by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
LANDLORD/TENANT; TENANT'S RIGHTS; TENANT'S PERSONAL PROPERTY: Tenant does not lose title to personal property by neglecting to remove it from premises after termination of lease, regardless of amount of time that passes, and any retention, use or disposal of tenant's property by landlord constitutes a conversion of tenant's property.
Hoyt v. Christoforou, 692 A.2d 217 (Pa.Super. 1997).
The saddest tales are oft repeated. Most experienced real estate lawyers have lived through some variant of the following story:
Tenant One owned certain restaurant equipment (apparently free standing personal property) and operated a restaurant in leased space in a strip mall. Tenant One terminated its lease and Plaintiff began operating a new restaurant at the same site. Plaintiff acquired the personal property for $25,000 cash.
Plaintiff later determined that it did not wish to continue to operate the restaurant and worked out a deal to have another tenant in the mall, Tenant Three, assume her lease and acquire her equipment under an installment payment arrangement. The landlord apparently then released Plaintiff from the lease, and Tenant Three took over the lease and executed a security agreement for the cost of the equipment. Plaintiff did not properly perfect this agreement.
Almost immediately, Tenant Three fell behind in the installment payments, and, after six months of wrangling, "sold the business" to Tenant Four. Tenant Four agreed to assume and to make up arrearages on the equipment sale agreement, but its first check bounced. When Plaintiff went to the restaurant location, she discovered that, only a few days before, Landlord had locked the premises after having been told by third parties that Tenant Four, far behind in rent, had abandoned the premises.
Plaintiff then discussed with Landlord the fact that she owned the equipment in the premises and requested that it be given to her. The Landlord prevaricated, asking for documentation of her claim, and ultimately, despite receiving the evidence of her security interest, claimed that he was the owner of the equipment.
Thereafter Landlord entered into a lease with Tenant Five and purported to sell to Tenant Five the equipment. At that time, Tenant Five allegedly had no knowledge of Plaintiff's claims, but it soon received such notice when Plaintiff, acting under a default judgment against Tenant Four, attempted to levy on the equipment.
Landlord first claimed that it owned the equipment pursuant to a term of the lease that gave it ownership of all "trade fixtures" left on the premises upon a tenant's abandonment. It alleged that at the moment of abandonment Tenant Two's security interest was not properly perfected (a fact the court acknowledged) and that therefore it owned the property free of Plaintiff's claim.
Although life would be better for us all if the court had indicated whether language of this sort would ever be enforceable with respect to personal property (looks like a forfeiture to the Editor), the court simply held that the equipment in question (cash registers, work table, ice chest, broilers and deep fat fryer) did not constitute fixtures at all, and consequently would not be covered.
Landlord next argued that the personal property was the Landlord's due to Tenant Four's abandonment. This, of course, would also have meant that Landlord would have taken title prior to its obtaining notice of Plainitff's security interest, but probably Landlord would not have qualified as a UCC "buyer" under the circumstances, as it gave no value. The court did not trouble itself with a value analysis, however. Instead, the court ruled simply that tenants NEVER will be viewed as having abandoned personal property simply by virtue of their having left it on the premises at the end of possession, even where the tenant has abandoned the leased premises itself.
Tenant Five, although it gave value without notice of Plaintiff's unperfected lien, did not cut off Plaintiff because it acquired its interest from Landlord, which had no interest whatever in the property. The title in Landlord was "void" and not just "voidable."
Both Landlord and Tenant Five were liable in conversion to Plaintiff.
Comment 1: With regard to Landlord, the court reached an appropriate result here. The court points out that Landlord had the option of bringing a statutory detainer action, which in Pennsylvania would have provided Landlord with protection against claims relating to abandoned property, or, in the alternative, of asserting a landlord's lien against the property.
The court "hedges" a bit when it goes into the facts that the Landlord alleged justified its concluding that the property was abandoned. But it quotes language from a prior case that seems to say unequivocally that simple abandonment by tenant will never justify the landlord in concluding that personal property on the premises also has been abandoned. In light of the statutory alternatives in Pennsylvania, the editor believes that this clear rule is a good idea.
Many jurisdictions do not provide landlords with easy statutory solutions to this problem, however. This situation can place great burdens on landlords under circumstances in which the landlords are not likely to recoup any income in return. The editor always advises landlord clients first to notify abandoning tenants (and anyone else with a known interest in personal property) - if landlord can find them - that the property is there to be reclaimed. If, thereafter, unclaimed, the property has some value, the editor still isn't comfortable that the landlord can treat it as "owned." Where the value is significant, the editor advises clients to store it - notify the abandoning tenant of its location - and hope to get the costs of storage if a claimant later appears. If the value is questionable, the landlord probably is better off junking it rather than attempting to make a profit from it.
Comment 2: Although the result against the new tenant, which may have given value for the property, is a bitter pill for an innocent party, it is standard hornbook law. One can't get good title from a thief. Landlord in this case was essentially a thief, and its ownership of the real property where the equipment was located conferred no further rights in the personal property other than simple possession. The new tenant, of course, does have a claim back against Landlord, and might be able to get a judgment and then offset rent.
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