Leaseholds

A landlord owned a mall and leased one of the buildings to Restaurant for a period of five years. Several months into the lease, Restaurant had trouble getting the floor drain to work properly, which resulted in water on the floor whenever employees put more than a gallon of water in the sink. The lease indicates that Restaurant took the premises “as is” and includes a provision imposing a duty on Restaurant “to make all necessary repairs to the premises.” Which one of the following is true in most jurisdictions?

• The implied warranty of habitability has probably been violated here, because this problem affects health and safety and may not be waived in the lease.

• Restaurant will not be able to claim a violation of the implied warranty of habitability, because it did not suffer “constructive eviction.”

• Restaurant will not be able to claim a violation of the covenant of quiet enjoyment, because this problem has nothing to do with noise.

• Restaurant would have a stronger claim for a violation of the quiet enjoyment covenant if the cause of the drainage problem is traced to a common area in mall outside the restaurant.

Answer explanation

D is the correct answer. Remember that in most jurisdictions, the implied warranty of habitability applies only to residential dwellings, so both A and B answers can be discarded. B is also false because the implied warranty of habitability does not require a constructive eviction. The law generally gives commercial leases much more room to negotiate repair duties given the variety of situations presented and the relatively equal bargaining power. The covenant of quiet enjoyment does apply to commercial premises. However, answer C is incorrect because “quiet” enjoyment does not refer to noise only but rather to anything that disturbs the tenant's use and enjoyment of the premises. The interference must arise, however, from something the landlord causes or has a duty to remedy. Therefore, D is correct. In this case, the landlord is not responsible for the condition of the leased premises under the terms of the lease. Nevertheless, landlords are responsible for the upkeep and repair of common areas, so if the problem stemmed from outside the leased premises, Restaurant should have a good case.

Bakery signed a five-year lease for a commercial space owned by Realty Co. After four years, Bakery decided to close and planned to sublease the space to Deli. Bakery asked their lawyer to draft a one-year sublease agreement to cover the arrangement. The agreement included a provision that Deli pay rent directly to Realty Co., that “Bakery is hereby released from all obligations under the original lease agreement,” and that “sublessee agrees to assume all duties and obligations under the original lease agreement.” Bakery, Deli, and Realty Co. signed the agreement. After six months in the space, Deli stops paying rent. Realty Co. sues Bakery for nonpayment of rent.

 

Is Realty Co. likely to be successful?

• Yes, because the original tenant is responsible for the rent if a sublessee fails to pay.

• Yes, because the original tenant remains in privity of contract with the landlord.

• No, because the landlord consented to the arrangement.

• No, because the original tenant assigned their rights to the space and is no longer in privity of estate or privity of contract with the landlord.

Answer explanation

The correct answer is (D). The analysis turns on whether the agreement creates an assignment or a sublease. Since Bakery retained no reversionary interest in the property (“sublease” is for the last year of the original five-year term of Bakery's lease) and since the second agreement included a release from all obligations for Bakery, this agreement is most likely to be considered an assignment. See Ernst v. Conditt. (A) is incorrect because it fails to distinguish between a sublease and an assignment. In an assignment, privity of estate and contract between the original tenant and the landlord is destroyed. (B) is incorrect because the second agreement included language releasing the original tenant from the covenants of the original contract. (C) is incorrect because landlord consent is not dispositive on question of tenant liability.

Defendant owned a house that she advertised for rent in May 2019. In June 2019, Plaintiff requested to rent Defendant's house month-to-month as lodging for a work crew assigned to a nearby highway construction project. Defendant and Plaintiff signed a lease on June 8, Defendant delivered the keys and Plaintiff paid $4,000 to cover the rent for the remainder of June and for all of July. When the work crew arrived to move into the house, they found rodent feces throughout the house and subsequently refused to move in. Plaintiff sued Defendant alleging that Defendant had breached her duty to deliver possession. In most states, how will the court rule?

• For Defendant, because the duty requires only that she deliver the legal right of possession.

• For Defendant, because Defendant satisfied the duty by delivering the keys.

• For Plaintiff, because the duty requires Defendant to deliver actual physical possession.

• For Plaintiff, because no reasonable person would accept delivery of a rodent-infested residence.

Answer explanation

A landowner has a duty to deliver possession to the tenant upon commencement of the lease term. Jurisdictions differ regarding which standard should be used to determine whether the landowner has satisfied this duty. Some use the so-called American rule, which holds that the duty is a duty to deliver the legal right to possession only, but a majority of jurisdictions apply the so-called English rule, which requires the landowner to deliver actual possession to the tenant. The correct option is therefore B, because it correctly describes and applies the so-called English rule regarding the landlord’s duty to deliver possession, which is the majority rule in the United States today, and because Defendant’s delivery of the keys constitutes constructive delivery of actual physical possession. The presence of rodents may be a breach of the implied warranty of habitability, but it is insufficient on its own to argue that Plaintiff was unable to take possession.

 

A is incorrect because it describes the so-called American rule regarding the landlord’s duty to deliver possession, which is not the majority rule.

 

C is incorrect for the same reason.

 

D is incorrect because although it may be true, it is a rationale for ruling in Plaintiff’s favor on a claim of breach of the implied warranty of habitability, not the duty to deliver possession.

Defendant rented a home from Plaintiff for eight years under a year-to-year lease agreement that specifically prohibited Defendant from assigning the lease without Plaintiff’s written consent. The lease called for rent of $1,000 a month. The rental cost for comparable homes rose dramatically during that time, but Plaintiff never raised Defendant’s rent, deciding that having a stable and reliable Defendant was worth the lower income. Defendant then moved, but instead of giving up his lease with Plaintiff, Defendant continued to pay the rent due under his lease while subletting the property to someone else for $1,250 a month, which was the going rate in the area. Defendant did not get Plaintiff’s permission to sublease the property. If Plaintiff brings an action for damages against Defendant, how should the court rule?

• For Plaintiff because Defendant had no right to sublet the property without Plaintiff’s permission.

• For Plaintiff because it would be unfair to allow Defendant to profit from his wrongdoing.

• For Defendant because a leasehold is an estate, and as such, generally transferable to third parties.

• For Defendant because requiring Plaintiff’s permission to assign the lease constitutes an impermissible restraint on alienation.

Answer explanation

A tenant’s interest is an estate and, as such, is generally transferable to third parties. Although landlords may require a tenant obtain consent to such a transfer, without such a requirement, a tenant is free to sublet or to assign their interest to a third party—even at a profit. Option C is therefore the correct answer.

 

A is incorrect because the sublessor does have the subtenancy interest conveyed to him by Plaintiff.

 

B is incorrect because Defendant has committed no wrong; the lease prohibits Defendant from assigning the lease but does not prohibit a sublease.

 

D is incorrect because although consent clauses are restraints on alienation, they are not impermissible restraints.

Defendant rented a home from Plaintiff under a one-year lease agreement that specifically prohibited Defendant from assigning the lease without Plaintiff’s written consent. A few months later, Defendant moved, but instead of giving up his lease with Plaintiff, Defendant continued to pay the rent due under his lease and sublet the property to Jack. Defendant did not get Plaintiff’s written consent to the sublease. If Plaintiff brings an action against Defendant, how should the court rule?

• For Plaintiff because Jack has no rightful interest in the property.

• For Plaintiff because it would be unfair to allow Defendant to profit from his wrongdoing.

• For Defendant because a leasehold is an estate, and as such, generally transferable to third parties.

• For Defendant because requiring Landlord’s permission to assign the lease constitutes an impermissible restraint on alienation.

Answer explanation

A tenant’s interest is an estate and is generally transferable to third parties. Although landlords may require a tenant obtain consent to such a transfer, without such a requirement, a tenant is free to sublet or to assign their interest to a third party. Courts will allow consent to sublease or assign clauses, but they are usually strictly construed against the landlord. Therefore, while this lease specifically requires consent to assign the lease, it does not require consent for a sublease.

 

C is therefore the correct answer.

 

A is incorrect because Jack does have the subtenancy interest conveyed to him by Plaintiff.

 

B is incorrect because Defendant has committed no wrong; the lease prohibits Defendant from assigning the lease but does not prohibit a sublease.

 

D is incorrect because although consent clauses are restraints on alienation, they are not impermissible restraints.

Defendant signed a valid lease with Plaintiff in December for a one-year periodic term beginning January the next year, set to renew automatically at expiration unless either party gave notice of intent not to renew. Defendant vacated the premises on June 30. Plaintiff immediately re-listed the property for rent and on August 1, sued Defendant for breach of the lease and sought unpaid rent for the period of July 1 through December 31. How should the court rule?

• Plaintiff should receive nothing because abandonment is considered an implied offer to surrender.

• Plaintiff should receive any unpaid rent through June 30, but nothing more because Plaintiff’s implied acceptance of Defendant’s surrender relieves Defendant of liability for future rent.

• Plaintiff should receive the entire amount sought because despite the surrender, Defendant remains liable for any unpaid rent.

• Plaintiff should receive the entire amount sought because Plaintiff has the right to refuse Defendant’s offer to surrender.

Answer explanation

At common law, a periodic tenancy renews automatically at the end of the stated period unless appropriate notice of intent not to renew is provided one full period before the date of renewal. The maximum amount of notice required may be modified by statute or by the lease agreement, and even when not so limited, the common law generally caps the maximum notice at no more than six months. Under these rules, therefore, without any statutory or contractual modification, the notice required to avoid automatic renewal of a one-year period lease would be six months. Nonrenewal relieves the tenant of future rent only; it does not relieve tenant of any rent still owing for the time prior to expiration of the current period. Nonetheless, a landlord’s acceptance of a tenant’s offer of surrender terminates the tenancy and relieves the tenant of any obligation to pay rent. This means that Option B is the best answer; Plaintiff’s relisting of the property amounts to an implied acceptance of Defendant’s implied offer to surrender the premises.

 

A is not the best answer because Defendant’s implied offer to surrender is not by itself sufficient to relieve Defendant of future rent; the implied offer must be accepted.

 

C is not correct, because if the surrender is accepted, Defendant would be relieved of future rent.

 

D is incorrect because Plaintiff’s immediate relisting of the property amounts to an implied acceptance of Defendant’s offer to surrender.

Eight years ago, Defendant entered into a 10-year lease of a commercial property from Plaintiff. Two years ago, Plaintiff discovered Defendant had consistently left one of the warehouse windows open, regardless of the weather. As a result, the interior of the building suffered significant water damage. Plaintiff brought suit against Defendant, alleging Defendant had committed waste. If the court dismisses Plaintiff’s claim, which of the following is the best explanation why?

•  Damages for waste based on cost of repairs would provide the lessor a windfall because the lessee is not required to make the repairs.

• The lessor may never sue for waste before the lease has expired or been terminated.

• If the waste is remediable, either by repair or passage of time, the waste might be cured by the time the lease expires.

• Waste is, by definition, a harm to the lessor’s reversionary interest.

Answer explanation

The doctrine of “waste” provides that a present possessor may not cause injury to a future interest holder’s interest. In particular, “permissive waste” consists of neglect or omission or failure to do what will prevent injury to the landlord’s reversion. Plaintiff’s failure to close the warehouse window, regardless of weather, has damaged the Defendant’s reversionary interest by reducing the fair market value of the property beyond ordinary wear and tear. That said, Defendant’s leasehold has another eight years to go; if Defendant is able to repair the water damage before the property reverts to Plaintiff, Plaintiff will have no cause of action. Therefore, C is the best option.

 

A is incorrect because it incorrectly states the law; lessors are not required by common law to bear the cost of all damages resulting from a lessee’s actions.

 

B also contains an incorrect statement of law. In some cases, the evidence may prove that the nature or extent of the damage makes it impossible for the lessee to repair the damage before the end of the lease; when that is true, a cause of action for waste may be able to be brought before the lease has expired.

 

D is a correct definition of waste, but the definition of waste alone would not support a dismissal of Plaintiff’s claim.

L leased a warehouse to T for a five-year term beginning January 1, 2010, with rent payable each year on January 1 at $12,000 per year. On January 1, 2015, T announced to L that she could not vacate the property until February 1 but would be happy to pay L $1,000 for the extra month of rent. This is the first notice L had concerning T's intentions with regard to the lease and L is not at all amenable to T's idea. She had planned some renovations in order to get the space ready for the next tenant. The lease, however, says nothing about what should be done in this situation. Which of the following is true?

• T should have given L at least six months' notice of her intention to terminate the lease. Because of the improper notice, T cannot terminate the lease now until the end of June.

• If T fails to vacate the premises on January 1, L should be able to hold T to another five-year term as a common law holdover remedy.

• If T fails to vacate the premises on January 1, the Uniform Residential Landlord Tenant Act provides a remedy of double rent plus damages and attorney's fees for an eviction action.

• Because there is nothing regarding this situation in the lease, the lease automatically converts to a month-to-month lease at the end of the term.

Answer explanation

The correct answer is C. Answer C is true; if the jurisdiction has adopted the URLTA, T should be able to obtain double rent for any holdover, plus damages (e.g., if T loses a new tenant as a result of the holdover). Answer A is wrong because this is a term-of-years lease which does not require notice of termination; it automatically terminates on the last day of the lease. Answer D is incorrect for the same reason. The lease could specify that it converts to a month-to-month automatically, but it doesn't. Answer B is almost correct. The common law holdover remedy is generally to hold the tenant to a new term; however, in a year-to-year lease, the maximum holdover period is six months.

L leased Blackacre to T for a period of ten years from January 1, 2006, to December 31, 2015, for $5,000 per month. In 2008, T entered into an agreement with F to transfer this leasehold to her for the rest of the rental term. F agreed to take over all the responsibilities of the lease and agreed to pay the $5,000 monthly rent directly to L. L approved of the agreement but did not join in the contract. Two years later, in 2010, F transferred the remaining term to S. Again, L approved the arrangement and S agreed to take over all of the responsibilities of the lease and to pay the $5,000 monthly rent directly to L. A year later, in 2011, S stopped paying rent and L wants to bring suit for the rent owed. Which of these three parties may she bring suit against?

• T and S

• T, F, and S

• S only

• T only

Answer explanation

The correct answer is A. The two transfers to F and S are assignments because they are for the entire remaining term and transfer all rights and responsibilities under the head lease. Therefore, when F takes over as assignee, L is in privity of contract still with T. (She will always be in privity of contract with T unless she releases him from the contract obligations.) C is therefore incorrect. L is then in privity of estate with F because F has taken over the estate from T. When F transfers the estate to S, another assignment, S is in privity of estate with L and D is therefore incorrect. F is no longer in privity of estate at that point and has never been in privity of contract. That makes B incorrect. L can sue T under privity of contract and S under privity of estate.

L owned an apartment building. T wanted to rent Apartment 2 from L, but she noticed there were several problems with it. The sink was clogged, there were some exposed wires where a light fixture was coming loose, and there was a severe mildew odor coming from the closet, where the ceiling seemed to show signs of persistent water damage. L acknowledged the problems but said he did not have the time or money to fix the apartment. "I'll tell you what," L told T, "normally this place goes for $600 per month, but given its condition, I can let you have it for $400. But the lease will say that you understand there is no warranty regarding the condition." T signed the lease, but several months later, she stopped paying rent, claiming that the mildew odors were overpowering and the other defects made the place unsafe and unhealthy. Which of the following is true?

• T cannot claim a breach of the implied warranty of habitability, because she did not move out and, therefore, there is no constructive eviction.

• T cannot claim a breach of the implied warranty of habitability, because she waived it in the lease in exchange for a lower rental price.

• T can claim a breach of the implied warranty of habitability but only if some of the defects complained of violate the housing code.

• T has a good case for a breach of the implied warranty of habitability, which can be used in defense if L brings an action for unpaid rent.

Answer explanation

The correct answer is D. The implied warranty of habitability (IWH) protects residential tenants from conditions that significantly impact safety and health. Answer A is not correct because, unlike the covenant of quiet enjoyment, the IWH does not require the tenant to move out and claim a constructive eviction. Answer B is also incorrect because courts do not allow the IWH to be waived, even where the tenant gets a lower rent in exchange for an attempted waiver. Some Residential Landlord Tenant Acts do allow waivers in limited circumstances, such as single family homes, but not in a case like this. Answer C is too limited; in most jurisdictions, even if violations are not covered in the housing code, as long as the conditions render the premises unsafe or unhealthy, the IWH is breached. In this case, the mildew, exposed wires, and clogged sink seem sufficient to make a good case that the IWH has been violated.