§ 19.07 Using the Accounts Stated Doctrine to Establish that Rent Is Owed

• Jurisdiction: United States
• Publication year: 2022

§ 19.07 Using the Accounts Stated Doctrine to Establish that Rent Is Owed

[1]—In General

The twenty-first century features the "first appearance of cases in which courts have recognized accounts stated in commercial landlord-tenant transactions."¹ "Account stated" is a doctrine that "allows a creditor to establish entitlement to payment from a debtor when the creditor proves merely that the debtor has received bills from the creditor and has retained them without objecting to them within a reasonable period of time."²

Basically, in order to establish an account stated claim, the creditor has to include: "1) a showing of the parties to the account, as to the correct balance; 2) a promise by one of the parties to pay that balance; and 3) a previous debtor-creditor relationship between the parties."³ The existence of an account stated depends on the "particular circumstances of the parties' relationship, and looks to their prior transactions."⁴ If established, the account stated creates a presumption that the debt exists and the amount of the balance owed. The law also implies accounts acknowledged through partial payment.⁵

There is no bright line in case law to establish what constitutes a "reasonable time" for the debtor to object to the received bill. However, clearly a week is too short a time and two years is too long a time when determining what constitutes a reasonable time.⁶

[2]—Account Stated in the Commercial Leasing Context

In the commercial leasing context, since a lease exists that sets forth payment terms and amounts, the doctrine of accounts stated only applies when a dispute arises as to the amount owned when there has been purported nonperformance by the landlord.⁷ If an account stated is established, the tenant is left with merely a counterclaim as the means to dispute the amount due.⁸

Accounts stated help landlords get around "baseless and frivolous claims serving no purpose other than to camouflage unwillingness or inability to pay rent. While each monthly invoice or billing statement is a separate account stated, later invoices do not vitiate the effect of earlier ones. The original lease is still the primary basis for liability and the account stated does not replace it, but rather merges those prior obligations."⁹

Most often the disputes arise with respect to operational expenses passed on to the tenant. To help assure timely payment, landlords often include "pay now, fight later" clauses so that if a tenant questions the accuracy of a bill, he will have to protest the amount within a "reasonable time" in order to "elude a finding of an account stated."¹⁰

While an account stated is enforceable at law if it meets all its qualifications, it is still subject to equitable defenses such as fraud or mistake.¹¹ "However, neither fraud nor mistake can be used to attack the accounting methodology underlying an account stated.¹² It can only attack specific items in the account, showing that they were incorrectly calculated based on the accepted accounting methodology.¹³

[3]—Account Stated Defenses

"A tenant may refute an account stated upon showing that the landlord has failed to establish its basic elements or by proving fraud or mistake."¹⁴ However, "self-serving, bald allegations of oral protests are insufficient to raise a triable issue of fact as to the existence of an account stated."¹⁵ The tenant has to set forth specific allegations supporting its position, indicating to whom and when the rent invoices objections were made. The determinations will be based on the "factual circumstances and relationship of the parties."¹⁶ Tenants cannot claim that they never received the invoices without proof to substantiate the claim.¹⁷ It is sufficient for the landlord to show that the invoices were mailed using the regular office mailing procedure to establish a presumption of their receipt.¹⁸ In order to overcome that presumption, the tenant has the burden of proving that "those office procedures were not followed or are so careless that it can reasonably be assumed the invoice was never mailed."¹⁹ Note that certified mail, return receipt requested has proven to be very unreliable.²⁰ A good solution is to use a nationally recognized overnight courier and require a signature or fax transmission to obtain reliable proof of receipt.²¹

[4]—Drafting...