THE LEASING HOTLINE

The appellate court first defined a novation: 'a novation occurs if a contract evidences an intention to relinquish and extinguish pre-existing claims and rights of action; in lieu of the old obligation, a party accepts the promise of performance of the new obligation instead of the performance itself.' The court agreed with Fulcrum: the letter did not replace the lease. The lease was a complex 51-page document outlining the obligations of the landlord and tenant with regard to hundreds of issues. The letter was a single page allowing AutoTester to remain on the premises for a nominal fee; it did not contain 'terms' for a new lease and was not 'so inconsistent' with the original lease that the two documents could not 'subsist together.'

The appellate court decided only that AutoTester failed to establish its affirmative defense and did not resolve the whole case. It thus reversed the case for determination of the damages and any other issues not resolved by its decision.

Fulcrum Central v. Autotester, Inc., No. 05-02-01132-CV, Tex.Ct.App., March 17, 2003. Opinion by Justice Douglas Lang.

Insurance

A tenant's insurance broker had no privity with its landlord and could not be liable for negligent misrepresentation.

A tenant's certificate of insurance stated that the landlord was named as an additional insured and that the policy contained rental coverage. When the landlord discovered that it was not named an additional insured and the policy did not contain rental coverage insurance for the landlord's benefit, it sued the broker. The court granted the broker's motion for summary judgment and the landlord appealed.

The appellate court affirmed. It found that the broker and the landlord had no contractual relationship, even though the landlord had contact with the broker in the course of obtaining the certificates of insurance. Thus the broker had no duty to the landlord and was not liable for negligent misrepresentation. Furthermore, the certificates contained disclaimers saying they were only for information and could not be used as the basis for a claim of negligent misrepresentation. Finally, the court held the landlord had not presented a triable issue on its claim that it was a third-party beneficiary of the contract between the tenant and its broker.

The Benjamin Shapiro Realty Co., LLS v. Kemper National Ins. Cos., 503, N.Y.App.Div., March 18, 2003.

Landlord and Tenant

Florida's Deceptive and Unfair Trade Practices Act may be applied in a private cause of action based on unfair or deceptive acts affecting a single party in a single transaction or directed to a single contract.

PNR purchased a restaurant and was assigned the lease, which had 8 years left and an option to extend for an additional 10 years. Under the lease, Ocean One was responsible for maintenance of the major structural components of the building. All complaints, however, were referred to Beacon, the former property management company, and both the landlord and PNR thought Beacon was responsible for repair of the roof, air conditioning and similar structural problems.

PNR complained frequently of adverse conditions, which ultimately resulted in building code violations and a roof collapse. The restaurant was closed for 7 months and PNR was eventually evicted from the premises. PNR sued, claiming, inter alia, that the manner in which Ocean One and Beacon had failed to maintain the premises violated the state's Deceptive and Unfair Trade Practices Act (FDUPTA). The trial court found that FDUPTA did not cover single acts because the statute refers to 'methods and practices.' The jury, nevertheless, awarded compensatory and punitive damages against Beacon and its owner individually.

On appeal, the court disagreed with the lower court's analysis of the statute, finding that it 'contravened the plain meaning of the language of the FDUPTA. It held that, when considered with the other provisions of the Act, the legislature's 'intent was to protect against misdeeds directed to a single party, as well as behavior directed to multiple parties. …' The court examined other state laws in which relief was conditioned on 'the existence of a pattern of conduct.' Furthermore, the court noted that the lower court's interpretation was contrary to that of every state appellate district. The court reversed and remanded the case, disagreeing with the dissent's opinion that it was converting every breach of lease or contract into a FDUPTA claim.

PNR, Inc., v. Beacon Property Management, Inc., No. SC01-1507, Fla., March 13, 2003.

Leases

The implied warranty of suitability and the covenant to pay rent are mutually dependent.

Sunset leased office space to Stone for offices, storage of files, equipment and catering supplies. About two years after the lease was signed, Sunset sold the premises to Lazell, without notifying Stone. Before the sale was finalized, Sunset had asbestos abatement done on the premises. Stone was not informed of the abatement, and she and her employees were denied access because of the abatement. Because she wanted to be sure the premises were safe, Stone contacted Sunset and asked for documentation affirming that the abatement had been done properly. At this time Sunset informed Stone of the sale. Stone attempted to contact Lazell and went to the premises, but was unable to enter because the locks had been changed. She was told she would no longer be permitted on the premises, was never given any documentation regarding the abatement and did not try to remove her equipment because she did not know if it was safe to use after the abatement.

Lazell sued Stone for breach of the lease and Stone counterclaimed for constructive eviction, breach of lease, breach of the express and implied warranty of suitability. The judge ruled in favor of Stone and Lazell appealed. The appellate court affirmed. The lease contained a representation that the premises were free of 'Hazardous Materials,' which included asbestos. Although Lazell, as the transferee of the lease, was not liable for the breach of the hazardous materials provision, Stone had the right to terminate the lease or use the breach as a defense against payment of rent. The appellate court found that the trial court correctly concluded that the landlord breached both the lease and the express warranty. In addition, Stone had proven she was constructively evicted from the premises and therefore was not liable for rent for that time period. The court noted that the covenant to pay rent and the landlord's implied warranty of suitability are mutually dependent covenants. It affirmed the judgment of the trial court.

Carol E. Lazell, DDS v. Stone, No. 01-02-00029-CV, Tex.Ct.App., March 13, 2003.

Leases

A tenant's failure to pay rent was excused by the landlord's breach of a material obligation under the lease.

AVA leased a warehouse from GPK with the intention of purchasing it under an option contained in the lease. Despite GPK's assurance that the warehouse was in good condition, there were many latent defects, including massive roof leaks and electrical problems that could not be discovered until after the lease was signed. In the event GPK breached any leasehold obligation, the lease gave AVA the option to terminate the lease or make the necessary repairs and be reimbursed. GPK attempted unsuccessfully to fix the roof, and AVA decided not to repair it because it could not afford to make the repairs. It did not terminate the lease because it wanted to protect its option to buy the warehouse. GPK lowered the purchase price to take the roof replacement into account and AVA tried to get financing to purchase the premises, but was unable to do so in the allotted time period.

AVA refused to pay rent as a holdover tenant and GPK filed to evict AVA and get back rent and attorney fees. AVA filed a lis pendens to prevent the sale of the warehouse and claimed the leaky roof had caused damage to its property stored in the warehouse as well as to its trucks and equipment. The jury found that GPK violated the lease and that the violation was not excused. It also found that AVA failed to comply with the lease, but the failure was excused. The jury awarded AVA damages for lost inventory and repair of equipment and vehicles. It denied GPK any recovery and awarded AVA attorney fees. GPK appealed.

The appellate court rejected GPK's argument that AVA had waived its claim for breach of warranty of suitability and held that AVA was entitled to recover for that breach. The appellate court also found that the trial court had correctly defined implied warranty of suitability and that the jury was entitled to find GPK's lease violation was a breach of that warranty. Because the landlord's implied warranty and the tenant's duty to pay rent are mutually dependent covenants, AVA's failure to pay rent did not relieve GPK from its obligations under the lease. The trial judge's instruction that AVA was excused from paying rent because of GPK's failure to comply with a material obligation of the lease was correct. Finally, the appellate court found there was sufficient evidence to support the jury's award of damages to AVA.

Parts Industries Corp. v. A.V.A. Services, Inc., Number 13-99-509-CV, Tex.App.Div., March 13, 2003.

Contracts

A single page letter agreement does not count as an implied novation of a lease.

AutoTester leased office space from Fulcrum. Within 2 years, AutoTester had defaulted and Fulcrum terminated the lease, informing AutoTester that it was liable for all damages under the lease. AutoTester asked if it could stay on the premises until it could find new space, and the parties signed a letter allowing AutoTester to remain for $1 per day. After AutoTester vacated the premises and paid the rent it owed up to the date of termination, plus $1 per day until it moved out, Fulcrum filed suit for the remaining rent and damages ' over $2 million. AutoTester moved for summary judgment on the grounds that the letter was an implied novation; Fulcrum cross-moved for summary judgment. The trial court granted AutoTester's motion and ordered a take-nothing judgment in its favor. Fulcrum appealed.

The appellate court first defined a novation: 'a novation occurs if a contract evidences an intention to relinquish and extinguish pre-existing claims and rights of action; in lieu of the old obligation, a party accepts the promise of performance of the new obligation instead of the performance itself.' The court agreed with Fulcrum: the letter did not replace the lease. The lease was a complex 51-page document outlining the obligations of the landlord and tenant with regard to hundreds of issues. The letter was a single page allowing AutoTester to remain on the premises for a nominal fee; it did not contain 'terms' for a new lease and was not 'so inconsistent' with the original lease that the two documents could not 'subsist together.'

The appellate court decided only that AutoTester failed to establish its affirmative defense and did not resolve the whole case. It thus reversed the case for determination of the damages and any other issues not resolved by its decision.

Fulcrum Central v. Autotester, Inc., No. 05-02-01132-CV, Tex.Ct.App., March 17, 2003. Opinion by Justice Douglas Lang.

Insurance

A tenant's insurance broker had no privity with its landlord and could not be liable for negligent misrepresentation.

A tenant's certificate of insurance stated that the landlord was named as an additional insured and that the policy contained rental coverage. When the landlord discovered that it was not named an additional insured and the policy did not contain rental coverage insurance for the landlord's benefit, it sued the broker. The court granted the broker's motion for summary judgment and the landlord appealed.

The appellate court affirmed. It found that the broker and the landlord had no contractual relationship, even though the landlord had contact with the broker in the course of obtaining the certificates of insurance. Thus the broker had no duty to the landlord and was not liable for negligent misrepresentation. Furthermore, the certificates contained disclaimers saying they were only for information and could not be used as the basis for a claim of negligent misrepresentation. Finally, the court held the landlord had not presented a triable issue on its claim that it was a third-party beneficiary of the contract between the tenant and its broker.

The Benjamin Shapiro Realty Co., LLS v. Kemper National Ins. Cos., 503, N.Y.App.Div., March 18, 2003.

Landlord and Tenant

Florida's Deceptive and Unfair Trade Practices Act may be applied in a private cause of action based on unfair or deceptive acts affecting a single party in a single transaction or directed to a single contract.

PNR purchased a restaurant and was assigned the lease, which had 8 years left and an option to extend for an additional 10 years. Under the lease, Ocean One was responsible for maintenance of the major structural components of the building. All complaints, however, were referred to Beacon, the former property management company, and both the landlord and PNR thought Beacon was responsible for repair of the roof, air conditioning and similar structural problems.

PNR complained frequently of adverse conditions, which ultimately resulted in building code violations and a roof collapse. The restaurant was closed for 7 months and PNR was eventually evicted from the premises. PNR sued, claiming, inter alia, that the manner in which Ocean One and Beacon had failed to maintain the premises violated the state's Deceptive and Unfair Trade Practices Act (FDUPTA). The trial court found that FDUPTA did not cover single acts because the statute refers to 'methods and practices.' The jury, nevertheless, awarded compensatory and punitive damages against Beacon and its owner individually.

On appeal, the court disagreed with the lower court's analysis of the statute, finding that it 'contravened the plain meaning of the language of the FDUPTA. It held that, when considered with the other provisions of the Act, the legislature's 'intent was to protect against misdeeds directed to a single party, as well as behavior directed to multiple parties. …' The court examined other state laws in which relief was conditioned on 'the existence of a pattern of conduct.' Furthermore, the court noted that the lower court's interpretation was contrary to that of every state appellate district. The court reversed and remanded the case, disagreeing with the dissent's opinion that it was converting every breach of lease or contract into a FDUPTA claim.

PNR, Inc., v. Beacon Property Management, Inc., No. SC01-1507, Fla., March 13, 2003.

Leases

The implied warranty of suitability and the covenant to pay rent are mutually dependent.

Sunset leased office space to Stone for offices, storage of files, equipment and catering supplies. About two years after the lease was signed, Sunset sold the premises to Lazell, without notifying Stone. Before the sale was finalized, Sunset had asbestos abatement done on the premises. Stone was not informed of the abatement, and she and her employees were denied access because of the abatement. Because she wanted to be sure the premises were safe, Stone contacted Sunset and asked for documentation affirming that the abatement had been done properly. At this time Sunset informed Stone of the sale. Stone attempted to contact Lazell and went to the premises, but was unable to enter because the locks had been changed. She was told she would no longer be permitted on the premises, was never given any documentation regarding the abatement and did not try to remove her equipment because she did not know if it was safe to use after the abatement.

Lazell sued Stone for breach of the lease and Stone counterclaimed for constructive eviction, breach of lease, breach of the express and implied warranty of suitability. The judge ruled in favor of Stone and Lazell appealed. The appellate court affirmed. The lease contained a representation that the premises were free of 'Hazardous Materials,' which included asbestos. Although Lazell, as the transferee of the lease, was not liable for the breach of the hazardous materials provision, Stone had the right to terminate the lease or use the breach as a defense against payment of rent. The appellate court found that the trial court correctly concluded that the landlord breached both the lease and the express warranty. In addition, Stone had proven she was constructively evicted from the premises and therefore was not liable for rent for that time period. The court noted that the covenant to pay rent and the landlord's implied warranty of suitability are mutually dependent covenants. It affirmed the judgment of the trial court.

Carol E. Lazell, DDS v. Stone, No. 01-02-00029-CV, Tex.Ct.App., March 13, 2003.

Leases

A tenant's failure to pay rent was excused by the landlord's breach of a material obligation under the lease.

AVA leased a warehouse from GPK with the intention of purchasing it under an option contained in the lease. Despite GPK's assurance that the warehouse was in good condition, there were many latent defects, including massive roof leaks and electrical problems that could not be discovered until after the lease was signed. In the event GPK breached any leasehold obligation, the lease gave AVA the option to terminate the lease or make the necessary repairs and be reimbursed. GPK attempted unsuccessfully to fix the roof, and AVA decided not to repair it because it could not afford to make the repairs. It did not terminate the lease because it wanted to protect its option to buy the warehouse. GPK lowered the purchase price to take the roof replacement into account and AVA tried to get financing to purchase the premises, but was unable to do so in the allotted time period.

AVA refused to pay rent as a holdover tenant and GPK filed to evict AVA and get back rent and attorney fees. AVA filed a lis pendens to prevent the sale of the warehouse and claimed the leaky roof had caused damage to its property stored in the warehouse as well as to its trucks and equipment. The jury found that GPK violated the lease and that the violation was not excused. It also found that AVA failed to comply with the lease, but the failure was excused. The jury awarded AVA damages for lost inventory and repair of equipment and vehicles. It denied GPK any recovery and awarded AVA attorney fees. GPK appealed.

The appellate court rejected GPK's argument that AVA had waived its claim for breach of warranty of suitability and held that AVA was entitled to recover for that breach. The appellate court also found that the trial court had correctly defined implied warranty of suitability and that the jury was entitled to find GPK's lease violation was a breach of that warranty. Because the landlord's implied warranty and the tenant's duty to pay rent are mutually dependent covenants, AVA's failure to pay rent did not relieve GPK from its obligations under the lease. The trial judge's instruction that AVA was excused from paying rent because of GPK's failure to comply with a material obligation of the lease was correct. Finally, the appellate court found there was sufficient evidence to support the jury's award of damages to AVA.

Parts Industries Corp. v. A.V.A. Services, Inc., Number 13-99-509-CV, Tex.App.Div., March 13, 2003.