A recent Maryland Supreme Court opinion has important implications for commercial landlords and tenants regarding common lease provisions that contain waivers of tenants' rights to avoid eviction following delinquency complaints.

In Kapneck 14-16 LLC v. Bkeezy’s Speakeasy LLC, the court’s justices had significant disagreements over the core issues, but the main takeaways are that parties that wish to agree to so-called redemption waivers should ensure that such provisions are comprehensive and detailed (probably more so than most) and that landlords should give tenants painstakingly early, precise, and detailed notice of all monetary charges being incurred that the landlords deem "additional rent" under applicable lease terms.

The Maryland Supreme Court’s decision in Kapneck involved a beer and wine store, Bkeezy’s Speakeasy, that rented commercial space in downtown Frederick, about an hour northwest of Washington, DC.

The lease required Bkeezy’s to pay utility charges, taxes, late fees as applicable, and any attorneys' fees and other costs incurred by Kapneck 14-16 in the event of a default by Bkeezy’s. All of these amounts were defined in the lease as types of additional rent.

Kapneck filed a summary ejectment action after Bkeezy’s failed to pay certain amounts due. Bkeezy’s was current with its base rent but was alleged to have failed to pay various additional rent amounts.

Importantly, the lease contained the following waiver: "If Tenant should fail to pay any Basic Rent or additional rent when due, and Landlord initiates any court action against Tenant because of its failure to pay Basic Rent or additional rent, Tenant hereby waives its right to redeem the Premises from any summary ejectment or unlawful detainer proceeding against Tenant in any court."

When faced with a delinquent tenant, Maryland landlords have a statutory right to file a complaint for unpaid rent and get a trial five days later, a lightning-quick remedy known as "summary ejectment." Because the operation of this statute can be harsh, a tenant has the ability at two separate points in time — before judgment and after judgment — to pay what’s due and avoid eviction. This is sometimes called "redeeming" the tenancy.

Commercial landlords, in an effort to enhance their ability to deal with problem tenants, frequently obtain lease provisions that waive these tenant rights of redemption. This way, a landlord can pursue a summary ejectment without fear that its efforts will have been wasted when the tenant redeems at the last minute. This also enables the landlord to avoid keeping a habitually delinquent tenant on the rolls through successive proceedings and redemptions. If the redemption right is waived, in theory, the landlord can get the tenant out once and for all in one shot.

The Maryland Supreme Court’s Opinion

The District Court for Frederick County relied on that waiver language and granted Kapneck a judgment of possession. The Circuit Court for Frederick County disagreed, though, holding that Bkeezy’s had not received proper notice of some of the additional rent that Kapneck was claiming.

The Maryland Supreme Court then took up the case and ruled, in an opinion authored by Justice Steven Gould, that a clause waiving a nonresidential tenant’s statutory right of redemption does not violate Maryland public policy and is enforceable. The court also ruled that, under governing case law, Maryland statutes, and lease provisions like the one in Kapneck, tenants are entitled to detailed notice of any and all allegedly unpaid charges deemed additional rent before the landlord can proceed to seek summary ejectment. The court ruled, for example, that Bkeezy’s was not liable for water and sewer charges until five days after Kapneck forwarded Bkeezy’s those bills and that Bkeezy’s was not required to pay any claimed attorneys' fees unless and until the second day of the month after Kapneck had provided notice and demanded reimbursement of the fees.

The court also made a distinction between a right of redemption after judgment has been entered and a tenant’s right to pay the amounts due before judgment, which the court did not appear to view as a redemption.

There were important dissenting views, however. Justice Shirley Watts and Justice Angela Eaves opined that the majority’s ruling on the enforceability of redemption waivers was unnecessary and therefore holds no precedential value. Justices Watts and Eaves also concluded that the particular waiver language in the tenant’s lease did not waive the statute at issue, since, in their view, there is no such thing as redemption before judgment, and a redemption after judgment is not part of the proceeding. Justice Peter Killough would have ruled that this type of waiver is not enforceable as a matter of public policy.

The upshot of the majority opinion and the concurrences and dissents is as follows:

• The entire court appears to view (or be likely to view, if called on to decide the issue) the post-judgment redemption right as a different category from the pre-judgment right to pay and stay.
   
• The entire court appears to agree that a tenant is entitled to detailed pre-suit notice of all additional rent amounts in order for a summary ejectment case to proceed.
   
• Only four of the seven justices have concluded that redemption waivers are enforceable in the first place, meaning that a minor change in personnel on the court could result in such waivers being deemed invalid en masse.

Key Takeaways for Commercial Landlords and Tenants

There are several significant practical implications of this opinion for parties to commercial leases in Maryland:

• Parties should review their leases to determine exactly what they do or do not say about any waiver of rights to redeem. If the provisions refer only to redemption, they may be held not to waive the pre-judgment right to pay and avoid eviction. Parties wishing to ensure their waiver provisions have the intended effect should consider expanding and multiplying waiver language in future leases to cover all conceivable redemption and redemption-like rights that tenants may claim.
   
• To reduce uncertainty, parties should consider providing more detail than before in their leases as to the nature, amount, and due dates of additional rent charges, eliminating or at least reducing tenants' need for any additional information in order to determine their precise obligations.
   
• Late-fee, attorney-fee, and similar provisions that are drafted to be automatic, not discretionary, may help to preclude a court from concluding that these charges were not due and therefore cannot support a summary ejectment.
   
• Before attempting to secure a summary ejectment, landlords should first provide detailed pre-suit notice and allow contractual cure time for any additional rent they plan to claim. Amounts that are not yet due under the lease terms and Maryland law will not support a summary-ejectment proceeding. And, given the Kapneck opinion, courts may become more inclined to conduct a detailed, item-by-item analysis of categories of additional rent claimed and the particular notice requirements as to each. If certain items are found not to have been properly or adequately made known to the tenant in advance of suit, the summary ejectment may bog down for that reason alone and become a tedious, gradual ejectment process.
   
• Although redemption waivers are confirmed to be legally enforceable in Maryland under the Kapneck opinion, the dissenting opinions suggest that the Maryland Supreme Court’s majority on that issue may be razor-thin. Changes in the composition of the court could result in a bar on waivers of redemption rights.

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