Retaking Space After Tenant’s Lease Default

Q To correct a building code violation, I took over the storage area in office building space that’s currently rented by a retail tenant. The tenant breached the lease by not complying with the building code, which it was required to do under our agreement. Now it claims that I’m in breach of the “covenant of good faith and fair dealing” by retaking part of its rented space. Is this accurate?

A Generally, no. Once a tenant defaults on its lease, the owner is entitled to enter the premises and make any alterations it needs to make. Because your tenant defaulted on the terms of the agreement, it doesn’t have the possessory rights required for it to contest a retaking of the space. (This is especially true if, along with breaching the terms of the lease, the tenant has abandoned the property in dispute.)

This rule has been established in several recent commercial property court cases involving office building owner-tenant disputes where a tenant defaulted on its rent payments and moved out of the building, with several years remaining on the lease—and then sued the owner for retaking the space after. Courts have taken the position that under these circumstances, a tenant that has breached its lease can’t stop the owner from entering and making alterations to its space, or retaking the space altogether.