Some tenants are asserting defenses to the obligation to pay rent, particularly where their businesses are closed entirely because of the Covid-19 pandemic. However, if a tenant does not pay rent, it may lose the ability to exercise an option to extend, it may lose future rent abatement, or there could be other repercussions. Under the AIR CRE Leases, can Lessee pay Rent “under protest” and retain its right to reimbursement?
Short Answer: Yes. Lessee can pay “under protest,” however, it must file a lawsuit within 6 months, otherwise it waives its right to protest such payment.
Lessee’s Right To Pay “Under Protest”: If there is a dispute regarding whether Rent (or any payment) is due, Lessee may pay Rent “under protest” under the AIR CRE Leases. Paragraph 42 [or 43] of the AIR CRE Leases provides: “[i]f at any time a dispute shall arise as to any amount . . . the Party . . . shall have the right to make payment ‘under protest’ and such payment shall not be regarded as a voluntary payment and there shall survive the right . . . to institute suit for recovery of such sum.”
How should Lessee communicate that it is paying Rent “under protest”? The AIR CRE Leases do not specify how this should be communicated. Common ways include writing “payment made under protest” on a check and/or advising Lessor by email that Rent is being paid “under protest.” Lessee should advise Lessor of this fact prior to or simultaneously with the payment, and should not wait until after the payment is made.
Note: Under the AIR CRE Leases, both Lessor and Lessee have a right to pay a disputed amount “under protest.”
6-Month Deadline To Sue: If Lessee pays Rent “under protest,” it must file a lawsuit to recover the amount due within 6 months. If it does not meet the 6-month deadline, Lessee “shall be deemed to have waived its right to protest such payment” under the AIR CRE Leases.
Excerpt from AIR CRE Leases
Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. A Party who does not initiate suit for the recovery of sums paid “under protest” within 6 months shall be deemed to have waived its right to protest such payment.
Note: In some AIR CRE Leases, the “Performance Under Protest” paragraph is numbered Paragraph 42, and in others, it is numbered Paragraph 43. This paragraph is not included in the Multi-Tenant Month To Month Lease – Gross.