Tenant Was Not Constructively Evicted

Facts: A tenant operated her floral shop out of a shopping center under a three-year lease with the center's owner. After another owner bought the shopping center, the tenant agreed to extend her lease by five years. The lease extension agreement stated that the original lease would “remain in full force and effect” for the remainder of the lease.

Three years later, the tenant noticed water entering her shop. The shopping center manager couldn't determine the cause of the problem and hired a company to perform water extraction and drying services. Eventually, it was determined that a newly constructed concrete ramp built for another tenant in the alleyway behind the floral shop caused the flooding. Rainwater that flowed over the ramp's edge and under the door of the adjacent store was migrating into the floral shop. A piece of metal and a new door were installed and successfully diverted the water migration.

Over the following months, the tenant discovered several patches of mold in her store, which were treated and sealed by the same company that handled the water extraction and drying services. New carpeting also was installed in the tenant's office, but she refused any additional mold remediation and subsequently permanently closed the shop.

The tenant sent a letter notifying the owner that she was immediately vacating her unit at the shopping center because it had become “uninhabitable” due to the flooding and resulting mold infestation. The owner sent a letter to the tenant stating that she was in default under the terms of the lease agreement for failure to pay certain annual billbacks for a previous year. She paid the billback charges two months later but refused to pay rent for the period of time when the water migration and mold affected her store up until she vacated the space.

The tenant sued the owner for breach of the lease and constructive eviction; the owner sued the tenant for breach of the lease. The trial court ruled in favor of the tenant and awarded $32,000 for economic damages and mental anguish and $40,000 for attorney's fees. The owner appealed.

Decision: The appeals court reversed the trial court's decision.

Reasoning: On appeal, the owner argued that it had not constructively evicted the tenant because under the lease it was not liable to the tenant for any injury or damage from the water. The lease provisions stated in part that “Owner shall not be liable to Tenant for any injury to person or damage to property caused by the Demised Premises or other portions of the Shopping Center becoming out of repair or by defect or failure of any structural element of the Demised Premises or of any equipment … backing up of drains, or by gas, water, steam, electricity, or oil leaking, escaping, or flowing into the Demised Premises.” However, the owner was responsible under the provisions for damage resulting from its “willful failure” to make repairs required under the lease within a reasonable time after being notified of a problem.

The tenant argued that the provision applies only when the injury or damage is caused by the leased premises or other portions of the shopping center “becoming out of repair,” and her damages award was not based on something that became out of repair.

The appeals court removed from the provision the language that was inapplicable to this case, so that it read: “Owner … shall not be liable to Tenant for any injury to person or damage to property caused … by … water … flowing into the Demised Premises.” According to the appeals court, this language excused the owner from liability for the damage to the tenant's floral shop—including the mold—caused by the water migration, and therefore, the owner had not constructively evicted her. As a result, she no longer was entitled to damages.

The appeals court also ruled that the owner had not breached its lease with the tenant because it had not, as she alleged, constructively evicted her. The tenant had no other excuses for the nonpayment of rent. The appeals court ruled that the termination date was specified in the lease and, until that time, the tenant was required to pay monthly rent. A failure to do so would result in a default.

• Cove Terrace Associates, I, LTD., as successor in interest to CTE Shopping Centers I, Ltd. v. McGuire, October 2009