In a contract dispute, once a court finds that a party is liable and then determines the amount of damages incurred by the other one, the rest is automatic. The court awards those damages and the liable party becomes obligated to pay. There is no ‘but that’s too much.” There is no “it isn’t fair.” The ratio of the amount to be paid to the damages caused is one to one.
That’s not the case with evicting a tenant. Courts don’t have to evict a defaulting tenant. In legal parlance, courts act in equity. They ask “what is the ratio of the cost to the tenant to the harm caused to the landlord?” Basically, they pay heed to what is attributed to Benjamin Franklin:
For the want of a nail the shoe was lost,
For the want of a shoe the horse was lost,
For the want of a horse the rider was lost,
For the want of a rider the battle was lost,
For the want of a battle the kingdom was lost,
And all for the want of a horseshoe-nail.
For example, if a tenant is required to maintain its premises including all doors and windows, but has failed to oil a bathroom door hinge, that’s a breach of the lease. Whether the door hinge squeaks or not, it is still a breach of the lease. If the landlord notifies its tenant to oil the hinge and the tenant fails to do so within the time limit set forth in the lease, the tenant is in default. One of a landlord’s remedy for a tenant’s default is to seek the tenant’s eviction. That’s what the lease will say. So, why won’t a court evict such a tenant? It won’t because landlord-tenant courts are “courts of equity.” And, courts of equity follow some principles of equity. One of those is that “equity abhors a forfeiture.” What that means is that the court will ask: “Is this default so bad that the tenant should lose a valuable lease?”
This is a rule long known to Ruminations. But, what we could never find was any articulation of a standard or a test used by a court to decide the balance point – evict or don’t evict. That is, until now. At end of June, the United States District Court for the Western District of Pennsylvania found one for us. In analyzing a landlord-tenant dispute where the landlord was seeking an eviction, it dug into Pennsylvania law (as a federal court is required to do; there is no “federal” landlord-tenant law). It turns out that those standards apply to any forfeiture of contractual rights, not just the rights a landlord or tenant have under their lease. We’re going to reproduce the set of standards, but first we want to pass along some “background” principles, also scraped from Pennsylvania case-law by the federal court. Here are those background principles. They apply to all contracts, a category to which leases belong. As you read the following list, keep in mind they aren’t addressing an award of damages. They are the principles used to decide whether one party’s breach allows the other party to “break the contract.” In the context of a lease where a tenant has defaulted, “breaking the contract” means allowing the landlord to end its tenant’s right to possession – to evict the tenant.
Pennsylvania contract law generally provides that when the performance of a duty under a contract is due, any nonperformance is a breach.
However, the law is also “clear that only [a] material [breach] of [contract] by one party discharges the other [party’s duties]. An immaterial failure does not operate as such a discharge.”
Whether a breach is so substantial as to justify an injured party’s regarding the whole transaction as at an end is a question of degree . . . .
In other words, a breach must be “so serious [that] it goes directly to the heart and essence of the contract, rendering the breach incurable.”
All of that is fine, but when it comes to a lease, what counts as “a material breach,” “a substantial breach” or “an immaterial failure”? Again, the federal court did our research for us. Here’s what it reported from a 2009 Pennsylvania court decision:
In determining whether a failure of performance is material, the court considers the following factors:
a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;
b) the extent to which the injured party can be adequately compensated for that part of the [] benefit of which he will be deprived;
c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
d) the likelihood that the party failing to perform or offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;
e) the extent to which the behavior of the party failing to perform or offer to perform comports with standards of good faith and fair dealing.
Now, “these materiality factors are ‘to be applied in the light of the facts of each case in such a way as to further the purpose of securing for each party his expectation of an exchange of performances.’ … No single factor is dispositive. … [W]hether a breach of contract constitutes a material breach is a question of fact.”
Does a landlord have any remedy for a minor breach, one that would not support eviction? Yes, it does. It can seek damages in the amount of the harm it incurs because the door hinge went unlubricated.
How should today’s blog posting affect our thinking? Ruminations thinks the lesson can be summed up by using another aphorism, “don’t sweat the little things.” Don’t build up your expectations – work things out.
[By the way, “forfeiture” has worked its way onto the docket of the United States Supreme Court. For the first time, the Court will rule on whether the Eighth Amendment’s excessive fines clause is incorporated against the states under the Fourteenth Amendment. The issue is over a state’s civil forfeiture of a vehicle used to transport illegal substances where the truck was worth substantially more than the drugs. The argument is that the forfeiture of the truck is a grossly disproportionate penalty, much as would be eviction for an unlubricated hinge. The case is Timbs v. Indiana and will be argued on November 28.]
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