We Forgot to Increase the Rent. Can the Landlord Still Collect It?
It happens more often than you might think.
A commercial lease calls for a 3% annual rent increase. The tenant pays every month. The landlord accepts the payments. Everyone assumes the rent is correct.
Then, three years into the lease, someone actually reviews the rent schedule.
The annual increases were never implemented.
Now what?
The Lease Still Matters
If a written lease clearly provides for scheduled rent increases, failing to invoice the increased amount does not necessarily mean the landlord has lost the right to collect it.
In California, the general statute of limitations for an action based on a written contract is four years. When a lease requires monthly rent payments, California courts have also recognized that each monthly payment can constitute a separate contractual obligation, with its own limitations period.
In Tsemetzin v. Coast Federal Savings & Loan Association, a California Court of Appeal addressed unpaid rental increases under a written lease and held that the landlord could pursue unpaid rent installments that had become due during the preceding four-year period.
So consider a simple example.
A lease begins at $10,000 per month and calls for a 3% annual increase.
The first increase is missed.
The second increase is missed.
Three years into the lease, the landlord discovers the error.
The tenant hasn't necessarily been paying the agreed rent. The tenant may simply have been paying what it was invoiced.
Those aren't always the same thing.
Can the Landlord Send a Bill for the Difference?
Potentially, yes.
If the lease clearly establishes the rent schedule and the unpaid amounts fall within the applicable limitations period, the landlord may have a contractual claim for the difference.
But that's where the analysis begins—not where it ends.
Before sending a tenant a large retroactive bill, the landlord should review the lease and the history between the parties.
Questions can include:
Does the lease automatically increase the rent, or is some form of notice required?
Does the lease contain a non-waiver provision?
Did the landlord knowingly agree to accept the lower rent?
Were there emails, amendments or other communications that could affect the analysis?
How long has the underbilling been occurring?
Has the landlord's conduct potentially created a waiver or other defense?
Are there any tenant-specific statutory protections that need to be considered?
For certain qualifying small commercial tenants in California, additional statutory requirements can also apply to rent increases, making it particularly important to review the specific tenancy and lease before taking action.
California vs. Idaho
Because MAINBRACE manages properties in both California and Idaho, there is an important distinction between the two states.
In California, the statute of limitations for an action based on a written contract is generally four years. In Idaho, the corresponding limitation period for an action based on a written contract is generally five years.
That doesn't necessarily mean a landlord can simply look back four or five years and send the tenant a bill. Each missed payment may have its own accrual date, and the lease language, notice requirements, waiver provisions, prior communications and conduct of the parties can all affect the landlord's ability to recover.
It does, however, reinforce an important point: waiting to discover a billing mistake can reduce the amount an owner may ultimately be able to recover.
A missed rent increase caught in month 12 may be relatively easy to address. The same mistake discovered several years later can become a much more complicated—and expensive—problem.
California: Generally 4 years for written contracts
Idaho: Generally 5 years for written contracts
This is general information only and not legal advice. Statutes of limitation and available remedies depend on the specific lease, facts and applicable law.
The Bigger Problem: Nobody Caught It
The legal question is important.
But from a property owner's perspective, there's another question worth asking:
How did a contractual rent increase go unnoticed for three years?
A 3% increase may not sound significant in isolation. Over several years—and especially across multiple tenants or properties—the lost cash flow can become substantial.
And rent increases aren't the only provisions that get missed.
The same thing can happen with:
CAM and operating expense reconciliations.
Property tax reimbursements.
Insurance requirements.
Security deposit adjustments.
Maintenance obligations.
Option and notice dates.
Management or administrative fees.
Other tenant reimbursements permitted under the lease.
A lease can give an owner the right to collect an expense, but that right doesn't automatically put money in the owner's bank account.
Someone still has to administer the lease.
Don't Wait Until Year Three
For industrial property owners, periodic lease reviews can uncover discrepancies before they become significant problems.
At MAINBRACE, we believe lease administration should involve more than entering the monthly rent into accounting software and waiting for a payment.
The lease should be actively compared against what is actually being billed, collected and performed at the property.
Because discovering a missed rent increase in month 36 is certainly better than discovering it in month 60.
But discovering it in month one is better still.
MAINBRACE | Industrial Property Management & Lease Administration
This article is provided for general informational purposes only and is not legal advice. Lease rights and remedies depend on the specific lease, facts and applicable law. Property owners should consult qualified legal counsel regarding specific lease disputes or potential recovery of previously unpaid amounts.
