Real Estate

Part One of a Two-Part Article

"Landlord shall assure Tenant of quiet enjoyment and possession of the Premises, and Tenant shall enjoy all rights herein granted without interference." This type of clause, in one form or another, is likely to be found in any commercial lease. So let's discuss some considerations for drafting this covenant, including ways by which a landlord may limit its scope.

Despite its name, the covenant of quiet enjoyment is not a promise that a tenant's premises will be pleasant or free from noise. Furthermore, despite the fact that this covenant is widely regarded as a fundamental right of title that is implied by law in many states, a landlord can limit the scope of this covenant through careful drafting of the covenant itself and and of the lease as a whole.

Generally, the covenant of quiet enjoyment provides a tenant with the right to use the leased premises for its intended purposes without disturbance from the landlord or a party acting on the landlord's behalf. Black's Law Dictionary states that it is an "assurance against the consequences of a defective title, and of any disturbances thereupon."

Interference

In essence, it is a two-pronged covenant: The first is a protection against title deficiencies and the second is a protection against other interferences with the tenant's use of the premises. In order to maintain an action for a breach of the covenant of quiet enjoyment, the landlord's action or inaction must not only interfere with the tenant's use, but such interference must be substantial.

A tenant's knowledge of paramount title to the premises is not necessarily fatal to a claim for breach of the covenant of quiet enjoyment unless the lease states that such knowledge constitutes a waiver of the tenant's rights under the covenant. In Duck Creek Tire Service, Inc. v. Goodyear Corners, L.C., 796 N.W.2d 886 (Ia. 2011), the Iowa Supreme Court examined the role of a master landlord's superior title in the context of a sublease that provides an express covenant of quiet enjoyment. When the master tenant defaulted on its payment of rent, the master landlord terminated its lease and asserted its superior title by evicting the tenant, subtenant and sub-subtenants from the premises. The court held that this eviction by the paramount titleholder deprived the sub-subtenants of their contemplated use of the premises in violation of the covenant of quiet enjoyment, and the sub-sublandlord was liable for this breach. As the court explained, the nature of a sublease itself suggests that a master landlord has superior title to the premises, and there was nothing in the sub-sublease or the surrounding circumstances that indicated sub-subtenants had waived their rights under the covenant of quiet enjoyment.

Interference from a landlord may occur with respect to a tenant's actual possession of all or a portion of the property. In a recent South Carolina case, the court held that the landlord had breached its lease with Tenant A by also leasing a portion of the demised premises to Tenant B. 56 Leinbach Investors, LLC v. Magnolia Paradigm, Inc., 769 S.E.2d 242 (S.C. Ct. App. 2015). The court found that Tenant B's lease deprived Tenant A of full, quiet and peaceful possession of the premises, where the lease explicitly stated Tenant A was "entitled to lawful, quiet and peaceful possession and occupation of the [d]emised [p]remises." Id. at 246.

Landlord interference may also be due to an interruption of a tenant's normal business operations or the landlord's failure to provide certain services to a tenant. For example, in a recent New York case, the court found a landlord to have breached the covenant when it failed to install an elevator on the premises, as required by the lease. City of Troy v. 1776 Sixth Ave., Troy, LLC, 133 A.D.3d 1019 (N.Y. App. Div. 2015). A landlord's interference may be due to activity on the leased premises, or the offensive actions or omissions may take place on adjacent premises. Whatever the cause and wherever the location, however, the landlord's interference must have a direct effect on the leased premises.

Substantialness

Even if a landlord has interfered with a tenant's use of the premises, a breach of the covenant of quiet enjoyment also requires that this interference be substantial, such that the premises become unsuitable for the purpose for which it was leased. A minor disruption or a short-term inconvenience will not likely rise to the level required to find a breach of this covenant. However, a recent court decision in Pennsylvania made clear that the cumulative effect of multiple disruptions and ongoing inconveniences would not be ignored. In Sears, Roebuck & Co. v. 69th Street Retail Mail, L.P., 2015 WL 5778622 (Pa. Super. Ct. 2015), the tenant claimed its landlord breached the covenant due to the landlord's general neglect of the premises. Specifically, the concrete in the parking garage was deteriorating, and most of the lights were burned out. Water leaked into the building. The landscaping and exterior was unkempt, and there was a rat infestation, among other problems. The tenant argued, and the court agreed, that the cumulative effect of these problems amounted to a breach of the covenant of quiet enjoyment, and the tenant had experienced a "death of 1000 knives." Id. at 7.

In next month's newsletter, we will discuss ways in which a landlord can limit liability in the event of breach of the covenant of quiet enjoyment.

Reprinted with permission from the April 2016 issue of Commercial Leasing Law & Strategy. © 2016 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.