Daily Development for
Tuesday, June 18, 1996

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

The Reporter for this case is Professor Cyril Fox of the University of Pittsburgh.

LANDLORD/TENANT; QUIET ENJOYMENT: A breach of the implied covenant of quiet enjoyment does not require a finding that the breach was so severe as to amount to a constructive eviction to afford the tenant relief; and the tenant may be entitled to damages for interference with possession which does not amount to exclusion from possession. Echo Consulting Services Inc. v. North Conway Bank, 669 A.2d 227 (N.H. 1995).

Tenant leased space in a lower floor of a building which was later acquired by the Bank as landlord. The Bank undertook a series of renovations to make the building suitable for its business purposes. Construction activity interfered with the tenant's access to its leased space. The tenant asserted that this and other conduct of the landlord amounted to partial actual eviction, constructive eviction, and breach of the lease as a violation of the implied covenant of quiet enjoyment.

The Supreme Court of New Hampshire affirmed the finding below that there was no actual partial eviction because the tenant still had access, although less convenient access, to its leasehold.

But the court rejected the landlord's claim that a constructive eviction requires that the premises be rendered unfit for occupancy or that the landlord permanently interfere with the tenant's beneficial use and enjoyment of the premise. Instead, the court found that a breach of the covenant of quiet enjoyment occurs whenever the landlord "substantially interferes with the tenant's beneficial use and enjoyment of the premises." This interference need not rise to the level of a constructive eviction to be actionable by the tenant. Prior New Hampshire constructive eviction cases essentially involved severe interference essentially denying tenant all use and enjoyment. The court states that this view of the covenant of quiet enjoyment is too narrow for today's society. Where the landlord's conduct deprives the tenant of "expectations under the lease and reduce[s] the value of the lease" fairness may require an award of compensatory damages without total interference with use and enjoyment.

Reporter's Comment: This case departs substantially from the traditional view that breach of the implied covenant of quiet enjoyment requires the tenant to vacate the premises under a claim of a constructive eviction. Here, the tenant may remain in possession and seek damages if the landlord's conduct interferes with the tenant's legitimate expectations under the lease. The court appears to be creating for commercial tenants a right similar to that granted residential tenants under the implied warranty of habitability, which similarly permits the tenant to remain in substandard premises and recover damages.

Editor's Comment 1: Note that the court never clearly identifies the nature of the landlord's breach here. It states that the loss of access to the front door did not breach the specific lease covenant for access. It rejects any notion that the tenant's employees actually were blocked from getting to the premises. Apparently the appeals court is remanding to the trial court the question of whether the general construction activity maintained by the landlord on its adjacent premises unreasonably interfered with the tenant's use and enjoyment of its own premises. Although it cites other cases discussing landlords who failed to control noisy fellow tenants and landlords who actually blocked parking areas, the court fails to establish any clear standard as to the landlord's implied duty to avoid interfering with the tenant.

Surely the landlord has some inherent right to enjoy the balance of the landlord's premises, even if such enjoyment may in some circumstances interfere with the maximum enjoyment of the tenant's premises. For instance: could the landlord lock the main doors to the premises after regular working hours in order to protect the bank's security, even though this led to some inconvenience for the tenant? Is this a question of a reasonable balance of the bank's interests vs. those of the tenant, or does the tenant have some higher priority right?

In the residential area, to which the court analogizes, courts had already shifted a substantial burden of maintenance and support to the residential landlord, so the questions of duty were less difficult. Here the court tries to create an implied duty of "non-interference with habitability" without really indicating what standards ought to apply. The rule has been that there was liability if the landlord actually or constructively barred the tenant from using the premises, but even here, the tenant had to show that the eviction was caused by some failure of the landlord to perform a lease duty. Now the tenant need only show interference with its business. What duty, exactly, does the landlord owe?

One answer is that the landlord, in using its own premises, ought to be evaluated by the general concepts of common law nuisance. It has a right to use its premises as much as its tenant has a right to use the leased premises. There might be an overlay for privileges and protections that the parties reasonably should have expected would be available for the tenant to make practical use of the property leased - modernly many courts refer to this as the "landlord's implied duty of good faith and fair dealing."

If the court here is suggesting a standard higher than the one proposed above, the case is news. But we'll have to wait for the second appeal, if there is one, to be sure.

Editor's Comment 2: The more difficult issue here is the concept that the landlord's breach of an express or implied duty may be viewed as a breach of the covenant of quiet enjoyment, even though the tenant is not evicted. The covenant of quiet enjoyment traditionally has been viewed as the one covenant in a commercial lease that is in a "dependent" relationship with the covenant to pay rent. In other words, if the landlord breaches the covenant of quiet enjoyment, the tenant may withhold rent.

In short, the New Hampshire opinion may be read as installing the rent withholding remedy into New Hampshire's common law of commercial landlord/tenant. This, indeed would be big news.

New Hampshire landlords will have to bargain in their leases for "anti-rent withholding" clauses. They likely will be assisted by the fact that savvy mortgage lenders will not approve any leases that do not contain such clauses. The net effect likely will be very little change in practice, but perhaps landlords will have to give up something else at the bargaining table because the "default" reading of the lease has tilted a little bit more toward the tenant.

Editor's Comment 3: Note that the court didn't have to use the implied warranty of quiet enjoyment to uphold the right of the tenant to claim damages. The breach of an implied covenant of good faith and fair dealing, or even a claim in nuisance, would have been sufficient to support an independent damages claim. It may be that this is really all the court is saying, and that it is not condoing a rent withholding remedy. New Hampshire lawyers ought to press the court on this point in future cases.

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