Does a Landlord Have An Implied Duty To Maintain a Shopping Center?

Print
Print Friendly

I just read a July 7, 2011 New Jersey Superior Court, Appellate Division decision that puzzles me. Basically, it says that in a lease that required the tenant to operate its business in a “first class and reputable manner,” the landlord had the implied covenant to operate a “first-class” shopping center. Then, when the landlord didn’t do so, it breached the lease and the tenant could vacate its premises.

Fourteen years ago, I wrote an article titled: “What Is This Thing Called Quiet Enjoyment? (in the Context of Commercial Leases).” The article may be dated, but I think I have followed the thrust of the law since then and that is why I’m surprised at the result in this case. I’m not surprised that a trial court might find such an implied covenant to maintain commercial property, but I didn’t think that, even in New Jersey, an appellate court would agree.

It was an unpublished case, Wallington Plaza, LLC v. Taher, A-4122-09T1 (N.J. Super. App. Div. 2011) and can be found by using this link: Wallington/Taher Opinion.

Here’s what happened. There was a small commercial shopping center with fourteen retail stores. A jewelry store tenant leased a 1,400 square foot store for ten years. The lease’s use clause required it to operate a “quality jewelry” store. The term “quality jewelry” meant jewelry using real gold, silver, other precious metals, diamonds, and other precious stones. The lease required the tenant to operate six days a week in a “first class and reputable manner.” There was a liquidated damage charge for each day the store was not open for business.

As the ten year term progressed, the shopping center went to “heck in a handbasket.” The court described the shopping center as “deplorable.” Most of the other stores had closed. This meant that the shopping center had lost at least a drugstore, a video store, a dollar store, a grocery store, and a card store. The parking lot was uneven and unpaved. There was grass growing through the broken concrete. Many stores were marked as vacant. Basically, the lower court found that “no one would say” this was a “first[-]class strip mall.”

Then, the lower court went on to hold “[c]learly there’s an obligation on the part of landlord to help maintain a mall to keep customers there for [its] tenants.” The Appellate Division agreed that the landlord “had breached its implied covenant to maintain the shopping center in a good condition to assist its tenants in selling their wares and goods.”

I think that fact patterns like this are good to see if you’re going to have a vigorous discussion about whether there is, or should be, an “implied duty” that requires a landlord to maintain a shopping center in first class condition or even in good condition. What surprises me, however, is that I didn’t think that this discussion had reached the point where a court would actually find such an implied duty. I grant that this is an unpublished decision but, in today’s world, you can’t hide result-oriented decisions by keeping them unpublished.

Who thinks that there is such an implied duty? Who thinks that there ought to be such an implied duty? Share your thoughts with all of us by posting your comments to: www.retailrealestatelaw.com.

Print

Comments

  1. Lowell Berg says:

    Ira,

    I haven’t researched this. (Did the lower court cite any support for the proposition? )

    It just seems odd to me that the Appellate Division would not have taken the occasion to outline the doctrinal underpinnings of this implied covenant, if it is completely new.

    Whether or not the theory is new, several ideas come to mind to support the concept:

    1. Isn’t this covenant akin to the implied covenant of habitability, where a landlord’s failure to correct some physical problem, which deprives the tenant of the physical use of his leased premises, may constitute a constructive eviction? In the instance under consideration, the landlord is preventing the tenant from enjoying the economic benefit of the leased premises to a substantial degree. I don’t see much difference.

    2. And what about the implied covenant of good faith and fair dealing?

    I don’t know that I would go so far as to require maintenance in “first class” condition, but, “good condition” does not seem to be too great a burden to impose on landlords.

    Thank you for bringing this interesting issue to light.

    Lowell Berg
    berg.lowell@gmail.com
    732-900-3261

  2. Under the egregious facts of this case, I would have to agree with the court. But,. as we all know, bad facts made for bad law. In general, I think there should be an imp[lied duty top maintain the center in “good condition” or in accordance with principles of good estate management (“as the English like to say”). What has always intrigued me is the phrase “first class”. When encountering this in NYC leases, I tell my clients to leave this loosey-goosey expression alone, that they’ll never get it out and if they try, the landlord, especially in a Class A building, will have an emotional reaction implying that the tenant intends to do just the opposite – e.g. to allow a high-end apparel store to degenerate into a low-end wig shop. I tell them its best to leave it to the Potter Stewart “smell test”. Anyone out there with a different view or familiar with a court attempt to define “first class” (other than Ira’s case cite, which i have yet to read) ?

  3. Hi Ira,

    Interesting topic. However, I don’t understand what astonished you: the Court judgement considering implied the Landlord obligation to maintain a shopping center in first class condition or even in good condition or the fact that it is an unpublished decision.

    Although, I would like to read the Court sentence fundamentals, which in the Common Law is frequently very short, in my opinion the rule make sense.

    Let me put in this way: the business operator choose to establish his/her activity in a shopping mall instead of in a stand alone street retail office. If so, a CAM is paid every month for, among other services, the maintenance in good condition of the mall. If such reciprocity agreement is breached, one of the party has right to seek for damage and of course can rescind the agreement. This is a clear example of implied or tacit contract obligation

    Regards,

    Gustavo Severino

    • My surprise is that I thought the prevailing wisdom was that there is no implied covenant of habitability in a commercial property lease. And, even if there were, courts have pretty much put a firewall between issues arising under the conveyance aspects of a lease and those arising under the contract aspects of a lease. Accepting the lower court’s characterization of the condition of the property, I’m not shocked that it gave relief to the tenant, but I am surprised how, without citing any support or giving any analysis, it broadly stated, as if if were well accepted, that here is an implied covenant for a landlord to maintain it’s property and failure to do so gives tenants the right to terminate their leases. Courts have been very parsimonious in allowing such a remedy.

  4. George Bernhardt says:

    Very interesting case, Ira. I certainly think that the idea that there is an implied duty is rather novel. That said, I think that it is not at all unreasonable and that if the landlord is going to be able to impose duties on the tenants to operate in a first class manner, it certainly seems reasonable to me that the landlord should be held to the same standard. What good does it do for a jeweler to offer only high-end merchandise if the center is in such poor condition that anyone with the money to shop there would be afraid to go to the center? This could apply to almost any tenant – white tablecloth restaurant, higher end department store, boutique clothes store, etc.

    As someone noted, this is simlar to an implied warranty of habitability – though it applies to the common areas rather than the leased premises. Perhaps the implied warranty of suitability for a particular purpose is even more appropriate. If the common areas are in such poor conditions that clients are unwilling to come to the store, then the space is not suitable for the required use.

    George Bernhardt

  5. larry ross says:

    look at the decision from a practical matter; the tenant wants out of a failing plaza as the only one left there. It sounds like the landlord left it to decay

    if the court looks on an equitable basis ( fairness) it will decide for the tenant and try to find a legal basis to give the tenant an out of its contract

    more and more the courts seem to be looking at the equities and then trying to find a legal reason to decide they way they do

  6. Dale Lundquist says:

    I’m not at all surprised about the decision but I haven’t quite finished “balancing the equities” to conclude precisely what form the remedy should take.

    The spirit of Sons of Thunder v. Borden – while it was purely a commercial law matter – has been a hallmark of the creative judicial thinking in NJ for decades, making this state a that at one time some said surpassed even New and California in national influence by state Supreme Courts. There are literally dozens of NJ “Rules of Law” found in our cases that in one form or another, can be traced back to that epochal decision and this is one of them.

    How can a Landlord in good faith impose an obligation upon a Tenant, which, in no small part, depends upon the landlord’s own acts or omissions? Such would be open to a charge of being self-serving at the very least. The condition of common elements – so to speak – in the now ubiquitous “strip shopping malls” of NJ highways are critical to the reputation of a Tenant’s business. One reply noted that the facts were sufficiently egregious to make the decision easier than it might have been.

    It certainly must be conceded that the clientele of a merchant selling jewelry to consumers is acutely attuned to the accoutrements of an outdoor mall such as the quality of sidewalks, lane paving and sophistication of parking layout, quality of fixtures such as benches and trash cans and on and on…If a Landlord allows the entire complex to go to “heck in a handbasket” and given that all Superior Courts – Law and Chancery Divisions are infused with inherent equitable jurisdiction, I would fully expect to hear the Tenant’s counsel repeating his mantra of “He who seeks equity must do equity.” That maxim is no less relevant should the remedy be purely legal as all litigation as it is conducted today must be said to be subject to the “conscience of the King.”

    What I haven’t decided yet is whether I agree in the analysis which finds an implied, yet affirmative duty of a landlord which then translates in an actual cause of action, albeit effectively for rescission rather than damages. Query whether this case also stands for the proposition that a Tenant could assert the Landlord’s breach of this duty as a defense to an action to collect rent. Such an action would actually be one for damages which the Tenant instigates through nonpayment, allowing a Counterclaim or Offset to be asserted for, I suppose, the diminution of the value of the tenancy. I could also easily see the Court calling it Restitution, an equitable remedy that often accompanies rescission.

    In the time it has taken me to get to this point in writing, I believe I was wrong in my initial reaction of uneasiness with the remedy and favoring instead a finding that only an affirmative defense to a nonpayment of rent action existed. While it may seem fair and equitable to prohibit a Landlord from undermining a Tenant’s ability to perform its own obligations under a Lease – mainly the payment of rent – it would seem that with “Sons of Thunder” and burgeoning (as well as much needed) liberal application of equitable principles in contractual relationships generally, there was already plenty of authority floating around that almost compelled the result the Court reached on these facts. It’s just one of the downsides of our system of jurisprudence that the judicial power cannot be actuated by the Court itself; a litigant must bring it the facts and in a proper case, such as here, the law almost finds itself.

  7. In England (UK), there is no automatic implied obligation on landlords to repair or maintain – it would be necessary to demonstrate that an obligation should be implied using the usual rules on interpretation of leases. If that fails, there are two further principles : quiet enjoyment and derogation from grant which may assist. Generally, this situation does not arise as tenants would not sign up to leases without knowing that the shopping center would be maintained. The sting in the tail, however, is that tenants end up paying for such repair/maintenance through the service charge.

    Regards
    Saleem Fazal
    Partner – Real Estate Disputes (London)

Leave a Reply