ALI-ABA Course of Study Modern Real Estate Transactions July 30 - August 2, 2008 Boston, Massachusetts. Primer of Remedies for Landlord Defaults

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1 2705 ALI-ABA Course of Study Modern Real Estate Transactions July 30 - August 2, 2008 Boston, Massachusetts Primer of Remedies for Landlord Defaults By John W. Daniels, Jr. Quarles & Brady LLP Milwaukee, Wisconsin Reprinted from materials prepared for a prior presentation of this program.

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3 2707 PRIMER OF REMEDIES FOR LANDLORD DEFAULTS John W. Daniels, Jr. 1 Quarles & Brady LLP Milwaukee, Wisconsin I. COMMON LAW REMEDIES AVAILABLE TO TENANT WHEN LANDLORD DEFAULTS. A. Equitable Remedies. 1. Rescission of lease prior to commencement of lease term. See RESTATEMENT (SECOND) OF PROPERTY 4.2 and 6.2 (1976 & Supp. 2003); S&D Group, Inc. v. Talamas, 710 S.W.2d 680 (Tex. Civ. App. 1986) (sublessee could rescind where sublessor failed to deliver possession); Draper Mach. Works, Inc. v. Hagberg, 34 Wash. App. 483, 663 P.2d 141 (1983) (Tenant waived rescission for failure to deliver possession by occupying portion of premises); Crown Plaza Corp. v. Synapse Software Sys., Inc., 87 Wash. App. 495, 962 P.2d 824 (Wash. 1997); see also Blanc s Cafe v. Corey, 110 Wash. 242, 188 P. 759 (1920) (Tenant could maintain action for ejectment against Landlord who failed to timely deliver possession). 2. Termination of lease after commencement of lease term. a. Constructive eviction (see Article III below for a discussion of constructive eviction). b. Failure to cure misrepresentation of environmental condition. See Zwerdling v. Zack, 202 A.D.2d 577, 609 N.Y.S.2d 259 (1994); Heritage on Lanier, Inc. v. Akins, 216 Ga. App. 280, 454 S.E.2d 172 (1995). In Akins, the Tenant counterclaimed for rescission of the lease based on the Landlord s misrepresentation of the environmental condition of the premises. The court remanded the question to the trial court for further fact finding. c. Failure to provide environmental audit and contamination of the premises. See Fla. Atlantic Marine, Inc. v. Seminole Boatyard, Inc., 630 So.2d 219 (Fla. Dist. Ct. App. 1994). In Seminole Boatyard, the Tenant sought rescission of the lease and damages for the Landlord s (i) failure to provide the Tenant with an environmental audit as required under the lease and (ii) the Landlord s contamination of the premises. The court remanded the question to the trial court for further fact finding. 1 This outline was prepared with the assistance of Shawn D. Gould (Boalt Hall 2001), an associate in the Real Estate Practice Group of the firm.

4 Specific performance. a. Landlord s breach of contract to lease. See Ryan v. Stanger Inv. Co., 620 S.W.2d 505 (Tenn. Ct. App. 1981) (contract to lease is specifically enforceable); Wetherbee, Ltd. v. Allred, 969 S.W.2d 756 (Mo. Ct. App. 1998). b. Landlord s breach of a covenant to repair. See F.G. Madera, Annotation, Rights and Remedies of Tenant Upon Landlord s Breach of Covenant to Repair, 28 A.L.R. 2d 446, 473 (1953 & Supp. 2003); Lucas v. Evans, 453 So. 2d 141 (Fla. Dist. Ct. App. 1984) (Tenant was entitled to specific performance of Landlord s repair covenant); but see also Borochoff Props., Inc. v. Creative Printing Enters., Inc., 233 Ga. 279, 210 S.E.2d 809 (1974) (right to make repairs and recover costs and right to recover damages were adequate remedies at law); Continental & Vogue Health Studios, Inc. v. Abra Corporation, 369 Mich. 561, 120 N.W.2d 835 (1963) (no specific performance where remedy at law is adequate). c. Landlord s breach of a restrictive covenant. See N.H. Donuts, Inc. v. Skiptaris, 129 N.H. 774, 533 A.2d 351 (1987) (Landlord ordered to remove a building that blocked premises from view of highway, in violation of covenant). 4. Injunctive relief. a. Continuous or repeated acts creating a nuisance. See 49 AM. JUR. 2d Landlord and Tenant 544 (1995 & Supp. 2002) (injunction available under some circumstances). b. Other types of breaches of the covenant of quiet enjoyment. See Med Mac Realty Co., Inc. v. Lemer, 154 A.D.2d 656, 547 N.Y.S.2d 65 (1989) (Landlord was enjoined from interfering with Tenant s alterations and sublease, which were permitted under lease); Am. Warehousing Servs., Inc. v. Weitzman, 169 Ill. App. 3d 708, 523 N.E.2d 1082 (1988) (temporary restraining order was proper to prevent Landlord from using self-help remedy to block Tenant s customers access to premises during rent dispute); S.E. Nichols, Inc. v. Am. Shopping Ctrs., Inc., 115 A.D.2d 856, 495 N.Y.S.2d 810 (1985) (injunctive relief is available to prevent enforcement of Landlord s remedies until rights of parties can be settled, but only if requested before expiration of cure period for Tenant s alleged default); Long Island Gynecological Serv. v Stewart Ave. Assocs. Ltd. P ship, 224 A.D.2d 591, 638 N.Y.S.2d 959 (1996) (Tenant able to obtain Yellowstone injunction even though sought after end of cure period because Tenant demonstrated that if could not cure the default within the prescribed thirty-day period); - 2 -

5 2709 Madigan Bros., Inc. v. Melrose Shopping Ctr. Co., 123 Ill. App. 3d 851, 463 N.E.2d 824 (1984) (Tenant could enjoin Landlord from constructing restaurant in shopping center parking area where restaurant would interfere with Tenant s nonexclusive parking easement); Pacemaker Food Stores, Inc. v. Seventh Mont Corp., 117 Ill. App. 3d 636, 453 N.E.2d 806 (1983) (Tenant could enjoin Landlord from granting access easement across common parking area to fast food restaurant); Mut. of Omaha Life Ins. Co. v. Executive Plaza, Inc., 99 Ill. App. 3d 190, 425 N.E.2d 503 (1981) (office Tenant could enjoin Landlord from turning a portion of a common parking area into restricted parking for another tenant); Checker Oil Co. v. Harold H. Hogg, Inc., 251 Pa. Super. 351, 380 A.2d 815 (1977) (Tenant should have been granted a permanent injunction against Landlord s obstruction of access to premises from major road adjacent to premises); Elfman v. Berman, 56 Pa. D. & C.4th 171 (2001) (Tenant entitled to a preliminary injunction instructing Landlord to repair building that Landlord had intentionally failed to maintain). 5. Declaratory judgment. See Sun Ins. Services, Inc. v. 260 Peachtree Street, Inc., 192 Ga. App. 482, 385 S.E.2d 127 (1989) (Tenant obtained declaratory judgment that asbestos removal was Landlord s obligation before Tenant began renovation work allowed by lease); Times Square Stores Corp., Inc. v. Bernice Realty Co., Inc., 141 A.D.2d 536, 529 N.Y.S.2d 148 (1988) (Landlord s refusal to cooperate with Tenant s expansion of building was unreasonable, so Court ordered Landlord to sign application for new certificate of occupancy); Middle Village Assocs. v. Pergament Home Centers, Inc., 184 Misc. 2d 552, 708 N.Y.S.2d 840 (2000). B. Legal Remedies. 1. Action for damages. a. Liquidated damages for Landlord s failure to deliver possession. See 49 AM. JUR. 2d Landlord and Tenant 501 (1995 & Supp. 2002); Moses v. Autuono, 56 Fla. 499, 47 SO. 925 (1908); Omohundro v. Ottenheimer, 198 Ark. 137, 127 S.W.2d 642 (1939); Boltz v. Crawford & North Aves. Theatre Co., 294 Ill. App. 258, 13 N.E.2d 844 (1938). b. Damages for breach of other obligations of Landlord. i. Measure of damages. See RESTATEMENT (SECOND) OF PROPERTY 10.2 (1976 & Supp. 2003); Eugene L. Grant, Disturbing Concepts: Quiet Enjoyment and Constructive Eviction in the Modern Commercial Lease, 35 REAL PROP

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