Daily Development for Thursday, September 18, 2002

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

LANDLORD/TENANT; TENANT'S REMEDIES; INDEPENDENCE OF COVENANTS: Massachusetts abolishes independence covenant doctrine as the "base theory" of leases - tenants can terminate in response to a significant landlord breach, even if that breach does not amount to a constructive eviction.

Wesson v. Leone Enterprises, Inc., 2002 WL 31002286, 437 Mass. 708, --- N.E.2d ----, http://www.masslawyersweekly.com/archives/ma/opin/sup/1018602.heet m, No. SJC-08726 (9/9/02)

Tenant leased space for a printing operation in a multi-tenant commercial building. The tenant suffered from repeated leaking roof problems, which the trial court concluded resulted from the landlord's failure to perform landlord's obligation to keep the roof in good repair. Tenant vacated the premises, and landlord sued for damages for breach.

The court here held that the conditions on the tenant's premises, although significant and threatening to the continued safe operation of the tenant's business, did not interfere with tenant's business so much that a the tenant had in effect been driven from the premises. Consequently, the tenant was not able to use the defense of constructive eviction to the landlord's action for breach.

Nevertheless, the court held that the tenant was justified in terminating the lease in response to the landlord's "major breach" of failing to maintain the roof in good repair. The court adopted with approval those portions of the Restatement of Landlord/Tenant Law, Sec. 7.1 (1977). Here is that language, as quoted by the court:

"Except to the extent the parties to a lease validly agree otherwise, if the landlord fails to perform a valid promise contained in the leae to do, or to refrain from doing, something . .

. and as a consequence thereof, the tenant is deprived of a significant inducement to the making of the leae, and if the landlord does not perform his promise within a reasonable period of time after being requested to do so, the tenant may (1) terminate the lease. . ."

This language, in essence, does away with the notion of "independence of covenants." The court notes that the concept is anachronistic and not reflective of the expectations of the parties. At one time, both landlords and tenants were unable to withhold performance in response to a breach by the other side, but long ago most states developed law that gave the landlord the right to terminate possession on the basis of tenant's major breach. Thus, the original premise that gave rise to the concept is no longer valid. Further, as the court notes, modern leases are more an agreement for services rather than the simple transfer of an estate in land.

It therefore makes sense to apply contract law principles.

Thus, in this case, Tenant was permitted to terminate the lease in response to landlord's breach.

The court cites case law in Utah, Arizona, Pennsylvania, Virginia and Delaware that it asserts have already abandoned the independence of covenants doctrine.

Comment 1: It is important to note that the court has quoted only the first remedy set forth in the Restatement - the remedy of terminating the lease. The court does not mention the other remedies - which include rent abatement (to the extent of the proportionate injury to the tenant); rent escrowing; and repair and deduct (after notice). All of these remedies are far more troublesome to the landlord that the right to terminate in response to a major breach. Indeed, although the Massachusetts court, perhaps to make a point, concludes that there were no grounds for constructive eviction here, many courts have converted the "uninhabitability" standard used in constructive eviction theory in commercial leases to a requirement that there be a "major breach" that interferes significantly with the operation of the tenant's business.

Comment 2: It is also important to note the first phrase in the Restatement language - "except to the extent that the parties to a lease validly agree otherwise . . ." As a consequence of this language, we can anticipate that landlords with bargaining power will simply include waivers of an rights under the independence of covenants doctrine.

Many leases already prohibit resort to rent withholding, rent abatement, or repair and deduct tactics, even though they technically are not available. This practice will expand somewhat, but it is likely that it already is widespread in leases in which lawyers are involved for the landlord. Consequently, the author does not see much real impact upon practice in most areas even if the Massachusetts case is widely followed. The case, rather operates as a trap for the unwary (or unrepresented) who attempt to rely upon the law that they learned in law school or the existing custom.

Comment 3: Note finally that, although the court talks extensively about the "revolution" in landlord tenant law in the residential area, and cites extensively to cases advocated an implied warranty of habitability in commercial leases, the court does not adopt that doctrine here.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

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