Owner Not Responsible for Third-Party Disturbance of Tenant

Facts: A shopping center tenant rented space to operate a nightclub. There was an unfinished office building across the street from the center, which the center’s owner told the tenant would be completed the following year. When the office building hadn’t been finished by then, the tenant reduced its rent payments, which were accepted by the owner, for several months in a row and sued the owner, asserting that criminal activity in the unfinished office building and parking lot caused it to lose business. The tenant said that the owner had breached the tenant’s right under the lease to “quiet enjoyment” of its space, resulting in a “constructive eviction.”

The owner sued the tenant for the difference in the lease’s rental rate and the partial payments made by the tenant. A trial court ruled in favor of the owner on the breach-of-lease claims, and in favor of the tenant on the owner’s rent claim. The tenant and owner appealed.

Decision: A Georgia appeals court upheld the decision of the lower court.

Reasoning: The covenant for quiet enjoyment of rented premises is necessarily implied in every lease, stated the appeals court. To constitute a breach of the covenant of quiet enjoyment, an eviction or equivalent disturbance must occur, the appeals court pointed out. The appeals court noted that it’s not necessary for the tenant to actually vacate the property to establish a breach of the implied covenant of quiet enjoyment; the tenant could establish a breach by showing that the owner substantially interfered with the tenant’s right to use and enjoyment of the premises. To establish a constructive eviction, the tenant must show that the property has become an unfit place for the tenant to carry on the business for which it was rented, here, a nightclub. To establish a constructive eviction, the premises must be rendered “untenantable, not just uncomfortable,” said the appeals court.

The appeals court found that the owner didn’t breach the lease—either by violating the express covenant of quiet enjoyment or constructively evicting the tenant when the office building wasn’t finished by the anticipated date, resulting in criminal and disruptive activity there. That was because it wasn’t the owner that directly cause the disruptive activity. The owner wasn’t responsible for third parties who created a situation that essentially evicted the tenant. 

However, the appeals court determined that the owner couldn’t collect unpaid rent from the tenant. The trial court had properly rejected the owner’s claim for the difference in the rental rate and the tenant’s partial rent payments because the owner waived the right to that difference when it agreed to and accepted reduced rent payments from the tenant for a continuous time period.

• Jaraysi v. Sebastian, October 2012