Performance Under Protest

What this clause does

Sooner or later you will get a bill from your landlord that you think is wrong. You have two bad options without this clause: refuse to pay and risk a default, or pay and risk being told later that you accepted the charge. The protest clause offers a third path. You pay, or perform, while telling the landlord in writing that you dispute it, and you keep the right to recover the money if you turn out to be right.

The catch is the deadline. Most versions give you a fixed window after payment to start a lawsuit or other formal proceeding. Standard industrial forms commonly use a period measured in months. If the window closes without action, the payment typically becomes final.

Why it matters in industrial leases

Industrial tenants on net leases pay a lot more than base rent, and the pass-throughs are where disputes live. Common flash points include the annual operating expense reconciliation, capital items such as a roof or parking lot that show up as operating expenses, a share of HVAC replacement that looks out of proportion to your remaining term, property tax increases after a sale, restoration charges at move-out, and the landlord's markup on work it performed on your behalf.

Withholding payment on any of these is risky. Many leases treat any unpaid charge as rent, which means a small dispute can trigger the same default machinery as missed base rent, and put your free rent and deposit in play. Paying under protest keeps you in good standing while the argument continues. It also protects the concessions you negotiated, keeps your option rights intact where the option requires you to be free of default, and avoids a messy estoppel certificate if the building is sold or refinanced during the dispute.

How to use it well

Protest in writing at the time you pay, not afterward. Send the protest to the notice address in the lease, name the specific charges you dispute and the amounts, and say that you are paying under protest and reserving your rights. Keep paying everything that is not in dispute. Then put the deadline to file on your calendar the same day.

Pair the protest with your audit rights. Most leases allow some review of the landlord's books, though they may limit who can do the review. Start by charting several years of reconciliations to spot jumps by category, then compare the numbers with typical costs for similar buildings. As I describe in Industrial Intelligence, an audit can come back in your favor or reveal an under-billing, so weigh whether the fight is worth the time before you start it.

Where it goes wrong

One frequent failure is simple: the tenant protests, the conversation drags on, and nobody watches the calendar. Months of emails with a property manager do not stop the clock. When the window closes, the landlord can treat the payment as settled even if the underlying charge was wrong.

A second failure is paying without saying anything. A quiet payment can later be described as an agreement that the charge was correct. If you intend to dispute a bill, the written protest needs to go out with the check or the wire, not weeks later.

A third is protesting everything. If every invoice gets a form letter, the protests lose their weight and the relationship suffers. Save the formal protest for charges that are material and that you have a reason to question, and handle small items in conversation.

What to negotiate

Make sure the window to challenge is long enough to finish an audit. A short deadline that runs before the landlord even produces its records defeats the purpose. Ask that the clause apply to both parties, that refunds carry interest, and that an email protest to the notice address counts. Make sure it lines up with your audit provision, so the audit period and the protest deadline do not work against each other.

Before you rely on a protest to preserve a significant claim, have a real estate attorney confirm what the lease requires and how the deadline is counted.