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PostPosted: Wed Sep 18, 2002 6:32 pm 
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Joined: Mon Nov 20, 2000 6:01 am
Posts: 493
Location: Framingham, MA USA
The case reported is important to both landlord and tenant who are parties to commercial leases. The Massachusetts SJC adopted a new rule which changed the existing common law rule of not allowing a tenant to break a lease except in the event of a constructive conviction, a theory of law very difficult to prove in many cases.

The defense of constructive conviction did not even prevail in this case, but the court did adopt a rule common in many other states which levelled the playing field

Over the years I have been asked by many dojo lessees (tenants) about breaking leases because of the failure of landlords to provide the services bargained for in the lease.
An example might be proper furnishing of electrical power source or heat, or to make certain repairs or improvements.

This was always a difficult situation for the tenant because of a long standing adaptation of a legal doctrine called “independent covenants.” (often referred to as the “the dependent covenant rule” This meant (in extremely simplistic terms), that you were still bound by your lease based on the contract and your agreement to pay rent, and even though the landlord broke his agreement, that did not break the lease and you would have to sue him for his failure to furnish or perform his obligation.

This was also the law for residential property until about 1973 when the independent covenant rule was abolished by the courts in favor of the theory of “mutually dependant covenants’, that is to say that the tenant could break a lease for conditions not complied with by the landlord because his rights were mutually dependant.

This does not mean a license to walk out and break the lease; that is until reasonable demands are made and the landlord is given enough time to comply.

Under the old rule of independent covenants, in order to actually break the lease, you would have to prove “constructive eviction”. This is a difficult burden of proof because you would have to prove that the landlords acts were of a nature so as to make your occupation impossible.

An extreme example might be that the landlord blocked your shipping dock, and after many demands, if you were unable to break your lease, you would be out of business.

In a case that was just decided by the Massachusetts Supreme Judicial Court (SJC), refused to rule in favor of the tenant on the above ground of constructive eviction because the tenant did not meet the standard of proof necessary to break the lease.

What it did do was uphold the lower court’s decision reasoning, and based it’s reasoning on different grounds.

The decision was a major change in the existing law

and this can be seen in the following language of the decision:

“In this case, we abandon the common law rule of independent covenants in commercial leases in favor of the modern rule of mutually dependent covenants as reflected in the Restatement (Second) of Property (Landlord and Tenant) Section 7.1” said Justice Robert J. Cordy, writing for the Court.

He stated: “We conclude that a landlord’s failure to keep the roof of his building in good repair deprived the tenant of a substantial benefit significant to the purpose for which the lease was entered”

The case was a 20 page decision and is Wesson v. Leone Enterprises, Inc, et al.

Here is a summary of the facts:

In 1991 the tenant first complained to the landlord of a leaky roof, and the landlord had his son repair it.

When the leaks continued, a professional roofing company was brought in to further repair the roof, but in late August of that year, the roof began again. The tenant complained numerous times about the leaks and the landlord again had them repaired, but an additional leak appeared in September 1991, although this one was the responsibility of the tenant under the lease.

The landlord brought in a professionals roofer who inspected and sealed the leak. In November of that year, the tenant paid rent thought the end of December 1991,and told the landlord that he would be “vacating the premises” before the end of the year because of “the constant lack of minimum heat as well as the serious leakage problems”.

The landlord sued the tenant in district court and the case was removed to superior court.
Landlord claimed damage to the premises and breach of contract, the tenant filed a counterclaim and pleaded “constructive eviction” and unfair and deceptive business practices.

The case was tried before a single judge in superior court. The judge found for the tenant and ruled that the tenant was relieved of his obligation to pay rent, and that there was a constructive eviction and breach of contract. Tenant received $1,063 for relocation damages.

In the SJC case, the landlord argued that the Superior Court judge erred in applying the dependent covenants rule, and that the independent covenants rule still existed in Massachusetts.

But, the judge disagreed: “The premise underlying the continued viability of the independent covenants rule is that a commercial lease is a conveyance of property where the rights to the possession of land constitutes the chief element of the exchange”. wrote Cordy “This premise no longer comports with the reality of the typical modern commercial lease, which is intended to secure the right to occupy improvements to the land rather than the land itself, and which usually contemplates a flow of necessary services from landlord to tenant”

The judge said that the better rule was the rule of mutually dependent covenants as found in the Restatement (cited above).

This was a major change in the law and should be a benefit to dojo tenants (or any other commercial tenant). While it is a burden on landlords, it does promulgate mutual respect of the promises that each party makes in a lease, and gives the tenant bargaining power that was never present in a commercial lease in Massachusetts, where a tenant who was miserable for want of repair or services could only sue for his damages and not break the lease in a case where the burden of proof on the facts would not be sustained because of standard applied as to what constitutes a constructive eviction.


Alan K


------------------
"The Goddess of Justice is Blind"


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PostPosted: Wed Sep 18, 2002 7:47 pm 
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Joined: Sat Dec 12, 1998 6:01 am
Posts: 1688
Location: Weymouth, MA US of A
Would a "common sense" approach to a commercial lease be adding an "opt-out" clause in the lease, giving each of the parties the ability to cancel the lease for any reason with an appropriate notice?

Gene

[This message has been edited by Gene DeMambro (edited September 18, 2002).]


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PostPosted: Thu Sep 19, 2002 10:33 pm 
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Joined: Mon Nov 20, 2000 6:01 am
Posts: 493
Location: Framingham, MA USA
My answer to your question of mutual ability to terminate a lease is difficult to do when you consider that in an ideal situation, both parties want to be able to enjoy a good thing.

Lease negotiation is viewed in the context of what each party thinks is best for their respective business interest.

If a Class A builing landlord, who has desireable property to rent, he will weigh the merits of the contract, and go for what he feels the market will bring based upon the product.

If the landlord has a choice property. he can afford to attract a st strong tenant.

You will almost never see an "at will with notice" lease in the above situation, because the landlord would like to be assured of his income from each tenant for as long as he can. He can take this to the bank. Incentive to the tenant might be that the lease pricing advantage would be in favor of the tenant on a longer term lease.
You can structure this in many ways so that step increases are pre-negotiated.

Lease structuring is based upon more than square footage. It depends on how many services the tenant wants or the landlord requires. You have increase of real estate tax formula; with or withour untilities in pricing, in single buildings perhaps triple net leasing.

Bottom line is that not many landlords will go for a lease with mutual termination covenants, unless related to extreme fire loss, taking by eminant Domain.

Alan K


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