notice," which is generally allowed to be as little as 30 days before the end of the month. An example of a lease termination clause may be as follows:
The Tenant may terminate this lease by providing at least thirty days’ notice, in writing, to the Landlord not less than thirty days prior to the intended date of termination. Tenants who maintain the lease renewals shall receive up to three rent reductions in a twelve-month period based on when rent payments are received as set forth herein. When a tenant has had three late payments in a twelve-month period, an automatic $50 rent increase will be imposed. After that time, the rent will continue to increase by $100 per month for each additional late payment until the lease term ends.
Tenant’s duties/Responsibilities – These describe a tenant’s obligations and responsibilities under the lease. It is important that a lease contains certain provisions. For example, unless the lease specifically states otherwise, a landlord may enter the rental unit for "reasonable cause" without advance notice to the tenant. "Reasonable cause" can include but is not limited to maintenance, pest control, and repairs. In addition, by law, a landlord must provide a tenant with his or her proper mailing address, in writing, by 1) mail or 2) in person. Such notification is often contained within the lease. In addition, a tenant has a duty not to disturb neighbors – including the other tenants in a building – and to refrain from creating a nuisance. A tenant’s failure to comply with any one of these requirements may result in the termination of the lease under Ohio law.
Types of Breaches of Lease Agreements
There are different types of breaches that can occur in a rental agreement. Not all breaches have the same potential impacts on your rental agreement. So it is important to understand the difference between a minor and material breach in a rental agreement.
A minor breach is a small issue or failure to comply with the rental terms. A minor breach is only a small breach and will have little impact on the overall agreement. An example of a minor breach would be a tenant that is repeatedly late with rent payments but eventually pays the rent. While it is annoying that the rent may be paid late, it is not a breach that is so severe that you would want to terminate the rental agreement. Once you receive the rent you are whole and the delay does not cause any serious damages or issues. Therefore, while the tenant’s late rent might be a minor breach, at some point, you may want to take action to prevent non-payment of rent down the road. But there is usually no need for immediate action regarding a minor breach until and unless the breach is repeated.
There are more serious breaches that are significant enough to justify termination of the rental agreement. In this case, you have the option to terminate the agreement, but you do not have to terminate the agreement for the minor breach. There is also a third type of breach that is the exact opposite of a minor breach. This third type of breach makes is not an option whether or not to terminate the rental agreement. In this third type of breach, it is almost mandatory that you terminate the rental agreement. It would be extremely difficult to continue the agreement and any reasonable landlord would be justified in terminating the rental agreement.
Recompense for Breach of Lease Agreements
When a rental agreement is breached, both the lessor and the lessee have legal remedies available to them. A lessor may sue the lessee for money damages (generally unpaid rent owed), for specific performance (a court order that the lessee perform the action demanded in the rental agreement), or to recover possession of the property. A lessee may sue the lessor for money damages (a lower amount than previously expected), for the difference between the rent paid to still occupy the property and the rent for a lower-cost alternative property (due to an early move), or for specific performance (a court order that the lessor perform the action demanded in the rental agreement).
If the lessee vacates the premises prior to the expiration of the term of the rental agreement, the lease is automatically terminated and all future rent obligations are extinguished. However, in some cases such as commercial leases , the lessor can sue for money damages for the present value of future rent payments or the amount of rent remaining payable under the lease agreement. The landlord must seek re-rental of the premises, if reasonable, to ensure that the lessee’s obligations are satisfied, and the lessee is not held to pay for rent he or she did not use.
If the lessor vacates the premises prior to the expiration of the term of the rental agreement, the lessee can sue for money damages with respect to any depreciation, wear or tear, or unreasonable expense caused to the leased premises. A lessee can also sue for specific performance (a court order that the lessor perform the action demanded in the rental agreement) by way of injunctive relief to enforce a covenant or agreement in the lease, or by way of an order for specific performance that the lessor do something to give effect to the lease agreement.
Avoiding Breach of a Lease Contract
While it may not be possible to completely avoid a breach of contract, there are several things that both landlords and tenants can do to reduce the risk of a breach. The first and best option is for both parties to communicate with each other about all issues regarding the rental. This means that the tenant should immediately report any problems, like leaking pipes or broken appliances, to the landlord. Likewise, the landlord should be sure to give adequate notice prior to entering the rental property, unless it is an emergency, and should not enter the property for any reason not outlined in the rental agreement.
In addition to proper communication, it is also important for both parties to keep important documents, including all communications and receipts, on hand in case something does go wrong with the contract. If a situation arises that requires legal action from either party, having a good paper trail of all issues will help build their case.
What to Do if You Experience a Breach
Whether a breach of contract is suspected, or has been proven, the first step that often should be taken is mediation. The parties can choose to resolve this issue amongst themselves, with the assistance of an independent third party who is neutral. This party can often be a lawyer, but may be another professional who has an affinity for the issues being presented. This person can help come to a resolution without the headache, time and expense of litigation . If mediation fails, often the best course of action if both parties are still interested in staying in the commercial relationship is to negotiate an addendum to their agreement and try to move forward from that point. This might involve restitution or other negotiations between the parties. The last resort, however, is litigation. If a party wants to continue with their lawsuit, they should be aware of the fact that a breach of contract lawsuit can be quite costly, both financially and with respect to the time that has to be put in to retrieving restitution.