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1 Next Class See website. Review the State of California Official Judicial Council Unlawful Detainer Answer. Carefully review California Code of Civil Procedure at page 100 of the Supplement. Abandonment & Mitigation of Damages Common Law (lease as conveyance) No Duty To Mitigate: T obligated to pay RENT for remainder of term if T vacates and abandons the premises. T still owns the estate and must pay the rent regardless of whether or not T uses the property (just as the purchaser of a car must complete the car payments). Landlord can wait and sue for past due RENT. Modern (lease as contract) L Must Mitigate: L entitled only to damages -- amount by which Rent exceeds FMRV for the remainder of the term, plus incidental damages. 1

2 California Civil Code & What does this statute accomplish? Rejects the no mitigation rule. L can collect only the actual damages caused by the abandonment: Rent for the period T was in occupancy prior to abandonment (plus interest) Damages for remainder of term K price FMRV (less interest reduced to current value) Incidental damages Abandonment, Surrender, Acceptance of Surrender, Reletting for T s Account What do these terms mean? Abandonment Surrender Acceptance of T s Surrender or Reletting for T s Account Common law responds to some unfairness in the no mitigation doctrine. A judicial end-run around the doctrine of no-mitigation. 2

3 Hypo - Result under Common Law? T abandons, 5 years remaining in term. Rent is $500/mo. FMRV = $400/mo. What result if: L takes no action, waits 5 years & sues for the rent ($30,000). (If L mitigated, loss would be only $6,000). L accepts the T s surrender of the estate. $0 rent. No damages (not a contract) L enters the premises in the first month following surrender and shows premises to a prospective tenant. Acceptance of surrender! $0 rent. No damages (not a contract). Acceptance is any act inconsistent with T s rights of possession. L notifies T that L will attempt to relet for the T s account. L finds a tenant at $400 per month. (L losing $100/mo x 12 x 5 = $6,000): L will collect $400/mo on T s account and wait to sue for the unpaid rent. $6,000 in rent (really mitigated damages) How Much Can L Collect No Mitigation Doctrine Rent in Lease is $500 with a remaining term of 60 months when T abandons. Common Law Rules No acceptance of surrender: RENT ($500 x 12 x 5) = $30,000 Acceptance of surrender RENT = $0. No damages. No basis for future recovery since there is no longer any lease. Only rent up to date of acceptance & termination of the lease. Reletting for tenant s account Mitigated damages: K price less FMRV: $6,000 Modern Law - Mitigation $6,000 3

4 Switch Gears -- L s Default: What are T s Remedies Cases where the Landlord has defaulted or the premises become unsuitable. What are tenant s rights? Suppose that T rents a house from L for 5 years at $2,000 per month (total rent for the term of the lease is $120,000). What is the outcome if: 1. L promised to keep the house in good condition, but the electricity isn t working, and the toilets have stopped working Can T terminate & move out, without liability for rent? 2. The house burns down? Can T terminate & move out, without liability for rent? What were the traditional rules regarding T s rights if Landlord defaulted under some material provision in the lease? The Traditional Rule Doctrine of Independent Covenants Lease as Conveyance: The leasehold ESTATE has been conveyed & T must pay RENT. T has the legal rights to use, enjoy & possess for the term of the lease. This made sense since the rent arose from the leasehold ESTATE, which had been delivered to the tenant. Contractual Obligations: L s obligations under the contractual portion of the lease, if any, were independent from the obligation to pay rent for the ESTATE. Any contractual obligations were seen as unrelated to the underlying transfer of a leasehold estate and the continuing obligation to pay rent. Imagine the premises as agricultural land with a thatched hut. If L agreed to fix the hut (unlikely) that contract was really unrelated to the conveyance of the estate. 4

5 Only Time Tenant Could Cease Rent Payments T s only way out of liability for rent was to show a breach of the L s fundamental failure to provide the ESTATE. This failure would arise because of a breach of the covenant of quiet enjoyment. 9 Promises Contained in the CQE? What two promises does L make in the universal covenant of quiet enjoyment? 1. L warrants the legal right to possession: L had the legal right to convey a leasehold estate and T won t be evicted (physically ousted) by a holder of superior title. 2. Landlord will not oust (evict) T from the leased premises. 5

6 Eviction and the Breach of the CQE Eviction: There is an actual physical ouster by: (i) L or (ii) a person with superior title. Is CQE breached if: Landlord leases a house to Tenant for 5 $2,000/month. There are 4.5 years remaining in the term when one of the following events occur. CAN TENANT MOVE OUT WITHOUT LIABILITY FOR RENT? 1. Landlord s title to the fee is lost when Landlord doesn t pay the mortgage and Bank forecloses (Bank has superior title). 2. True fee owner (Bank) appears and evicts Tenant? 3. L previously leased the same house to T1 for 10 years & that lease is unexpired. T1 evicts Tenant? 4. X (a trespasser) shows up, moves in & physically ousts Tenant? 5. Landlord has good title but one month into the tenancy, Landlord appears and ousts the tenant by re-keying the doors? 12 6

7 Is CQE breached if: 1. Landlord s title to the fee is lost when Landlord doesn t pay the mortgage and Bank forecloses (Bank has superior title). No. Mere foreclosure of the title is not a breach. The CQE is breached only by PHYSICAL ouster. 2. True fee owner (Bank) appears and evicts Tenant? Yes, CQE breached (eviction by someone with superior title), T can suspend rent obligation. 3. L previously leased the same house to T1 for 10 years & that lease is unexpired. T1 evicts Tenant? Yes, CQE breached (eviction by someone with superior title), T can suspend rent. 4. X (a trespasser) shows up, moves in & physically ousts Tenant? No. No act or omission to act by L. Tenant still has good legal title to the estate. 13 Hypos -- Act by Landlord that Ousts Tenant 5. Landlord has good title but one month into the tenancy, Landlord appears and ousts the tenant by re-keying the doors? Yes, CQE breached. Actual ouster by L. T can suspend rent payments. 7

8 Act by Landlord Substantial Interference with T s Possession 6. L wants to oust T. L turns off the water and disconnects the electricity. Note that this is not a physical ouster but will accomplish the same outcome. This is a substantial interference with T s enjoyment of rights of possession. Constructive eviction/ouster: L has acted to interfere with T s rights of possession without an actual ouster. If serious & grave, & T vacates within reasonable time, the CQE is breached as though an actual eviction by L. 15 OMMISSION to Act by Landlord 7. L wants to oust T. L neglects needed repairs, making premises uninhabitable? What s the answer? Depends on whether L had a duty to act: L had no contractual duty to repair? No breach of CQE. L was under no obligation to make repairs. No omission causing an eviction. L had a contractual duty to repair? Constructive eviction/ouster: L has omitted to act when L had a duty to do so. If serious & grave, & T vacates within reasonable time, the CQE is breached as though an actual eviction by L. 16 8

9 Constructive Eviction by Landlord There might be times when courts are willing to deem a L s acts or omissions to act as the equivalent of a physical ouster? 1. a. An act by L -- or -- b. Omission to act if L has a duty to act, AND 2. The act/omission is: a. Serious, grave & permanent a substantial interference with T s possessory rights, and b. T vacates in reasonable time How can it be equivalent to an ouster if T remains on the premises? The acts/omissions must be so substantial and grave as to be the equivalent of an actual physical ouster. 17 Constructive Eviction Hypo: L leases residence to T for 5 years at $2,000 per month. L expressly promises to keep the premises in good repair. L is in substantial default. No hot water, no electrical, failure by the L to keep the premises in good repair as Landlord promised to do in the lease. Is the CQE breached? Village Commons, LLC v. Marion County Prosecutor s Office 9

10 Village Commons, LLC v. Marion County Prosecutor s Office Indiana Court of Appeals 2008 Plaintiff(s)? Landlord: Village Commons LLC. Seeking: Rent or damages for the remainder of the term because Tenant abandoned. Up to $380, in rent. Defendant(s)? The tenant: Marion Co. Prosecutor s Office. Abandoned after flooding, with many years remaining in the lease term. P s Assertion? L s breach of the landlord s obligations under the K did not give rise to a right in T to terminate & abandon the Estate. T remained liable for rent, or, at least, damages. D s Assertion? Lease terminated because the Landlord s EVICTION terminates the lease.. 19 Facts? June 1999: 7.5 year office lease, 9,300 square feet, approximately $8, per month (rent escalates over the term of the lease, with a 5 month no-rent period at beginning) Landlord promises in the lease to keep the premises in good repair and free of leaks March 2001 through December 2002: Incredible series of leaks, floods, sewage, mold, damage. Landlord makes some meek attempts to fix but the problem persists and grows worse. January 2003: Tenant abandons and stops paying rent. Over 3 years remain in the term. (36 months x $8,500 = $306,000 in rent might be due following abandonment). February 2004: Landlord sues for damages caused by Tenant s breach & abandonment. Rent (or damages if mitigation is required) 20 10

11 Facts Under the lease terms, the Landlord is in default. Traditionally, tenant must continue paying the rent and sue separately for damages. The only basis for lease termination based on the Landlord s default, was to show that the Landlord breached the Covenant of Quiet Enjoyment An actual eviction by someone with superior title An actual eviction by Landlord A constructive eviction by Landlord 21 Issue(s)? Constructive Eviction: Has the CQE been breached (allowing the tenant to terminate the lease without further liability for rent), if the premises are repeatedly flooded and damaged -- and L has breached its express covenant to repair the condition but T doesn t move out until many floods have occurred? OR, alternatively in modern courts: Dependency of Lease Covenants: Can T terminate without further liability for rent if L breaches a material obligation under the lease despite the common law doctrine of independent covenants? 22 11

12 Actual v. Constructive Eviction By L Actual Eviction: In Village Commons, did the landlord actually evict the tenant by physically ousting the tenant (locking them out, barring them from the property, retaking possession)? No Constructive Eviction ACT by L? Did L act to create the flooding. Did L engage in acts to cause the flooding such as putting a hose in the basement & turning on water? Or removing the vapor seals between the building & driveway? No Constructive Eviction Omission to ACT by L? Duty (L promised to keep the premises free of flooding)? Omission to Act? Substantial, grave, Permanent? T vacates within a reasonable time? 23 Are the requirements for C.E. Satisfied In Village Commons? Act or omission to act (L has a duty) by L Yes, L had a duty to keep the premises free of water. The court found that the landlord agreed to keep the premises free of water Serious, grave & permanent A substantial interference with T s possessory rights. No need to be continuous. A severe interference with possessory rights that is equivalent to a physical ouster. T must vacate in reasonable time Can t argue that conditions are so bad that it s equivalent to a physical ouster unless T vacates within a reasonable time. That might actually present some issues for the tenant but the trial court finds that they were: (i) actually evicted as to part of the premises; and, (ii) the tenant acted reasonably in trying to deal with the problem and then leaving

13 The Exclusive Remedy Provision in the CONTRACT The lease contained the following exclusive remedy provision: Section Default by Landlord and Remedies by Tenant. It shall be a default under and breach of this Lease by Landlord if it shall fail to perform or observe any term, condition, covenant or obligation required to be performed or observed by it under this Lease... Upon the occurrence of any such default, Tenant may sue for injunctive relief or to recover damages for any loss resulting from the breach, but Tenant shall not be entitled to terminate this Lease or withhold, setoff or abate any rent due thereunder. Why does the court fail to enforce this provision? Because, the CQE cannot be waived. It s at the heart of what a lease is: the tenant has the legal right to occupy the property without being evicted. A breach of the CQE instantly terminates the lease, so the Exclusive Remedy provision is unenforceable. 25 Why We Have Constructive Eviction When the landlord has wrongfully evicted a tenant, whether by actual physical ouster, or by constructive eviction, the CQE is breached and the lease is terminated. It s the Landlord who is acting wrongfully. A Landlord cannot wrongfully evict a tenant and then sue the tenant for rent which is exactly what is happening in this case

14 The Traditional Independency of Covenants Landlord rents a luxury home to Thelma for 5 $7,500 per month. Landlord promises to maintain the swimming pool, hot tub, garden, provide weekly maid service. Landlord fails to comply with any of these obligations. Several questions: 1. Under traditional law, can Thelma terminate the lease and move out because Landlord is in material breach of the contractual provisions of the lease? No. The obligation to pay rent and the contractual provisions are independent. The rent obligation arises from the legal right to possession that is the leasehold estate known as the CQE. So long as T has the legal right to possession, the CQE is not breached and the rent must be paid. 27 Constructive Eviction (breach of the CQE)? 1. Do the L s omissions (gardening, maid service, pool & hot tub) amount to a substantial interference with possessory rights that rise to the level of a constructive eviction? No. To breach the CQE there must be an eviction, actual or constructive. Is there evidence of: Actual Eviction: No. No physical ouster. Constructive Eviction No. No acts or omissions to act that amount to the equivalent of a physical eviction

15 The Doctrine of Independent Covenants If we view the lease as a conveyance then the tenant must keep paying $7,500 per month and cannot abandon without liability for rent/damages. Tenant s only remedy is to sue for breach cannot vacate Should we view leases as conveyances in 2019? Hasn t a material breach occurred justifying the tenant in vacating the premises without further liability? In other words, shouldn t the L s substantial breach of the lease justify the T in terminating, just like a contract? 29 Independent Covenants in Leases? Every state now rejects the doctrine of independent covenants. If L has a duty that has been materially breached, T can simply terminate and move out without further liability for rent. This means the tenant doesn t have to prove the difficult elements of constructive eviction which requires the equivalent of a physical ouster: Landlord acts (creates a water leak) or omits to act (and L had a duty to act such as repairing a water leak), AND Permanent & grave interference with T s possessory rights, AND T vacates within a reasonable time

16 Special Note: Village Realty The tenant could not use the doctrine of dependent covenants (material breach by L allows T to terminate) because of the exclusivity provision. 31 Tenant s TWO Theories for Termination of Lease? T s apartment is without water or electricity. What must T prove to terminate lease & her obligation to pay rent in 2019? 1. Breach of CQE (a constructive eviction). a. Act, or, omission to act (& L has a duty) by L b. Serious, grave & permanent a substantial interference with T s possessory rights equivalent to a physical ouster. c. T must vacate in reasonable time to argue constructive physical ouster. 2. Standard Contract Principle: Material breach by L gives T right to terminate lease & stop paying rent: Dependency of Contract Provisions: It s time to reject the doctrine of independent covenants. A material breach by L gives T the right to terminate without further liability for rent

17 NOTE For either theory, must be able to show that Landlord was obligated to make repairs. Otherwise, L is not in default and has not failed to act in a way as to cause an eviction by L. 33 Constructive Eviction v. Contract Termination Every state now rejects the doctrine of independent covenants. No real need to argue constructive eviction unless L ACTS to cut off utilities or interfere with possessory rights. If L has breached some obligation and premises are in bad shape, then two theories for T to terminate lease but both require an express or implied covenant by L 34 17

18 Partial ACTUAL Evictions - Hypos 1. 3 bedroom apartment. L padlocks 1 bedroom. Has there been a partial actual eviction? Yes. CQE is breached by L s actual eviction. What remedies does T have? Traditional or Modern: Terminate & move out. Stay and sue for damages. Can L collect the rent? No. L cannot apportion his wrong. CQE Breach means the obligation to pay rent ceases. Can L collect FMRV? Yes, of course. T has to pay the quantum meruit value of what T is receiving if T remains in possession. Constructive Partial Eviction 3 bedroom apartment. L under duty but neglects to keep in repair. 1 bedroom becomes unusable (ceiling collapses, water damage, no heat or electricity). T stops using bedroom but uses remainder. Has there been a partial constructive eviction? Yes. A constructive eviction, partial or full, occurs when L omits to act (having a duty to do so), serious & grave interference with possessory rights. What remedies does T have? Can T terminate and move out without liability for rent? Can T stay and pay only the FMRV? Some secondary student resources: No remedy. Cannot use partial constructive eviction but CAN use partial actual eviction. Why? Why not? Is this sensible? The question is whether there s been an eviction, regardless of whether it s actual or constructive. The remedy should be exactly the same. 18

19 The Issue Before Us Can we IMPLY covenants on the part of L? We know that if the L breaches a promise, T may have rights to terminate & move out, or at least sue for damages. But L s are in control of the lease form and will often omit some important obligations on the part of L In the absence of express promises by L s, what covenants are the courts/legislatures willing to impose or imply? Covenant of Quiet Enjoyment (implied in every lease) Covenant to Deliver Possession on the 1st day of the term Warranty of Habitability Hannan v. Dusch (VA, 1930) Plaintiff(s)? Tenant (James Hannan), 15 year commercial lease. Seeking: Damages. Asserts that the lease included an implied covenant by L to deliver possession on the first day of the term. L breached that implied covenant & is liable for damages. Defendant(s)? Landlord (Walter Dusch). Defendant s assertion? L performed under all covenants in the lease: satisfied the covenant of quiet enjoyment by delivering good title. Legally, Hannan had good title and the right to possession. There is no implied covenant to deliver actual physical possession, only the right to possession. 19

20 Facts 8/31/1927: Lease in Norfolk Va. executed. 15 year term commencing 1/1/1928. Commercial lease. No express covenant regarding delivery of possession. (note: if you were the Tenant would you have included such a provision? What are your expectations when you sign a lease as a tenant regarding who s responsible for getting the old T out?) 1/1/28: Prior tenant holds over. Hannan requests that L remove old tenant and L refuses. T has to wait several months to get possession. T sues for L for damages for the period that premises were unavailable. Issue(s)? In the absence of an express covenant to deliver possession at the beginning of the term, does a landlord impliedly covenant to deliver possession to a commercial tenant on the first day of the term? T/C: Landlord wins. No implied covenant to deliver possession. Virginia Supreme Court (1930): Affirmed 20

21 Three Questions For You To Answer It s clear in Hannan v. Dusch that the prior tenant is a holdover and has no right to be there. L has delivered to T the legal right of possession, but not the actual possession. Three questions: Q1: Has there been a breach of the covenant of quiet enjoyment? Q2: Is there a covenant by L to deliver actual physical possession on the 1 st day of the term? Q3: If no covenant to deliver actual physical possession by L, can L sue T for the rent (or damages in a modern state) even though T does not get actual physical possession. Answers to Questions Q1: Has there been a breach of the covenant of quiet enjoyment? No. Good legal title has passed to T. No one has superior legal title. L has done nothing to actually or constructively evict T. Q2: Can T consider L in breach, terminate the lease & find other premises for the rest of the year or sue for damages? Not unless T can find an express or implied covenant that L has breached. In the absence of an actual eviction, T s right to terminate is based on finding a Covenant by L that has been breached by L s acts or omissions. 21

22 Answers to Questions Q3: If no covenant to deliver actual physical possession by L, can Landlord wait and sue T for the rent (or damages in a modern state) even though holdover tenant is still there? Yes! In the absence of a breach by L that gives rise to a right in T to terminate, T must pay the rent. Traditional view: L can wait and sue for RENT. Rent arises from the estate and T has the legal rights of possession. Neither L, nor anyone with superior title has ousted T. American v. English View: Which is Better? The court in Hannan adopts the American rather than the English view. Which is better? Is the court correct? English: There is an implied covenant to deliver possession on first day of term. American: Parties should include such a covenant if that is their expectation. Which view do you favor: Actual expectations of the parties? Who s in a better position to know if the prior tenant will holdover? Who is in a better position to bring an unlawful detainer? Who has access to information & facts (will the old T be holding over? Does the old T have the superior right to be there?) Note: Technically, T has the right to possession & L cannot commence unlawful detainer. (most states allow L to commence unlawful detainer) 22

23 Hypo 8/1: T signs lease for a residential apartment, 1 year term commencing 9/1. 9/1: T shows up with a moving van, pets & children Prior tenant still in occupancy and shows no signs of leaving. It will take, at a minimum, 2 months and $2,000 to evict him using unlawful detainer proceedings. If she puts up a good defense, it will take $5,000 and 4 months. Q: Has there been a breach of the covenant of quiet enjoyment? No. Not unless the prior tenant has a valid lease that extends past 9/1. Q: Can T treat the landlord as having breached some other covenant and therefore terminate the lease and find other premises for the rest of the year? This is the question in Hannan. Is there a covenant to deliver possession on the first day of the term? Distinguish the Preceding Case from Hannan I.D. at least 3 ways to factually distinguish Hannan from our hypo: 8/1: One year lease signed by you, commencing 9/1. 9/1: Prior T refuses to leave. L is not willing to take action to evict the prior T stating: It s your problem now. I promised to give you the legal right to possession & I have done so. Trespassers are your problem now. 3 solid ways to distinguish Hannan? 23