Daily Development for Tuesday, February 1, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu
LANDLORD/TENANT; QUIET ENJOYMENT; CONSTRUCTIVE EVICTION: A law suit by a landlord that threatens a tenant’s possessory interest in a leasehold, brought in bad faith, maliciously, or otherwise without probable cause and primarily for a purpose unrelated to seeking legal redress, constitutes a breach of the landlord’s covenant of quiet enjoyment.
Kohl v. PNC Bank National Association, 2004 WL 2404112 (Pa. Super.)(10/28/2004).
Bank held a leasehold mortgage on certain property on which Kohl was the landlord. Tenant defaulted on the mortgage and Bank took possession, apparently as a mortgagee in possession, in October, 1992. Bank foreclosed and acquired the tenant’s interest on January 15, 1993. (Apparently through becoming the high bidder at a foreclosure sale, unless some bizarre Pennsylvania procedure not described by the court gave the bank ownership of the lease without a foreclosure auction.)
Kohl, meanwhile, brought suit against the original tenants for damages and eviction, due to their failure to pay real estate taxes as required by the lease, and won a default judgment against them on January 8, 1993. At that time, note, Bank was in possession and apparently protected from Kohl’s eviction by a non-disturbance and attornment agreement that Kohl had signed at the time of the Bank loan. Kohl, nevertheless, brought a second suit to determine that Bank’s possession was wrongful because, under the terms of the lease, the tenant’s interest automatically terminated as of the time that the tenant failed to pay the taxes. If this were true, the lease would have terminated prior to Bank’s taking possession. A court ruled in favor of Bank on that claim.
Kohl then brought a second action to terminate the lease and for damages for Bank’s failure to pay the taxes. In connection with this lawsuit, Kohl filed a lis pendens against Bank’s interest. Bank counterclaimed in this action, alleging a breach of the covenant of quiet enjoyment, commencing on the date of the first action to terminate Bank’s lease. Bank argued that Kohl’s consistent and ill-founded litigation had interfered with Bank’s intended use of the property - to resell it - and that therefore Bank was effectively barred from any beneficial use of the property, justifying it in terminating the lease and recovering damages from Kohl. Since Kohl had constructively evicted Bank, Bank argued, Bank had no obligation under the lease to pay the taxes or occupy the property.
The trial court found for Bank on most relevant claims, but did not award Bank damages against Kohl. It did find that Kohl’s first lawsuit was brought in bad faith and had virtually no merit. It further concluded that Kohl’s lawsuit indeed had deprived Bank effectively of the use and enjoyment of the property by rendering the property unmarketable (notwithstanding that there had been no lis pendens filed in connection with this first lawsuit. Anomalously, the court, although excusing Bank from paying the taxes and terminating the lease, did not award Bank any damages for Kohl’s alleged breach.
On appeal, held: affirmed in part and reversed in part. But on the merits of the real relief in the case - permitting Bank to avoid any obligation to pay taxes under the lease, the appeals court held for Kohl.
As virtually a matter of first impression (the court cited two tangentially related precedents), the court held that Pennsylvania would recognize a suit brought in bad faith, with no apparent purpose, and with little or no merit, could constitute a constructive interference with the tenant’s use and enjoyment of the subject property and give rise to a claim for constructive eviction. The court stated that its ruling would strike a proper balance between a policy allowing substantially unfettered access to the court system with a tenant’s rights to undisturbed possession. It noted that a few courts elsewhere have made analogous findings, not necessarily in the context of the argument that “use and enjoyment” constituted an effort to sell the property.
[L]imiting a finding of breach only with respect to litigation brought in bad faith, maliciously, or without probable cause also reflects a concern that a litigant's genuine attempt to seek legal redress not be hampered. Generally, it is the policy of this Commonwealth that litigants have free access to the courts. . . . ("All courts shall be open; and every man for an injury done him in his lands, goods, person or reputation shall have remedy by due course of law, and right and justice administered without sale, denial or delay.") Under only very limited circumstances are litigants subject to sanction or liability for bringing claims, even where they do not ultimately prevail. Such strict hurdles reflect concern for the "chilling effect" the sanctions or liability may have on the bringing of legitimate claims for redress. Cf. Thunberg v. Strause, 545 Pa. 607, 615-616, 682 A.2d 295, 300 (1996) ("[T]he [counsel fees] statute serves not to punish all those who initiate legal !
action
s which are not ultimately successful or which may seek to
develop novel theories in the law. Such a rule would have an unnecessarily
chilling effect on the right to bring suit for real legal harms suffered. Rather
... [t]he Judicial Code permits the award of attorneys' fees in an attempt to
curb the filing of frivolous and otherwise improperly brought lawsuits."
(citations omitted)).
The court specifically rejected the Restatement of Property, which finds that the filing of a lawsuit can never be a constructive eviction.
The drama of this finding, however, was diminished when the court held that there was insufficient evidence in this case to show that Kohl’s first lawsuit was malicious, and that therefore there was no constructive eviction. Consequently, Kohl was entitled to possession of the property (as the lower court had held) but the bank had no defense to a damages claim for nonpayment of taxes and wrongfully abandoning the property.
The Chief Judge dissented from this part of the court’s ruling, holding that it should not be necessary to show malice. The mere fact that the landlord’s first lawsuit had little or no merit, he argued, should be sufficient to show that the landlord’s acts were wrongful and amounted to constructive eviction.
Comment: Do we really want to go here? Arguing that selling the leasehold estate is a “use” of the property seems to open up the constructive eviction claim considerably wider than previously. Further, particularly if the Chief Judge’s position is correct, landlords will be deterred from bringing claims they deem to be legitimate for fear that a subsequent court will not only deny relief on the claim, but also award substantial damages to tenant for the impact of the lawsuit on its plans for the property. And why not stop at a lawsuit? Wouldn’t a little sabre rattling by the landlord also deter the tenant from carrying out an economic plan for the property until the dispute was resolved? Any old threat would do.
In the editor’s view, quiet enjoyment deals with the physical use of the property. For a constructive eviction to occur, the landlord’s wrongful actions ought to have such a direct impact on the tenant’s physical use of the property that the tenant is forced to leave. Here, it is unclear whether in fact Bank terminated its possession of the property in response to Kohl’s first lawsuit. It appears that, at least for a time, Bank continued to try to sell the property, which suggests that it deemed itself in control of the property. The editor would need to see a much clearer delineation of the relationship between the lawsuit and the Bank’s actions to find a constructive eviction. (Note that because of its finding of “no malice,” the court didn’t give us all the detail of this relationship here.
Items reported here and in the ABA publications
are for general information purposes only and
should not be relied upon in the course of
representation or in the forming of decisions in
legal matters. The same is true of all
commentary provided by contributors to the DIRT
list. Accuracy of data and opinions expressed
are the sole responsibility of the DIRT editor
and are in no sense the publication of the ABA.
Parties posting messages to DIRT are posting to a
source that is readily accessible by members of
the general public, and should take that fact
into account in evaluating confidentiality
issues.
ABOUT DIRT:
DIRT is an internet discussion group for serious
real estate professionals. Message volume varies,
but commonly runs 5 15 messages per work day.
Daily Developments are posted every work day. To
subscribe, send the message
subscribe Dirt [your name]
to
listserv@listserv.umkc.edu
To cancel your subscription, send the message
signoff DIRT to the address:
listserv@listserv.umkc.edu
for information on other commands, send the message
Help to the listserv address.
DIRT has an alternate, more extensive coverage that
includes not only
commercial and general real estate matters but also focuses
specifically upon
residential real estate matters. Because real estate brokers
generally find
this service more valuable, it is named “BrokerDIRT.” But
residential
specialist attorneys, title insurers, lenders and others
interested in the
residential market will want to subscribe to this alternative
list. If you
subscribe to BrokerDIRT, it is not necessary also to
subscribe to DIRT, as
BrokerDIRT carries all DIRT traffic in addition to the
residential discussions.
To subscribe to BrokerDIRT, send the message
subscribe BrokerDIRT [your name]
to
listserv@listserv.umkc.edu
To cancel your subscription to BrokerDIRT, send the
message
signoff BrokerDIRT to the address:
listserv@listserv.umkc.edu
DIRT is a service of the American Bar Association
Section on Real Property, Probate & Trust Law and
the University of Missouri, Kansas City, School
of Law. Daily Developments are copyrighted by
Patrick A. Randolph, Jr., Professor of Law, UMKC
School of Law, but Professor Randolph grants
permission for copying or distribution of Daily
Developments for educational purposes, including
professional continuing education, provided that
no charge is imposed for such distribution and
that appropriate credit is given to Professor
Randolph, DIRT, and its sponsors.
DIRT has a WebPage at:
http://cctr.umkc.edu/dept/dirt/
.
*************************************
Your e-mail address will only be used within the ABA and its entities. We do not sell or rent e-mail addresses to anyone outside the ABA.
To change your e-mail address or remove your name from any future general distribution e-mails you can call us at 1-800-285-2221, or write to: American Bar Association, Service Center, 321 N Clark Street, Floor 16, Chicago, IL 60610
If you are an ABA member, log in to the ABA Web site at http://www.abanet.org/abanet/common/MyABA/home.cfm to edit your member profile. Otherwise, complete the form located at https://www.abanet.org/members/join/coa2.html
To review our privacy statement, go to http://www.abanet.org/privacy_statement.html.
If you have any problems, please contact the list owner at
dirt-dd-request@mail.abanet.org.