Blog 8:
This lease of real estate is over! Receiver’s termination of leases can come hard and fast.
by Andrew R. Korn, Esq.
july 17, 2020
A Receiver taking over a debtor’s tenancy may realize that the lease can be immediately terminated, and that he has a claim for damages against the Landlord. One way this can occur is by the Landlord’s breach of the debtor’s right to quiet enjoyment.
Tenant’s Right of Quiet Enjoyment:
A covenant of quiet enjoyment “secures the tenant from any wrongful act by the lessor which impairs the character and value of the leased premises or otherwise interferes with the tenant’s quiet and peaceable use and enjoyment thereof.” Votiv, Inc. v. Bay Vista Owner LLC, 2019 Wash. App. LEXIS 2422, at *12-13 (Wash. App. Sep. 16, 2019).
Landlord’s Breach of Tenant’s Right of Quiet Enjoyment:
A breach of the covenant of quiet enjoyment arises when a landlord’s conduct interferes with a tenant’s right of possession, “depriving the lessee of the beneficial use of the demised premises.” 1 American Law of Property § 3.51, at 280 (1952).
A landlord’s construction on the tenant’s property or neighboring property can substantially interfere with Tenant’s quiet and peaceable use and enjoyment of the leased premises. Votiv, Inc. v. Bay Vista Owner LLC, 2019 Wash. App. LEXIS 2422, at *12-13 (Wash. App. Sep. 16, 2019) (breach of covenant of quiet enjoyment includes “situations when the landlord’s construction work interfered with the tenant’s use of the leased premises.”); McDowell v. Hyman, 117 Cal. 67, 71-72, 48 P. 984 (1897)
The Remedy for a Landlord’s Breach of Tenant’s Right of Quiet Enjoyment:
A tenant suing for breach of the covenant of quiet enjoyment may terminate its lease and recover damages that will compensate the tenant for all the detriment caused by the breach or which in the ordinary course would be a likely result, including lost profits, lost business goodwill and moving expenses. See Andrews v. Mobile Aire Estates, 125 Cal. App. 4th 578, 591 (2005); Restatement (Second) of Property: Landlord & Tenant, § 10.2 Damages; Ghanbari v. Tran, 2007 Tex. App. LEXIS 2788, at *6 n.1 (Tex. App.—Beaumont Apr. 12, 2007, no pet.) (Citations omitted):
Generally, in landlord-tenant cases, a breach of the covenant of quiet enjoyment is a defensive theory. The typical scenario involves a landlord who seeks to collect rent still owed when the tenant has already abandoned the property. As a defense, the tenant will claim he has no obligation to pay the remaining rent because the landlord has breached his covenant of quiet enjoyment or has constructively evicted the tenant. Id. If the tenant proves his claim, the tenant is excused from making further rent payments because the lease has been effectively rescinded, and the tenant also is entitled to damages for any foreseeable consequences of the eviction.
Proving damages: Damage to goodwill does not require exact proof. Therefore, a plaintiff presents adequate evidence about loss of goodwill by showing loss of business and refusal of customers to conduct subsequent business with the plaintiff. See Sol-o-lite Laminating Corp. v. Allen, 353 P.2d 843, 849-850 (Or. 1960); Hamdan v. Hamdan, 2017 Tex. App. LEXIS 10168, at *15-16 (Tex. App. —Houston [14th Dist.] Oct. 31, 2017, no pet.):
when “there is an established business, pre-existing profits may be used to evidence the amount of loss with reasonable certainty.” White v. Sw. Bell Tel. Co., 651 S.W.2d 260, 262 (Tex. 1983); see also Phillips, 475 S.W.3d at 279 (collecting cases where lost profit damages were upheld for “established” business); Sw. Battery, 115 S.W.2d at 1098-99 (“Where the business is shown to have been already established and making a profit at the time when the contract was breached or the tort committed, such pre-existing profit, together with other facts and circumstances, may indicate with reasonable certainty the amount of profits lost.”). “Contrasting revenue from a time period immediately before the period at issue is an established method of proving revenue for a lost profit damages calculation.” ERI Consulting, 318 S.W.3d at 877.
See also, Wallach, The Buyer’s Right to Monetary Damages, 14 U.C.C. L.J. 236, 270, n.521 (1982) (“The courts have not required certainty in the evidence showing the value of the lost goodwill.”); Goetz, Article 2 Warranties in Commercial Transactions: An Update [Part 2 of 2], 72 Cornell L. Rev. 1159, 1251 (September, 1987):
The method by which a buyer proves loss of goodwill varies with the nature of the business. A reselling buyer might establish loss of goodwill by showing that certain customers began trading with a competitor as a result of the seller’s breach. Alternatively, the buyer might introduce evidence of decreasing profits following the breach, or the buyer might provide testimony of the value of the goodwill. Finally, a buyer might sell the business and claim the difference between the pre-breach value and the sale price as the value of the goodwill loss.