DD 5/8/03 City Landlord Terminates Traffic Flow to Food Stand Location; Tenant Has No Remedy

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.

Readers are encouraged to respond to or criticize this posting.

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