Sweeping Changes In Tenant's Rights Under Commercial Leases

Although the current Supreme Judicial Court (“SJC”) in Massachusetts will probably always be remembered best for its decision on gay marriage, clearly one of their historic decisions is their decision that changed a relationship between a commercial landlord and tenant.

In the case of Wesson v. Leone Enterprises, Inc. & Another, 437 Mass.708, the SJC rendered a decision which changed the rules between a commercial landlord and the tenant to be more in tune with the realities of the relationship of a commercial landlord and tenant.

The case arose out of the following facts. A tenant rented a commercial building in 1988 and significant leaks in the roof started in April of 1991. The landlord agreed to fix the roof and his son patched the roof. The leaks reappeared later in the spring and the landlord hired a professional roofer to make further repairs. In early August of 1991 the roof began leaking in the same places as previously repaired and the tenant complained several times. He claimed that he and his subtenant were “forced to take necessary precautions to protect [their] business from more water damage.” After these leaks were repaired, another leak “in a different location” occurred on September 6, 1991. The landlord had the roof inspected the next day by a professional roofer who sealed the leak. There was no evidence at trial of any additional leaks or complaints of leaks after September 7, 1991.

On November 4, 1991, the tenant notified the landlord that he would be “vacating the premises on or before December 31, 1991” for reasons “well known to you. The constant lack of minimal heat as well as the serious leakage problem. The tenant paid the rent in full through the end of December 1991.

The trial judge found in favor of the tenant. The judge found that the tenant's testimony regarding the frequency of his complaints about the leaky roof, the danger it posed to his equipment and inventory and that he was forced to move out to be credible. In contrast the judge found that the testimony of the landlord regarding their reasonable responses to whatever complaints they received about the leaking roof not credible. The judge found that the roof was in a state of disrepair and needed more than spot repairs and that the repairs made were shoddy and unsuccessful. Based upon those findings, the judge concluded that the tenant had been constructively evicted from the premises by the landlord's failure to adequately repair the roof and was therefore relieved of its obligation to pay rent.

The SJC affirmed but on different grounds. The court found that to be a constructive eviction, the act of the landlord must have “some degree of substance and permanence of character.” The tenant was required to prove that the leaks made “the premises untenantable for the purposes for which they were used.” The court found that on that point the tenant's evidence was inadequate as a matter of law. The court found that while the landlord's breach of his covenant to repair may have made the tenant's operation less convenient and more expensive, based upon the evidence introduced at trial, it did not rise to the level of a constructive eviction. The court at that point engaged in an analysis of the historical roots of the relationship between a landlord and a tenant.

The court found that at common law covenants in leases were considered “independent in the absence of clear indications to the contrary and the tenant [was] relieved from the performance of his covenants only by actual or constructive eviction.” The independent covenants rule applied to both residential and commercial leases and was based on the assumption that “a lease is primarily a conveyance of an interest in real estate,” and reflected the parties' expectations in a rural agrarian society where the right to possession of the land constituted the chief element of the exchange. The theory of a lease as a conveyance fitted in well with the ancient farm lease. The lease was essentially of land; the house was incidental. Tenant got no services from landlord and expected none. Tenant was there, landlord absent. Tenant had tools that he was well versed in using . He could make such repairs as might be necessary. Even if the landlord made express maintenance promises in the lease, courts often held that the landlord's breach of these “secondary”' obligations did not affect the tenant's obligation to pay rent. This apparent unfairness was balanced under the same doctrine by the inability of the landlord to recover possession of his property from a tenant even if the tenant breached its covenant to pay rent. Both the lessor and the lessee were limited in their remedies to seek damages for breach of the lease covenants. Any equilibrium that may have existed in this application of the rule was lost with the enactment of statutory dispossession actions, permitting landlords to regain possession of the premises if the tenant failed to pay rent even though the landlord may have breached express covenants within the lease.

As it applied to residential leases, the independent covenants rule was completely supplanted in 1973, when the SJC recognized that a residential lease is essentially a contract between the landlord and the tenant wherein the landlord promises to deliver and maintain the demised premises in habitable condition and the tenant promises to pay rent for such habitable premises. These promises constitute interdependent and mutual considerations.

That decision was consistent with the national trend in residential leases away from interpretations based on classic property law doctrine that treated leases as “conveyances” and toward modern notions of leases as contracts for the possession of property and modern notions of consumer protection.

The SJC found that the premise of independent covenants no longer comports with the reality of the typical modern commercial lease, which is intended to secure the right to occupy improvements to the land rather than the land itself, and which usually contemplates the continuing flow of necessary services from landlord to tenant, services that are normally under landlord's control. The court therefore adopted the new law of mutually dependent covenants as follows:

“Except to the extent the parties to a lease validly agree otherwise, if the landlord fails to perform a valid promise contained in the lease 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 lease, and if the landlord does not perform his promise within a reasonable period of time after being requested to do so, the tenant may terminate the lease.”

The court noted that the rule they adopted was different from the rules required for constrictive eviction which requires a showing by the tenant that the premises are “untenantable for the purposes for which they were used”. The court found it was sufficient for the tenant to demonstrate the landlord's failure, after notice, to perform a promise that was a significant inducement to the tenant's entering the lease in the first instance.

Based upon the facts of this case, the court found that the landlord breached his covenant to maintain the roof by failing to adequately repair its chronic leaking; the breach directly interfered with the tenant's business by depriving it of a substantial benefit significant to the purpose of the lease; and, after adequate notice, the landlord's efforts to correct the problem were both “shoddy and unsuccessful.” Based upon that the tenant was entitled to terminate the lease and recover relocation costs in the amount determined by the trial judge.

This decision will bring contracts dealing with real estate more in line with the law relating to other commercial contracts such as the Uniform Commercial Code and Massachusetts General Laws, Chapter 93A which prohibits unfair and deceptive trade practices by business people.

Thomas V. Bennett, Esq. (tvb@barronstad.com)

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