Owner Violated Lease by Renting Residential Lots for Commercial Uses

An owner rented two lots to a tenant to operate used car lots. Soon after the tenant opened for business, the local government notified the tenant that the deed for the lots restricted their use to residential purposes only and ordered the tenant to immediately shut down its business. The tenant complied with the order and then sued the owner for violating the lease. The owner argued that it didn't violate the lease, because the deed restriction didn't apply to its lots. And it argued that it never expressly warranted—that is, guaranteed—that the lots would be suitable as used car lots anyway.

A Texas appeals court ruled that the owner violated the lease by renting out the lots for commercial purposes. The court noted that the terms of the deed clearly listed the lots as residential lots. Plus there wasn't enough evidence to show that anyone else had previously used the lots for commercial purposes and that the deed restriction had been waived. Finally, although the lease didn't include an express warranty that the lots would be suitable as used car lots, the court said that under Texas law, a warranty could be implied. And the court pointed out that nothing in the lease negated the implied warranty [Lee v. Perez].