Brief Fact Summary. Plaintiff Richard Barton Enterprises (Barton) entered into a lease for commercial space in an office building with Defendant Tsern. The lease and “earnest money receipt” incorporated into the lease provided that rent was to be $3,000 per month and that the premises should be made available on December 1, 1991, and that lessor was required to fix a leaky roof and repair the freight elevator to “good working order.”
Synopsis of Rule of Law. The lessee’s covenant to pay rent is dependent on the lessor’s performance of covenants that were a significant inducement to the consummation of the lease or to the purpose for which the lessee entered into the lease.
On November 21, 1991, Plaintiff Barton and Defendant Tsern entered into an agreement titled “Earnest Money Receipt and Offer to Lease.” Then, on November 27, 1991, the parties entered into a lease for two floors of a commercial building, which provided for $3,000 per month rent and was for a term of one year to commence on December 1, 1991. The original earnest money receipt was incorporated into the lease and that term provided that the building was to be accepted in an “As is” condition except that Tsern agreed to fix the building’s leaky roof and repair the freight elevator to “good working order.” Plaintiff took possession of the lower floor on December 1, 1991, and took possession of the second floor on December 20, 1991, when a hold over tenant finally vacated the premises. The elevator was completely inoperable and Tsern had made no effort to get the elevator fixed, plus the roof still leaked. On January 9, 1992, Tsern hired Kimball Elevator Co. to repair the elevator s
o that is would go “up and down,” but did not authorize the repairs necessary to make the elevator safe and reliable. The limitations placed on Kimball by Defendant and the failure to authorize additional repairs was not communicated to Plaintiff. The elevator worked from January 9 until January 24, when a city inspector ordered the elevator shut down. After Kimball made a repair required by the city inspector on February 13, the elevator worked again until March 14. On April 10, a state inspector shut the elevator down and ordered Defendant to correct nine safety violations. Because Defendant believed that Plaintiff was going to exercise an option to purchase the building, the Defendant did not pay the $5,552 necessary to complete the repairs to the elevator. Plaintiff continually demanded, during the lease, that the elevator be repaired. The elevator never worked again after March 14. On December 10, 1991, the parties had some communication regarding an abatement of rent, but no spe
cific terms were agreed to under the communication. Plaintiff tendered checks for less than the full amount of rent for January and February, which Defendant received and cashed, though he maintained that he was entitled to the full amount of rent. Plaintiff tendered full rent for February because the elevator was working when he made the payment. On April 15, 1992, Plaintiff filed this action for declaratory judgment to establish Defendant’s legal duty to repair the elevator, to which Defendant countersued with a three day notice to pay the rent in full or vacate. The trial court found that the elevator had not been repaired to “good working order” and entered judgment against Defendant for the cost of such repairs. Also, despite the fact that the parties never agreed on an amount of rent abatement, Plaintiff was entitled to have rent abated to $2,000 per month. Furthermore, Plaintiff’s damages plus interest should be deducted from the purchase price of the building. The Court ordere
d Defendant to pay attorneys’ fees of $100,000.
Issue. Does an implied warranty of suitability for a particular purpose extend to commercial leases such as this one, which makes the obligation to pay rent dependent on the lessor’s obligation to maintain the premises?
Held. Yes. Affirmed [however, the trial court incorrectly computed damages].
Traditionally, lease covenants were independent of the lessee’s obligation to pay rent. To ameliorate this rule, the courts developed the concept of constructive eviction, but under that concept the lessee has to quit the premises prior to withholding rent. The Court notes that the more modern view is to treat the landlord-tenant relationship under concepts from contract and tort law.
The implied contract of habitability applicable to residential leases is held to extend to commercial leases as well in the form of an implied warranty of suitableness for a particular purpose. The lessee’s obligation to pay rent is dependent on the lessor’s performance of essential covenants.
Only a significant breach of a covenant by the lessor can give rise to the withholding of rent by the lessee. The Court held that the covenants of the Defendant were significant inducements to the Plaintiff to rent the property, and that the working elevator was vital to Plaintiff’s business.
The lessee is entitled to abate rent by an amount equal to the reduced value of the premises due to the lessor’s breach. The trial court was wrong to award damages for the cost of repairing the elevator.
Discussion. This case provides a good discussion of the evolution of landlord-tenant law with respect to abatement and the performance of covenants. These concepts are important to protect the rights of the tenant.