Daily Development for
Tuesday, September 15, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

LANDLORD AND TENANT; MORTGAGES: Mortgagee purchaser of lessee's building and leasehold interest at sheriff's sale was not required to pay rent due ground lessor since mortgage covered only lessee's right of occupancy, use and enjoyment rather than entire lease and rental obligation was not transferred at sheriff's sale.

Carriere v. Bank of Louisiana, 702 So.2d 648 (La. 1996).

This obscure and difficult case may say something important about mortgage law, may be an interpretation of complex facts of little significance beyond the parties, and may simply reinforce the notion that no one should undertake do business in Louisiana without a large number of extremely subtle lawyers at hand at all times. (Kind of like being President.)

Borrower with a ground lessee's estate in certain property mortgaged a completed building on the property and the "leasehold estate" to lender, and later defaulted on lease and mortgage. The lessor attempted to terminate the lease for default, but the court set that termination aside on the grounds that in Louisiana a lease can be terminated for default only by judicial action.

The mortgagee, in the meantime, had foreclosed upon the property and was occupying it. Landlord sought rent under the lease from the mortgagee or else rent based upon a quantum meruit notion for the mortgagee's time of occupancy.

In an extremely complex opinion, with three concurrences and a dissent, the Louisiana Supreme Court held that rent was payable. Then, upon rehearing, with an equal number of varied opinion, the court reversed itself and concluded that rent was not payable. It is not clear from the opinion whether the lessor retained the right to terminate the estate for nonpayment of rent in the future, but the editor assumes that is possible under the court's ruling.

Although the lease contained the language that mortgagees would not be bound to pay rent under the lease, the court apparently viewed this language as possibly directed at the question of whether mortgagees, by foreclosing, would undertake any liability for any rent owned for periods of occupancy by the mortgagor. The really critical factor for the court was the fact that the mortgage referred to the mortgagor's "leasehold estate," rather than the mortgagor's "ground lease," as the ting mortgaged.

Comment: Of course, a lessee can waive all rights to the land in order to induce a mortgagee to lend to a tenant, and often does. This waiver sometimes clumsily appears in a clause entitled "subordination." But the instant case does not seem to embody that kind of arrangement. Rather, the parties did appear to intend that the fee ownership interest of the lessor remain intact. Under these circumstances, it is difficult for the editor to understand why the court would conclude that the parties intended the result that the court concocts. Occasionally one sees provisions that protect a mortgagee in possession pre-foreclosure from liability on a lease. But can it ever be a lessor's intent that a mortgagee would occupy property rent free while a rent claim accrues against a tenant who has already suffered a foreclosure? It's possible, of course, but a court should not strain to reach such an interpretation.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 16, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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