Tenant Can't Claim Constructive Eviction While Occupying Space

Facts: A video rental store tenant stopped paying rent after the shopping center’s owner hung “Retail Space for Lease” signs in the windows and invited real estate brokers and potential lessees to tour the space. The tenant claimed that the owner’s actions decreased its sales and discouraged customers from coming into the store. It also asserted that the signs made its creditors concerned about the financial health of the business and some of them stopped doing business with the tenant. The tenant sued the owner.

Decision: A New York district court ruled in favor of the owner.

Reasoning: The court disagreed with the tenant’s argument that it could withhold rent because the owner’s actions had in essence “evicted” it. The court noted that there are two types of evictions: constructive eviction and actual eviction. The court noted that there must be an eviction, actual or constructive, before a tenant’s rent becomes due to excuse the payment of rent.

Here, there was neither, said the court. As to actual eviction, this “occurs only when the landlord wrongfully ousts the tenant from physical possession of the leased premises,” noted the court. There must be a physical expulsion or exclusion. There is no claim that this happened here.

The court also explained that the duty of a commercial tenant to pay rent may not be excused on account of a constructive eviction if the tenant remains in possession of the premises. “A constructive eviction exists where, although there has been no physical expulsion or exclusion of the tenant, the landlord’s wrongful acts substantially and materially deprive the tenant of the beneficial use and enjoyment of the premises,” the court said. However, if the tenant remains in possession of the premises there can be no constructive eviction. The obligation of a commercial tenant to pay rent isn’t suspended if the tenant remains in possession of the leased premises, even if the landlord fails to provide essential services, the court concluded.

Here, it is undisputed that the tenant remained in possession of its space during the entire period that the signs were displayed and prospective new tenants looked at the space. Therefore, the tenant cannot claim that the owner constructively evicted it, thereby excusing it from the duty to pay rent.

• Thor 725 8th Ave. LLC v. Goonetilleke, March 2015