Are Internet Service Disruptions Grounds for Constructive Eviction?

In this digital age, significant disruption to internet service can inflict massive damage to a business. If that business belongs to one of your tenants, you might find yourself the target of a lawsuit for breach of lease; breakdowns in internet service may also be a defense relieving tenants of their obligation to pay rent or perform other key lease duties. That’s why it’s essential to think about and address these issues in your lease agreement. Consider the following scenario.

SITUATION

Almost immediately upon moving into the space, an office tenant experiences constant interruptions to its internet service. The internet problems are so bad that employees sometimes have to work from home. The inadequate air conditioning service, unmaintained landscaping, and burned-out lights do little to improve the situation. The tenant repeatedly points out the problems to the landlord, but its complaints fall on deaf ears. After making one final effort to address the problems, the tenant decides that enough is enough and vacates the space 17 months into the three-year lease. The landlord sues the tenant for unpaid rent. The tenant denies liability, claiming that it was constructively evicted.  

WHAT THE LEASE SAYS

The lease requires the landlord to pay for “utilities” while exempting it from liability for service interruptions. The exact language:  

Landlord will be responsible for the cost of utilities and garbage. Landlord shall not be liable for damages if the furnishing of any utilities is interrupted by fire or other casualty, accident, strike, labor dispute, or disagreement; the making of any necessary repairs or improvements; or any other causes beyond Landlord’s reasonable control.

The lease doesn’t include a specific definition of “utilities.”

The Landlord’s Interpretation: The landlord claims that “utilities” refers only to public services that are regulated by the state Public Service Commission. And because internet is furnished by private service providers that aren’t so regulated, it’s not covered by the clause. In other words, the tenant is responsible for providing its own internet service under the lease.

The Tenant’s Interpretation: The tenant claims that regardless of what the clause says, it was the parties’ intention that the landlord would be responsible for providing internet service. Two witnesses support this interpretation at trial—the tenant’s principal and an outside real estate broker testifying as an expert that the landlord’s ads marketing the building as “prime office space” would generally be understood as including internet services.  

THE DISPUTE

The landlord cries foul, claiming that the tenant’s trial tactics violate both:

• The so-called “parol evidence rule,” which bars the use of extrinsic evidence to interpret the meaning of a clearly written contract in the event of a dispute; and
• The “merger clause” in the lease stating that the written lease represents the complete and final agreement of the parties.

Brushing aside the landlord’s objections, the trial court admits the witness testimony and, on its basis, rules that the landlord was responsible for internet. Inadequate internet service was grounds for constructive eviction, and the tenant isn’t liable for unpaid rent, it concludes. The landlord appeals.

YOU MAKE THE CALL

How do you think the appeals court ruled on the appeal?

A.     Judgment affirmed because the extrinsic evidence shed light on what was an ambiguous clause

B.     Judgment affirmed because a landlord’s duty to furnish utilities to an office tenant is presumed to include internet

C.     Judgment reversed because use of extrinsic evidence violated the parol evidence rule

D.    Judgment reversed because use of extrinsic evidence violated the merger clause

ANSWER

A. The appeals court agreed that the utilities clause was ambiguous and upheld the trial court’s use of extrinsic evidence to interpret it, leading to a finding of constructive eviction.

EXPLANATION

Internet has become as vital a service to commercial tenants as heat, water, HVAC, and other services provided by public utilities. However, ensuring internet services for tenants involves not only an investment in IT infrastructure and maintenance but also legal risks. This scenario, which comes from a Wisconsin case called Stellar Ctr. - Hobart LLC v. OneLegacy Advisors, LLC (2023 Wisc. App. LEXIS 877, 2023 WL 5215387), illustrates what can happen to a landlord that fails to adequately address the issue of responsibility for internet service in a commercial lease.

The first lesson is that a landlord’s failure to meet a lease duty to provide adequate internet service may be grounds for constructive eviction, particularly in an office setting used by a business that’s heavily reliant on internet.

But the main reason the landlord in Stellar Ctr. lost is that it failed to specifically address the issue in the lease, choosing instead to rely on broad language purporting to relieve it of responsibility for utility service disruptions. That might have worked had there been a clear definition of “utilities” that included internet service. Leaving that crucial term undefined made the clause ambiguous and opened the door to the use of extrinsic evidence to interpret its meaning and the broader intentions of the parties. So, A is the right answer.

WHY WRONG ANSWERS ARE WRONG

B is wrong for reasons that bring us to the second lesson—namely, that internet may not be automatically assumed as constituting a utility. The landlord offered no evidence supporting its contention that the plain meaning of “utilities” means only heat, light, water, power, natural gas, and sewer services. “To the contrary,” the court reasoned, “a reasonable person could interpret ‘utilities’ to include internet service.”

The notion that internet isn’t necessarily a utility creates the risk of ambiguity and loopholes in parts of the lease purporting to address responsibilities for utilities on a blanket basis, such as the clause in Stellar Ctr. purporting to relieve the landlord of liability for utility disruptions. Of course, the loophole can also break in the landlord’s favor to the extent that a lease clause does assign it full responsibility for utilities. Still, the existence of ambiguity in the lease creates risk for all sides.  

C is wrong because the parol evidence rule ban on extrinsic evidence doesn’t apply when the lease is ambiguous. The absence of a definition of “utilities” in this case created ambiguity with regard to its application to internet and paved the way for the tenant’s witnesses to testify that the parties expected and intended the landlord to be responsible for internet.

D is wrong because putting a merger clause in a lease doesn’t bar use of extrinsic evidence to interpret a lease that’s ambiguous. “When a contract is ambiguous, a court may consider extrinsic evidence to resolve the parties’ intent,” the court explained. Such was the case with the utilities clause in Stellar Ctr.

TAKEAWAY

Specifically Address Internet Responsibilities in Lease. A clause covering a landlord and tenant’s responsibilities with regard to utilities may not be sufficient to address the significant issues that arise in terms of internet services. Accordingly, the landlord and tenant both have an interest to clarify their expectations, negotiate appropriate business terms, and include language laying out their internet-related rights and duties in the lease.