Commercial Leasing Law & Strategy ®

Volume 24, Number 11 • May 2012

In the Spotlight

Fundamentals Of Constructive Eviction

By David P. Resnick evolution in the law, embodies a tenant’s of the objectionable condition, following and Erin Brechtelsbauer entitlement, notwithstanding the express which the landlord may cure the viola- provisions of the lease, to use and occupy tion. The tenant may remain in the prem- In market conditions that are favorable its leased space without disturbance from ises while it waits for the landlord to cure. to tenants, landlords should be particu- insufferable conditions that are under the However, if the landlord fails to cure within larly vigilant with regard to the express landlord’s control, and to certain standards a reasonable time, the tenant may — and and implied covenants under their leases. of maintenance of the premises by the often, must — abandon the space if condi- Historically, the tenant’s obligation to pay landlord. Constructive eviction developed tions do not allow continued occupancy. A rent and the landlord’s obligation to main- from the covenant of quiet enjoyment successful constructive eviction action ab- tain the condition of the premises were when courts sought to offer expanded re- solves the tenant from its obligation to pay held to be independent of one another; lief to tenants who are facing the most se- rent and fulfill its other obligations under thus, when the landlord failed to main- vere landlord breaches. the lease. tain the condition of its building properly Second, the landlord’s breach must ren- or to provide a tenant with one or more Co n s t r u c t i v e Ev i c t i o n De f i n e d der the premises unfit for occupancy or building services as required under its A constructive eviction occurs when a deprive the tenant of beneficial enjoyment lease, the tenant would be entitled only to tenant has surrendered possession of its of the premises. The most straightforward sue for specific performance or damages. leased premises as a result of a breach or examples of the required “materiality” Over time, however, the doctrine of con- disturbance by the landlord that is mate- and “permanence” are those arising from structive eviction has developed under the rial and permanent enough to render the a landlord’s failure to provide heat, elec- law to allow a tenant the added remedy premises unfit for occupancy or deprive tricity or other essential utilities, failure of terminating its lease when the landlord the tenant of the beneficial enjoyment of to complete required repairs or improve- has failed to perform. Today, constructive the premises. The doctrine may be used ments, and interference with the tenant’s eviction may present a commercial tenant by a tenant both as a basis for a claim for ingress and egress to the premises. More with an effective means of both enforcing relief against a landlord, and as an affir- obscure examples include the presence of its rights under the lease and defending mative defense against a landlord that has asbestos, toxic building materials and oth- against landlord claims of breach. sued for abandonment of the premises. er adverse environmental conditions, the At the core of a tenant’s protection Tenants have become increasingly aggres- failure by the landlord to procure required against untenantable conditions in its sive in their use of constructive eviction as permits or governmental approvals, ha- premises is the landlord’s covenant of both an offensive and defensive legal tac- rassment by the landlord and insufferable quiet enjoyment. This covenant, which tic, and courts have adopted varying inter- conduct of neighboring tenants. While has sustained a long and meandering pretations of the required elements. Con- courts are faced with questions of fact in sequently, the nuances of this definition each instance, the landlord’s conduct must merit a detailed discussion. be so severe that the tenant is essentially First, constructive eviction can only denied occupancy of the physical space as be maintained after the tenant has sur- agreed under the lease. David Resnick, a member of this newslet- ter’s Board of Editors, is a real estate attor- rendered the premises. The foundation of ney in the Chicago office of Edwards Wild- constructive eviction is that the landlord’s Ex a m p l e s o f Co n s t r u c t i v e Ev i c t i o n man Palmer LLP. Erin Brechtelsbauer is a failure to perform under the lease forced Recent court cases have highlighted the commercial litigation attorney in the same the tenant to vacate. In some jurisdictions, expanding margins of the doctrine of con- office. the tenant owes the landlord prior notice structive eviction. LJN’s Commercial Leasing Law & Strategy May 2012

Cigarette Smoke gotiating the lease, the tenant was assured in enforcing that covenant. Specificity and Herbert Paul, CPA, PC, v. 370 Lex, L.L.C., that the building was new and problem- examples will not only benefit the parties involved a dispute over a commercial lease free. Once the lease was signed and the by offering certainty as to their expecta- for office space for an accounting practice. tenant commenced its build-out, it learned tions, but the landlord will be well-posi- After a successful initial lease period, the of issues faced by the preceding tenant, tioned before a court in a legal dispute over tenant agreed to an extension of its term, also a restaurant, based on a persistent foul its conduct. In each instance, the language and it was then that the problems started. odor in the space. The landlord, however, may be limited to carve out from the respec- During the extended lease period, a new disputed these claims and renovations con- tive covenant events that are outside of the party moved into the adjacent premises, tinued. Immediately prior to the opening landlord’s control. For instance, following a and shortly after the neighbor took posses- of the restaurant, when they were cleaning provision detailing the landlord’s responsi- sion, the tenant’s employees began to smell a drain in the premises, the odor became bilities to provide services to the premises, cigarette smoke and suffer the ill effects very apparent to the tenants. The restau- the lease might state: “If Landlord elects to therefrom. As a result of the smoke pen- rant opened, and the landlord attempted to furnish any such services, Landlord shall etrating the tenant’s leased premises, it was eliminate the odor though various repairs not be liable to Tenant in damages, or oth- forced to incur great expense to seal off and replacements, all to no avail. Indeed, erwise, should the furnishing of any service entire rooms from the smoke. The tenant following various customer complaints, the be inadequate, interrupted or be terminated complained multiple times to the landlord, health department even temporarily shut because of necessary repairs or improve- both orally and in writing, and the landlord down the restaurant. After further unsuc- ments for any cause beyond Landlord’s rea- assured the tenant that the issue would be cessful attempts by the landlord to resolve sonable control.” remedied. The landlord checked ductwork the issue and confirmation from the pre- While it is constantly evolving, awareness and inspected common walls, radiators vious tenants that the landlord was aware of the doctrine of constructive eviction of- and piping, and also (allegedly) notified of the issue during their lease, the tenant fers parties to a lease the opportunity to the neighboring party of the complaints; stopped paying rent and closed. The tenant crystallize their legal expectations of one however, despite the landlord’s efforts, the then sued the landlord, claiming, among another. Every commercial landlord can problem continued. The tenant decided other things, that it was constructively benefit from an understanding of its con- the problem was no longer bearable, and evicted. tours and the means by which it may be moved to new offices. Subsequently, the Texas law recognizes an implied warran- avoided. tenant sued the landlord for moving costs ty of suitability in commercial leases, and it and its inability to use the rooms in its was on this basis that the court granted re- premises that it was forced to seal. scission of the lease. Specifically, the Texas The tenant claimed that the land- Supreme Court affirmed that the lease was lord breached the implied cove- properly rescinded based on the landlord’s nant of quiet enjoyment, and con- breach of the implied warranty of suitabil- structively evicted it. Specifically, the ity, and as such, an award of damages to re- tenant argued that the smoke infiltration store the tenant to the position it occupied inhibited its ability to use and enjoy the before the lease was proper. Because the premises it had leased. The court found lease was rescinded based on this claim, that the tenant had demonstrated that the court did not address the constructive there was an issue of fact on this claim, eviction claim, but did acknowledge that it and left it for trial. In particular, the court was an alternative means to the same end. noted that while the tenant waited a long period of time before actually moving out, Co n c l u s i o n in sealing off and being unable to use While a large fraction of the case law rooms within its leased premises, the ten- concerning constructive eviction considers ant could demonstrate at least partial con- facts that the landlord in question never structive eviction. anticipated, there are measures a landlord Noxious Odors can take in drafting the lease to amelio- In a similar case, Italian Cowboy Part- rate the risk of losing a constructive evic- ners, Ltd. v. Prudential Insurance Compa- tion action. Most sophisticated commercial ny of America, a tenant also argued con- tenants will require that the lease contain structive eviction based on an unpleasant an express covenant of quiet enjoyment; Reprinted with permission from the May 2012 edition of the Law odor. In Italian Cowboy, a family that ran however, this and other express covenants Journal Newsletters. © 2012 ALM Media Properties, several small restaurants leased a commer- in the lease may be expanded to provide a LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877.257.3382 or reprints@ cial space to open a new restaurant. In ne- statement of the landlord’s responsibilities alm.com. #055081-05-12-06