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Daily Development for Thursday, November 8,
2003
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; TENANT'S REMEDIES;
CONSTRUCTIVE EVICTION: Where city leases property
for
restaurant, and later, for
independent public policy reasons, restricts
traffic in neighborhood of the restaurant, city is not liable
for
constructive eviction.
Belle Isle Grill Corporation v. City of Detroit, 2003
Westlaw 21012705
(Mich. App.
5/6/03)
http://www.michbar.org/opinions/home.html?/opinions/appeals/2003/0
50603/18889.pdf
In 1996, responding to a city invitation for bids,
tenant proposed to
install a food stand
at the end of an island on an island known as Belle
Isle. This area is accessed only by crossing a
bridge and then proceeding
down a single
road along the southern edge of Belle Isle. In the
summer
months, Belle Isle is a popular
venue for Detroiters, both day and night.
In the evening hours, however, the city had experienced
significant
problems with unruly
teenagers and their friends in cars congregating in
the area, blocking traffic, drinking alcohol, and
behaving generally in a
disorderly
manner. Tenant studied the venue before entering into
the
lease, and was familiar with the
conditions in the area. The lease
provided that the property was leased "as is" and that there were
no
express or implied warranties or
representations.
Tenant began capital improvements to the
property. The lease provided
that
rent abated during the period of capital improvements.
Thereafter,
the fixed rent was
relatively small - $4800 annually, with 10%
percentage rent.
In 1997, in response to the problem with the evening
crowds, the Detroit
Police department
adopted an "operations order" authorizing officers to
prevent traffic tie-ups on the bridge by closing the
island to traffic or
taking other traffic
control measures. Tenant opened for business in the
summer of that year, and discovered that the policy
regularly rerouted
traffic away from
tenant's location. Tenant alleged that this was done
specifically to injure him, as the rerouting affected
his primary source of
business. He
alleged breach of various specific implied warranties, plus
breach of the implied duty of good faith and fair
dealing, plus
constructive
eviction.
The trial court granted summary judgment to the City
on all counts.
On appeal, held, affirmed.
The appeals court had little problem with the claims
of implied or
express representations in
light of the language in the lease and in light of
the fact that tenant had adequate opportunity to
review the site and was
aware of the
problem with unruly crowds. As to the implied duty
of
good faith and fair dealing - the
court noted that Michigan does not
recognize a cause of action based upon such a theory.
Tenant also alleged constructive fraud in that the
City did not notify him
of the Action
Plan that would likely lead to the failure of his food
stand.
The court noted that the City had
not discussed traffic at all with tenant,
apparently suggesting that it had no duty to disclose traffic
issues because
it had not discussed them
and therefore would not be expected to
disclose any such issues.
Tenant alleged that it was entitled to a payment of
restitution based upon
unjust enrichment,
since it had undertaken capital improvements to the
food stand. The court responded that the tenant
was to receive free rent
for the premises
in exchange for these improvements, and that the City
made the premises available, so that there was no
injustice.
Tenant alleged constructive eviction , and the court
also dismissed this
claim, citing
Michigan statute MCL 600.2918(2). That statute lists the
following bases for a finding of unlawful ejection or
constructive
eviction:
"(a) The use of force or threat of force.
(b) The removal, retention, or destruction of
personal property of the
possessor.
(c) A change,
alteration, or addition to the locks or other security devices
on the property without forthwith providing keys or
other unlocking
devices to the person in
possession.
(d) The boarding of the
premises which prevents or deters entry.
(e) The removal of doors, windows, or locks.
(f) Causing, by action or omission, the termination
or interruption of a
service procured by
the tenant or which the landlord is under an existing
duty to furnish, which service is so essential that
its termination or
interruption would
constitute constructive eviction, including heat,
running water, hot water, electric, or gas
service.
(g) Introduction of noise, odor
or other nuisance."
The court held that tenant had alleged none of these
actions, and that
therefore there could
be no claim for constructive eviction.
Finally, tenant alleged breach of lease - again
claiming breach of the
implied covenant
of quiet enjoyment (which in most jurisdictions is
tantamount to a claim of constructive
eviction.) The court held that a
public agency landlord is within its rights in carrying out its
police power
responsibilities even when
they lead to interference with the expectations
of a tenant under a lease from that agency. "One of the
conditions of all
leases is that the
lessee shall be subject to such interference or
disturbance of his possession as results from the exercise by
public
authorities of their rights, under
either the power of eminent domain or
police regulations." Detroit had the general police power as
a charter
city.
Comment 1: The editor has no quarrel with
the outcome here, but the
analysis leaves
something to be desired on several counts. First, is it
plain that the exclusive basis for a claim of
constructive eviction rests in
the cited
statute? If so, then Michigan is quite unusual in failing
to
recognize that significant
interference with the public access to a
commercial tenant's premises or such other acts as would amount to
a
prevention of the tenant from doing
business amount to a constructive
eviction. The statute seems directed at residential settings,
and should
not be viewed as the exclusive
basis for finding constructive eviction of a
commercial tenant.
Comment 2: Since the court then goes on to tackle
separately a claim for
breach of the
implied covenant of quiet enjoyment, it might be said that
the commercial constructive eviction claim arose in
another context. The
editor concurs
with the court when it reaches the conclusion that a public
agency should be free to carry out police power
activities and that its
contractual
commitments to tenants ought not to hinder the agency.
Of
course, the actions might be
sufficient to create a taking in the
appropriate case. In fact, it is arguable that a taking claim
could have
been made here, but the tenant
apparently didn't plead it.
Comment 3: Tenant sought rescission on the basis of
breach. The court
found no
breach. It does appear that the tenant, if had thought of
it,
ought to have been able to make a
claim for rescission based upon
commercial impossibility due to supervening
unanticipated
developments. There
is still a chance that a court would conclude that
the traffic controls didn't completely eliminate
tenant's business,
especially the day
business, so that the impossibility argument would fail,
but at least this claim ought to have survived
summary disposition. If a
city
diverts all traffic away from a restaurant operation during
critical
customer hours, the restaurant
purposes is essentially frustrated.
If, indeed, rescission was available, is there any
grounds for an unjust
enrichment
claim? One would first have had to show that the City
indeed benefitted from the capital improvements that
tenant had made.
This likely would be a
stretch, since tenant was arguing that no viable
food stand could be operated at that location due to the traffic
controls.
If the tenant did show this
however, the editor is dubious of the court's
conclusion that the tenant has no claim because it got free rent as
a credit
for construction. As the
editor understands the tenant's position, the free
rent did it no good because, from the moment that
tenant opened its
doors, the City was
diverting traffic and the tenant was suffering from the
triggering conditions. Thus,. The
activity was impossible from the very
moment that rent credits began to be meaningful. The editor
doesn't
understand why the court saw the
rent credit as a basis for denying
restitution. It didn't need that, since in its view there was
no default and
thus no basis for
rescission in the first place.
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