Ever
wondered what happens when a commercial landlord locks a tenant out of its
business without the right to do so?
Today’s case should more than satisfy your curiosity while
simultaneously illustrating the importance of specifying remedies for default
in your lease.
In
January 2009, landlord and tenant signed two separate two-year leases, for a
restaurant and condominium. For a little
over a year, tenant operated “Miguel’s at Sugarbush” in the restaurant space,
and occasionally stayed in the condo.
Tenant borrowed money from the Vermont Small Business Development
Corporation (VSBDC) to fund his business.
In March
2010, tenant fell behind on rent.
Landlord sent tenant a notice of default on both leases, via certified
mail dated March 5, 2010. For some
reason, the notice was neither accepted nor received by tenant; it was returned
by the Post Office “unclaimed.” Tenant
later spoke with landlord, and only then learned he was about to be
evicted.
On March
28, 2010, landlord emailed tenant its notice stating that tenant was “in
default” on both leases, but did not provide a date for termination or give
details on the default landlord alleged.
Landlord then apparently decided he had better move things along: the
same day he emailed tenant notice, he changed the locks, effectively evicting
tenant from both the restaurant and the condo.
The
action that was eventually appealed to the SCOV began when VSBDC filed suit
against tenant and landlord for tenant’s default on its loan. Landlord cross-claimed against tenant for
damages under the lease. Tenant
cross-claimed against landlord for, among others, wrongful eviction. The parties settled VSBDC’s claims. Landlord and tenant stayed behind to duke it
out.
Tenant
won on the issue of wrongful eviction in a summary judgment motion. Landlord’s other claims were tried before a
jury. After evidence was presented at
trial, tenant raised the question of whether tenant was liable for
post-eviction rent. The parties
submitted briefs on the question.
Landlord conceded tenant did not owe post-eviction rent on the condo,
but claimed tenant did owe it under the restaurant lease. Tenant disagreed.
Instead
of instructing the jury on the issue, the trial court judge told the jury that
landlord was asking for “satisfaction of all obligations” under the lease, and
that the jury was to calculate landlord’s damages for “total . . . unpaid rent
and utilities.” The jury awarded landlord
past rent and costs for both the restaurant and condo, but did not award
post-eviction rent or costs for either.
Neither did the jury award tenant damages for wrongful eviction or
anything else tenant requested.
The
trial court invited a post-verdict motion for judgment as a matter of law, and
landlord took up the offer, arguing that the court should have told the jury
landlord was entitled to post-eviction rent under the restaurant lease. The court denied landlord’s motion; landlord
appealed.
On
appeal, landlord manages to get two issues through the SCOV’s “raised below”
filter. First, landlord challenges the
trial court’s on the wrongful eviction question because landlord believed the
notice of default was not defective. The
SCOV’s case law on this question states that, whether the lease is residential
or commercial, a landlord must observe “punctilious compliance” with a lease’s
notice and default provisions before exercising its rights.
The
restaurant lease stated that termination is “at least” 20 days after landlord
gives appropriate notice of default, and that landlord could give notice by
mailing it to tenant’s address. Thus,
landlord argues, since it mailed its notice on March 5, it had a right to evict
tenant on March 25.
The SCOV
finds landlord’s notice defective and, as a result, agrees with the trial
court. The lease required that landlord
state what tenant had done to put it in default and provide a specific
termination date. In its notice,
landlord failed to do either of these things.
Landlord
attempts to explain away its failure by noting the 20-day period for
termination, and arguing that tenant should have “assumed” it had until March
25 to cure the default. No matter, says
the SCOV: the language of the lease, setting termination “at least” 20 days
after notice, cannot be read to set termination at exactly 20 days. Landlord
failed to comply, and tenant was wrongfully evicted.
Second,
landlord argues that the trial court’s instructions to the jury lacked a
statement that landlord was entitled to post-eviction rent because the lease
does not relieve tenant from liability even after repossession and allows
landlord “liquidated damages” of all unpaid rent in the event of default. The SCOV’s precedent on this point, drawn from
the common law of England and other states, states that a wrongful eviction
suspends a landlord’s right to collect rent.
Landlord’s
response, which was to wave its contract at the SCOV and argue it was entitled
to remedies in a contract that exceed the boundaries of the common law, is
unavailing. The SCOV finds no precedent
awarding post-wrongful eviction rent to a landlord, but finds several that
reach the opposite conclusion.
The
trial court reasoned that the result landlord requests would be unjust,
particularly where a commercial tenant is kicked out and barred from its source
of income. Landlord would essentially
have a unilateral right to terminate the lease for any reason, regardless of
whether tenant was in default, and collect all future rent after doing so. The SCOV agrees that this isn’t right.
The
SCOV’s parting lesson (in true dicta form) is perhaps the most useful advice
for future landlords hoping to change the locks and still collect rent. The Court says that a provision allowing this
remedy would have to be explicit and detailed, and unequivocally state that the
parties intend the tenant will pay all rent, even after an eviction takes
place, including a wrongful eviction.
But,
alas, landlord not only did not comply with its lease’s notice requirements,
and therefore failed to terminate the tenancy properly, its lease was not
nearly specific enough to allow it to collect post-wrongful eviction rent. Tenant wins the day and goes home knowing it
doesn’t owe any post-eviction rent, and landlord goes straight to its attorney
to draft a new lease.
Comments
Post a Comment