“The condition of this space is unacceptable.”
“I am not paying rent until you come and repair this leaking roof, the HVAC system, the plumbing, etc.”
“The smell or the noise is unbearable – you have to do something about this.”
Concerns like these frequently arise between landlords and tenants.
This familiar game of chicken plays out with predictable regularity because commercial landlords and tenants constantly debate the materiality of alleged defects in the condition of leased premises. When is a condition so significant that a tenant can withhold rent? What kinds of risk does a landlord take if the landlord fails to respond to a significant issue concerning the leased premises?
Understanding Constructive Eviction
When disputes over the conditions of a leased premise escalate, both parties risk breaching the lease: the tenant may breach the lease by not paying rent and the landlord may breach the lease by failing to make repairs mandated by the lease. The legal concept underlying this situation is “constructive eviction.” Constructive eviction occurs when interference in a tenant’s use and possession of leased premises — from the landlord, from the landlord’s failure to repair defects in the premises or from a third party — is severe enough to deprive the tenant of the “beneficial enjoyment” of the premises. Sometimes a determination of constructive eviction is easily made — a collapsed roof or the absence of heat in the middle of winter. Under these circumstances, a tenant can likely walk away from its lease without risking further liability.
Sometimes, constructive eviction is a closer, more difficult call. For example, modern construction makes heating and cooling buildings much more efficient and, at the same time, much more dependent on functioning HVAC systems. Some landlords point out that, until 1960, virtually no buildings had central air conditioning and have reasoned that, if every building was habitable without air conditioning before 1960, an ineffective HVAC cooling system in 2018 does not constitute constructive eviction. Similar issues arise with allegations of “poison building” mold or air quality. At what point is air quality sufficient to justify moving out?
Risks for Tenants
These kinds of questions carry significant risk for a tenant because they are fact-specific. In contrast, the tenant’s obligation to pay rent is typically sufficiently clear as a matter of law that it is not in dispute. What that means is that it is almost always a bad idea for a tenant to withhold rent and remain in leased space while alleging constructive eviction. Constructive eviction means eviction — leaving the space. If the space is unpleasant, but the tenant continues to inhabit it, there is no constructive eviction. Meanwhile, if a tenant withholds rent, stays in the space and demands that a landlord repair the premises, the tenant is unambiguously breaching payment obligations while asserting a non-monetary and fact-specific breach by the landlord. Most tenants lose in that situation.
Risk for Landlords
A tenancy that approaches constructive eviction carries considerable risk for a landlord, too. Deferring maintenance on commercial rental space could lead to losing commercial tenants, who typically commit to long-term, multi-year leases. Tenants who can establish constructive eviction are free of these long-term obligations. In leased space that contains multiple units, that can create a cascade of vacating tenants. Not only does this diminish a landlord’s cashflow, it can create unintended issues with a lender. Leased space that devalues in condition such that it no longer adequately secures landlord debt can create a non-monetary default on mortgage and other loan obligations that trigger default and foreclosure. For the irresponsible or inattentive landlord, that can be a death sentence.
Best Practices for Both Sides
Here are a couple tips to manage these challenges and mitigate exposure to the foregoing risks:
For tenants: address significant issues that impede use and enjoyment of leased premises as the issues arise. Raise concerns in a timely fashion. Document the situation — take pictures or videotape what you allege to be a problem.
For landlords: document and respond to concerns raised by tenants. Weigh the materiality of a tenant’s concerns and respond prudently. For example, consistently leaking pipes suggest not only plumbing issues, but also can lead to structural deterioration, mold and a host of other issues.
In short, avoiding constructive eviction is the best way to manage this kind of situation — for both landlords and tenants.