Almost all commercial leases in the United States include a
covenant of quiet enjoyment. At its simplest level, the protection
afforded by the covenant to a tenant is straightforward: a landlord
must not interfere with a tenant's use and enjoyment of the
leased premises. Tenants, however, have attempted to utilize the
covenant in a more expansive way to make claims and obtain damages
against landlords for various types of landlord behavior. The scope
and nature of the landlord's detrimental behavior are important
factors in determining whether the tenant will have a potentially
successful claim for the breach of the covenant of quiet enjoyment.
But recent cases suggest that leases can be drafted to limit the
scope of the covenant and/or the landlord's liability for
breach of the covenant. To constitute
a breach of the covenant, the landlord's behavior must disrupt,
in a meaningful way, the tenant's
use of the leased premises. For
example, in Maryland, the Court of Special Appeals focused on that
concept when determining that the landlord's action of
overcharging the tenant rent and making other accounting errors
that resulted in overcharges did not result in a breach of the
covenant of quiet enjoyment. The court concluded that such actions
did not interfere with the tenant's use of the leased premises
and could not support a claim based on the breach of the covenant
of quiet enjoyment. The court went on to say that the landlord must
engage in actions that strike at the essence of its obligations
under the lease in order to support a claim for the breach of
the covenant of quiet enjoyment. Unless the lease expressly
provides that the landlord has specific lease obligations, the most
basic obligation that the landlord has under the lease is not to
enter onto the leased premises during the term of the lease.
Without unpermitted entry onto the leased premises or, at minimum,
actual interference with the leased premises even if it's from
an adjoining premises, a tenant will have difficulty utilizing the
covenant of quiet enjoyment to remedy any breach or default by
landlord under the lease. Nationwide
Mutual Insurance Company, et al. v. Regency Furniture,
Inc (183 Md. App. 710 2009).
Even when the actions of the landlord disrupt the tenant's use
of the leased premises, however, express language in the lease can
insulate the landlord from claims brought by a tenant for breach of
the covenant. In California, a court of appeal recently held that
construction in a retail shopping center which disrupted with
tenant's business at the leased premises did not give rise to a
claim for a breach of the covenant.
Fritelli, Inc. v. 350 North Canon Drive, LP, et al., No.
B228487 (Cal. Ct. App. 2nd Dist., December 20, 2011.) The lease
provided an exemption on the landlord's liability for actions
on adjoining premises and also limited the landlord's liability
for any loss of income of the tenant. Although the court found
that, as a matter of law, the claim for breach of the covenant of
quiet enjoyment could not be maintained because of the liability
exemption, there were several factual matters that inured to the
benefit of the landlord which could have influenced this finding:
(1) the landlord and tenant had discussions regarding the
construction, (2) the construction was not prohibited or restricted
in the tenant's lease and (3) there was evidence that
tenant's business had begun to decline prior to the
commencement of the construction. These facts likely did not help
the tenant in its legal claim.
To avoid erosion of meaningful protection in the covenant of quiet
enjoyment, a tenant needs to read a lease as a whole and determine
the limitations placed on landlord's liability for acts or
omissions. If the scope of the covenant of quiet enjoyment is
limited by an express exemption of liability set forth in the
lease, the factual case that a tenant has to make is much more
difficult in that the tenant must show some extraordinary
interference with the use and enjoyment of the leased premises. A
tenant must consider the nature of the landlord's interference
to ensure that the use of the leased premises has been disrupted
and must also review the lease carefully to determine if there are
any landlord exemptions from liability that could further erode a
claim.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.