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COLORADO REAL ESTATE JOURNAL
— December 17, 2014-January 6, 2015
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Law & Accounting
M
any
commercial
leases today provide
varying
methods
with which to determine a ten-
ant’s rent. A tenant’s rent can be
based on the square footage of
its premises or can escalate based
on a fair market rental rate or the
Consumer Price Index or may be
based on some alternative calcula-
tion negotiated by the parties.
Determinations of a tenant’s
share of common area expenses
or a tenant’s percentage rent are
often based on varying yearly fig-
ures. In eachof these instances, the
figures or the formulas used may
be reasonably disputed between
the parties. A landlord may claim
that a tenant has underpaid its
rent and demand payment of
the underpaid amount, and con-
versely, a tenant may claim that
it has overpaid rent and demand
a refund of excess charges from
its landlord. This article pro-
vides a brief summary of certain
issues that are a consequence of
those payment disputes, with
an emphasis on the dispute that
arises well after the date onwhich
such payment was due.
n
Underpayment of rent.
In
cases of underpayment of rent,
the relevant Colorado statutes
are C.R.S. § 13-80-103.5(1)(b) and
C.R.S. § 13-80-108(4). These stat-
ues provide, respectively, and in
part, that all actions for arrears of
rent shall be commenced within
six years after the cause of action
accrues and not thereafter, and
causes of action for debt, obli-
gation, money owed or perfor-
mance shall be considered to
accrue on the date such debt, obli-
gation, money owed or perfor-
mance becomes due. Courts have
held that these statutes dictate
that claims for monthly under-
payments will be considered to
have accrued on the date the rent
became due, rather than upon the
discovery of a contractual breach.
In some instances, a tenant may
be able to assert that the land-
lord has waived its right to col-
lect underpaid rent; however, case
law is inconsistent on this issue. In
one case, the landlord was found
to have waived its right to recoup
additional rent when it accepted
rent for 2½ years without increas-
ing the rent according to the for-
mula in the lease and demanded
the underpaid rent when the
tenant requested the landlord’s
consent to a lease assignment.
(Zarlengo v. Farrer, 683 P.2d 1208
[Colo. Ct. App. 1984]). The lease
in that case
had a non-
waiver clause,
but without
explanation
the court dis-
missed
the
l a n d l o r d ’ s
reliance on
that
provi-
sion, referenc-
ing an install-
ment sale case,
which held in
part that an
anti-waiver
clause is itself subject to waiver
or modification by course of per-
formance. In another case, when
a tenant exercised its purchase
option, the landlord refused to
honor it because of the tenant’s
failure to pay certain increases
in rent, notwithstanding that the
landlord neither notified the ten-
ant of any rent increase under the
lease nor objected to the amount
of rent paid. (Kimmick v. San-
tilli, 596 P.2d 1223 [Colo. Ct. App.
1979]). The court held that the
landlord’s acceptance of partial
monthly rent for 20 years without
objection constituted a waiver of
its right to rely on the tenant’s
default as grounds for terminating
the lease and denying the exercise
of the tenant’s repurchase option;
however, the court still required
the tenant to pay the underpaid
amount to the landlord.
Ultimately, Colorado case law
suggests that where a landlord
could have charged the tenant
increased rent but failed to timely
do so, landlords may be suscep-
tible to the waiver defense. The
waiver argument will be less
successful in those cases where
the tenant is solely in possession
of the information necessary to
determine the rent and the land-
lord could not have reasonably
determined what was due.
n
Overpayment of rent.
The
issue of overpayment of rent, as it
relates to the statute of limitations,
generally appears to be a matter
of first impression for Colorado
courts. A Colorado court held in
the early 1950s that a tenant who
overpaid crop rentals to its land-
lord was entitled to recover the
excess payments even though the
mistake had been unilateral and
without deceit or unfairness on
the part of the landlord; however,
that case did not address the issue
of statutes of limitations.
Courts in other jurisdictions
haveexaminedthe issueofwheth-
er a statute
of limitations
period applies
to a dispute
over the over-
p a y m e n t
of rent and
generally are
split on their
d e c i s i o n s .
For
exam-
ple, in New
York a tenant
brought an
ove rcha rge
claim against
the landlord arising from an
escalation clause in the lease.
The court held that the tenant’s
claim accrued upon its receipt of
the landlord’s first yearly state-
ment almost 12 years before the
tenant commenced the action,
which gave the tenant construc-
tive knowledge of the landlord’s
method for calculating the escala-
tion payments under the lease,
and thus the statute of limitations
barred the tenant from recovering
all overpayments. Yet in another
New York case, the court held
that a tenant did not have actual
or constructive knowledge of the
landlord’smethods for calculating
the tenant’s escalation payments,
and thus the tenant’s breach of
contract and unjust enrichment
claims accrued separately for each
rent installment. In this case, the
court upheld the tenant’s claims
arising from rent installments that
accrued within New York’s six-
year statute of limitations period,
but not those that accrued outside
of the statute of limitations period,
and noted that a complete bar to
challenging the method for esca-
lation payments may be exces-
sively harsh considering the costs
involved and the average length
of a commercial lease.
In other cases, states have
applied what is known as the
“voluntary payment doctrine” to
prevent a tenant from recovering
alleged rent overpayments, even
within the applicable statute of
limitations. The voluntary pay-
ment doctrine provides that one
who makes a voluntary payment
with knowledge of the relevant
facts cannot later sue to recover
the payment, even if there was
no legal liability to make the pay-
ment. Colorado has adopted the
voluntary payment rule, but it
has not been expressly applied
Julia W. Koren
Associate, Senn
Visciano Canges,
Denver
Matthew D.
Pluss
Director, Senn
Visciano Canges,
Denver
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