Control of Common Areas

Commercial tenants have a strong interest in the landlord properly maintaining the areas outside of their premises that they share with the other tenants of the property. These areas are typically referred to as “common areas,” and are important in both an office and a retail environment. In an office building, common areas typically include lobbies, restrooms, parking areas and elevators. Many Class A office buildings also offer a fitness facility and meeting rooms to be shared in common by all of the tenants. In retail shopping centers, common areas include the always-critical parking spaces, but also might include landscaping, driveways, sidewalks and signage.

For many office buildings and shopping centers, the heating and air conditioning systems are also common facilities shared by more than one tenant. The duty of the landlord to maintain such common areas, along with the landlord's right to change their configuration, depends primarily on the language of their negotiated lease agreement but also on the common law principles of quiet enjoyment and constructive eviction. This article presents a brief primer on the current state of the always evolving common law of quiet enjoyment and constructive eviction, and then offers suggested lease language to avoid unnecessary confusion.

Quiet Enjoyment and Constructive Eviction

The concepts of quiet enjoyment and constructive eviction sometimes now blend together, in part because tenants often plead both as counterclaims in actions against landlords. Traditionally they were very distinct. The covenant of quiet enjoyment was one of the few duties that the landlord originally owed the tenant. As long as the tenant had possession of the premises, free from actual eviction, the tenant was obligated to pay rent as an independent covenant. The tenant's sole remedy for any other default by the landlord was to sue the landlord for monetary damages, which often proved an impractical solution. Constructive eviction evolved, in part, to address this issue. Constructive eviction occurs when acts of a landlord substantially deprive a tenant of beneficial use of the premises, and typically requires the tenant to vacate the premises as a result. The premises are so unfit for occupancy that the tenant is compelled to leave.

For examples relating to the common areas, renovations of office buildings that occur outside of the leased premises are often the subject of constructive eviction actions. In the 1995 New Hampshire Supreme Court case, Echo Consulting Services, Inc. v North Conway Bank, 669 A.2d 227 (1995), the court considered both quiet enjoyment and constructive eviction claims in a situation where office building renovations materially disturbed the tenant. The court held that there was a breach of the covenant of quiet enjoyment due to the interference from the landlord's construction work, but did not hold that the disturbance was so material as to be a constructive eviction.

History of the Covenant

Black's Law Dictionary defines the covenant for quiet enjoyment as ensuring that the tenant will not be evicted or disturbed by the grantor or a person having a lien or superior title. This narrow definition follows the historical meaning passed down from English common law, which mostly limits the covenant to the tenant's right of possession not being disturbed due to defects in title. Under the old common law, a real estate lease was more of a conveyance than a contract, where the tenant essentially owned the typically agricultural property for a period of years. In this historical context, the landlord had no maintenance obligations and the tenant was in complete control of the premises. The landlord's only duty was not to disturb the tenant by actual eviction, provided the tenant timely paid its rent.

As uses of commercial real estate have moved beyond agrarian, the modern commercial tenant now has reasonable expectations regarding the landlord's maintenance of the leased premises and the surrounding common areas. At the same time, the trend has been for real estate leases to evolve away from being treated simply as a conveyance of real property for a specified term and toward being viewed as a commercial contract. The remedies available under contract law differ greatly from those available after a breach of a real estate conveyance.

As part of this modern trend, many states have expanded the covenant of quiet enjoyment to protect the tenant from acts other than just actual eviction, to include lesser acts that substantially deprive the tenant of use and enjoyment of the leased premises. In some states, the old limited covenant of quiet enjoyment has fully evolved into an implied warranty of fitness for the intended use. In other states, substantial renovation or construction work outside the leased premises could violate the covenant of quiet enjoyment if the tenant could not make full use of the premises because of the disturbance. A majority of states now permit tenants to claim damages against landlords for a breach of quiet enjoyment, even if the interference is not so substantial as to merit termination based on constructive eviction. Certainly the case law differs greatly from state to state, and it is critical for the real estate lawyer who practices in more than one jurisdiction to be aware of these differences.

Language Trumps All

Notwithstanding the common law principles discussed above, the language in the lease usually trumps all. It is important to note here that this article is focused on commercial real estate. Residential tenants are often afforded a greater level of protection under the law. Courts consider commercial landlords and tenants to be sophisticated business parties that freely enter into long-term agreements. In a conflict between the common law and clear provisions in the lease, the language in the lease will normally control. Courts understand the importance that common areas have in commercial real estate and will closely review the lease language. For example, a retail lease provision that gives a tenant the right to control parts of the parking area will be afforded critical importance. In the 1984 Illinois appellate case, Madigan Brothers, Inc. v. Melrose Shopping Center Co., 556 N.E.2d 730 (1990), the tenant successfully prevented the landlord from constructing improvements in the parking area of the shopping center because of language in the lease giving the tenant an easement in the parking lot. Similarly, the landlord in the 2007 Illinois case, LaSalle Bank National Association v. Moran Food, Inc., 477 F. Supp.2d 932 (N.D. Ill. 2007), lost a declaratory injunction action where it was requesting the right to construct additional buildings within the shopping center because of clear language found in the lease.

The commercial landlord and tenant often have competing interests with respect to the control of the common areas. The landlord wants the flexibility to further develop and change these areas, while the tenant needs the assurances that these areas will be properly maintained and not drastically altered. Compromise positions in the lease are often the answer. Below is suggested compromise language for both retail and office tenants. In both examples, the provisions would only be practical for strong creditworthy tenants taking large space (i.e., the national retail tenant taking greater than 15,000 square feet or the office tenant taking more than one floor in a multi-floor office building). Smaller tenants would most likely not have the leverage needed to force a landlord to give up any control of the property.

For the retail lease, the compromise concept would be for both parties to recognize that the landlord needs control over the common areas and has the right to renovate or reconfigure the common areas, but that the tenant needs at least a portion of the common areas closest to the leased premises to be off-limits to any future changes. The area that is off-limits is typically referred to as a “No Build Zone”; its size is dependent on the tenant's leverage and the size of the shopping center. The suggested language is as follows:

Notwithstanding anything to the contrary contained in this Lease, Landlord shall not, without the prior written consent of Tenant, construct or allow any temporary or permanent structures, except any temporary structures reasonably necessary for the maintenance and repair of the No Build Zone (as such term is defined herein) in the ordinary course, including but not limited to buildings, kiosks, merchandise carts, temporary tenants, seasonal displays, the temporary storage place for snow cleared from parking areas, or other commercial or non-commercial activity of any kind, to operate at any time in the “No Build Zone” as designated on the Site Plan attached hereto as Exhibit A, except as otherwise required by applicable law. The No Build Zone shall consist of not less than fifty (50) parking spaces, which shall not be designated as employee parking for other tenants in the Shopping Center.

A no-build area would be impractical for the office lease. Instead, tenants should strive for language in their leases that: 1) obligates the landlord to maintain the common area to an agreeable standard for that marketplace; 2) requires certain common area facilities always to be available to the tenant in good working condition, such as elevator access, air conditioning, heating and electricity; and 3) provides the tenant clear remedies, such as abatement of rent and/or termination, if those common areas or other services are not available as promised. Once you agree on the specific list of services that the landlord is obligated to maintain and the standard to which those services are to be delivered to tenant, the language below would give the strong creditworthy office tenant clear remedies without resorting to the uncertainties presented in a quiet enjoyment or constructive eviction action:

Landlord shall not be liable for any interruption in providing electricity or any other service that Landlord is obligated to provide under this Lease, unless such interruption or delay (i) renders the Premises or any portion thereof untenantable for the normal conduct of Tenant's business at the Premises and Tenant has ceased using such untenantable portion; and (ii) extends for a period longer than three (3) consecutive business days, in which case, Tenant's obligation to pay Fixed Rent and Additional Rent shall be abated with respect to the untenantable portion of the Premises that Tenant has ceased using for the period beginning on the fourth (4th) consecutive business day after the aforementioned conditions are met and ending on the earlier of (x) the date Tenant recommences using the Premises or the applicable portion thereof, or (y) the date on which the service(s) is substantially restored. Provided further, if any such interruption or delay renders the Premises untenantable for the normal conduct of Tenant's business at the Premises and Tenant has ceased using the Premises for a period longer than thirty (30) days, Tenant may terminate this Lease upon written notice to Landlord. Landlord shall in good faith work to expeditiously minimize any such disruptions.

Conclusion

Those practicing in commercial real estate leasing need to understand the concepts of quiet enjoyment and constructive eviction, how they differ and how they sometimes overlap. They also need to understand the great differences in the ways the various states treat these common law concepts. Finally, they are advised to negotiate and draft clear provisions in their lease agreements instead of relying on the uncertainties of the local state courts.

John G. Kelly, a member of this newsletter's Board of Editors, is a shareholder with Bean Kinney & Korman, P.C., in Arlington, VA. His commercial leasing practice includes representing both Virginia, Maryland and Washington, DC, landlords as well as national tenants in office, retail, government and industrial leases. You may reach him at [email protected].

Commercial tenants have a strong interest in the landlord properly maintaining the areas outside of their premises that they share with the other tenants of the property. These areas are typically referred to as “common areas,” and are important in both an office and a retail environment. In an office building, common areas typically include lobbies, restrooms, parking areas and elevators. Many Class A office buildings also offer a fitness facility and meeting rooms to be shared in common by all of the tenants. In retail shopping centers, common areas include the always-critical parking spaces, but also might include landscaping, driveways, sidewalks and signage.

For many office buildings and shopping centers, the heating and air conditioning systems are also common facilities shared by more than one tenant. The duty of the landlord to maintain such common areas, along with the landlord's right to change their configuration, depends primarily on the language of their negotiated lease agreement but also on the common law principles of quiet enjoyment and constructive eviction. This article presents a brief primer on the current state of the always evolving common law of quiet enjoyment and constructive eviction, and then offers suggested lease language to avoid unnecessary confusion.

Quiet Enjoyment and Constructive Eviction

The concepts of quiet enjoyment and constructive eviction sometimes now blend together, in part because tenants often plead both as counterclaims in actions against landlords. Traditionally they were very distinct. The covenant of quiet enjoyment was one of the few duties that the landlord originally owed the tenant. As long as the tenant had possession of the premises, free from actual eviction, the tenant was obligated to pay rent as an independent covenant. The tenant's sole remedy for any other default by the landlord was to sue the landlord for monetary damages, which often proved an impractical solution. Constructive eviction evolved, in part, to address this issue. Constructive eviction occurs when acts of a landlord substantially deprive a tenant of beneficial use of the premises, and typically requires the tenant to vacate the premises as a result. The premises are so unfit for occupancy that the tenant is compelled to leave.

For examples relating to the common areas, renovations of office buildings that occur outside of the leased premises are often the subject of constructive eviction actions. In the 1995 New Hampshire Supreme Court case, Echo Consulting Services, Inc. v North Conway Bank, 669 A.2d 227 (1995), the court considered both quiet enjoyment and constructive eviction claims in a situation where office building renovations materially disturbed the tenant. The court held that there was a breach of the covenant of quiet enjoyment due to the interference from the landlord's construction work, but did not hold that the disturbance was so material as to be a constructive eviction.

History of the Covenant

Black's Law Dictionary defines the covenant for quiet enjoyment as ensuring that the tenant will not be evicted or disturbed by the grantor or a person having a lien or superior title. This narrow definition follows the historical meaning passed down from English common law, which mostly limits the covenant to the tenant's right of possession not being disturbed due to defects in title. Under the old common law, a real estate lease was more of a conveyance than a contract, where the tenant essentially owned the typically agricultural property for a period of years. In this historical context, the landlord had no maintenance obligations and the tenant was in complete control of the premises. The landlord's only duty was not to disturb the tenant by actual eviction, provided the tenant timely paid its rent.

As uses of commercial real estate have moved beyond agrarian, the modern commercial tenant now has reasonable expectations regarding the landlord's maintenance of the leased premises and the surrounding common areas. At the same time, the trend has been for real estate leases to evolve away from being treated simply as a conveyance of real property for a specified term and toward being viewed as a commercial contract. The remedies available under contract law differ greatly from those available after a breach of a real estate conveyance.

As part of this modern trend, many states have expanded the covenant of quiet enjoyment to protect the tenant from acts other than just actual eviction, to include lesser acts that substantially deprive the tenant of use and enjoyment of the leased premises. In some states, the old limited covenant of quiet enjoyment has fully evolved into an implied warranty of fitness for the intended use. In other states, substantial renovation or construction work outside the leased premises could violate the covenant of quiet enjoyment if the tenant could not make full use of the premises because of the disturbance. A majority of states now permit tenants to claim damages against landlords for a breach of quiet enjoyment, even if the interference is not so substantial as to merit termination based on constructive eviction. Certainly the case law differs greatly from state to state, and it is critical for the real estate lawyer who practices in more than one jurisdiction to be aware of these differences.

Language Trumps All

Notwithstanding the common law principles discussed above, the language in the lease usually trumps all. It is important to note here that this article is focused on commercial real estate. Residential tenants are often afforded a greater level of protection under the law. Courts consider commercial landlords and tenants to be sophisticated business parties that freely enter into long-term agreements. In a conflict between the common law and clear provisions in the lease, the language in the lease will normally control. Courts understand the importance that common areas have in commercial real estate and will closely review the lease language. For example, a retail lease provision that gives a tenant the right to control parts of the parking area will be afforded critical importance. In the 1984 Illinois appellate case, Madigan Brothers, Inc. v. Melrose Shopping Center Co. , 556 N.E.2d 730 (1990), the tenant successfully prevented the landlord from constructing improvements in the parking area of the shopping center because of language in the lease giving the tenant an easement in the parking lot. Similarly, the landlord in the 2007 Illinois case, LaSalle Bank National Association v. Moran Food, Inc. , 477 F. Supp.2d 932 (N.D. Ill. 2007), lost a declaratory injunction action where it was requesting the right to construct additional buildings within the shopping center because of clear language found in the lease.

The commercial landlord and tenant often have competing interests with respect to the control of the common areas. The landlord wants the flexibility to further develop and change these areas, while the tenant needs the assurances that these areas will be properly maintained and not drastically altered. Compromise positions in the lease are often the answer. Below is suggested compromise language for both retail and office tenants. In both examples, the provisions would only be practical for strong creditworthy tenants taking large space (i.e., the national retail tenant taking greater than 15,000 square feet or the office tenant taking more than one floor in a multi-floor office building). Smaller tenants would most likely not have the leverage needed to force a landlord to give up any control of the property.

For the retail lease, the compromise concept would be for both parties to recognize that the landlord needs control over the common areas and has the right to renovate or reconfigure the common areas, but that the tenant needs at least a portion of the common areas closest to the leased premises to be off-limits to any future changes. The area that is off-limits is typically referred to as a “No Build Zone”; its size is dependent on the tenant's leverage and the size of the shopping center. The suggested language is as follows:

Notwithstanding anything to the contrary contained in this Lease, Landlord shall not, without the prior written consent of Tenant, construct or allow any temporary or permanent structures, except any temporary structures reasonably necessary for the maintenance and repair of the No Build Zone (as such term is defined herein) in the ordinary course, including but not limited to buildings, kiosks, merchandise carts, temporary tenants, seasonal displays, the temporary storage place for snow cleared from parking areas, or other commercial or non-commercial activity of any kind, to operate at any time in the “No Build Zone” as designated on the Site Plan attached hereto as Exhibit A, except as otherwise required by applicable law. The No Build Zone shall consist of not less than fifty (50) parking spaces, which shall not be designated as employee parking for other tenants in the Shopping Center.

A no-build area would be impractical for the office lease. Instead, tenants should strive for language in their leases that: 1) obligates the landlord to maintain the common area to an agreeable standard for that marketplace; 2) requires certain common area facilities always to be available to the tenant in good working condition, such as elevator access, air conditioning, heating and electricity; and 3) provides the tenant clear remedies, such as abatement of rent and/or termination, if those common areas or other services are not available as promised. Once you agree on the specific list of services that the landlord is obligated to maintain and the standard to which those services are to be delivered to tenant, the language below would give the strong creditworthy office tenant clear remedies without resorting to the uncertainties presented in a quiet enjoyment or constructive eviction action:

Landlord shall not be liable for any interruption in providing electricity or any other service that Landlord is obligated to provide under this Lease, unless such interruption or delay (i) renders the Premises or any portion thereof untenantable for the normal conduct of Tenant's business at the Premises and Tenant has ceased using such untenantable portion; and (ii) extends for a period longer than three (3) consecutive business days, in which case, Tenant's obligation to pay Fixed Rent and Additional Rent shall be abated with respect to the untenantable portion of the Premises that Tenant has ceased using for the period beginning on the fourth (4th) consecutive business day after the aforementioned conditions are met and ending on the earlier of (x) the date Tenant recommences using the Premises or the applicable portion thereof, or (y) the date on which the service(s) is substantially restored. Provided further, if any such interruption or delay renders the Premises untenantable for the normal conduct of Tenant's business at the Premises and Tenant has ceased using the Premises for a period longer than thirty (30) days, Tenant may terminate this Lease upon written notice to Landlord. Landlord shall in good faith work to expeditiously minimize any such disruptions.

Conclusion

Those practicing in commercial real estate leasing need to understand the concepts of quiet enjoyment and constructive eviction, how they differ and how they sometimes overlap. They also need to understand the great differences in the ways the various states treat these common law concepts. Finally, they are advised to negotiate and draft clear provisions in their lease agreements instead of relying on the uncertainties of the local state courts.

John G. Kelly, a member of this newsletter's Board of Editors, is a shareholder with Bean Kinney & Korman, P.C., in Arlington, VA. His commercial leasing practice includes representing both Virginia, Maryland and Washington, DC, landlords as well as national tenants in office, retail, government and industrial leases. You may reach him at [email protected].