The Implied Warranty in Commercial Leases

The is a split among jurisdictions as to whether implied warranties apply to commercial tenancies.

Many courts have declined to extend the implied warranty of habitability to commercial leases.  The rationales given include that the housing code which in many court decisions form part of the basis for finding an implied warranty do not apply to commercial leases, commercial tenants have more bargaining power than residential leases, and the expectations of a commercial tenant vary from a residential tenant.

At common law the tenant’s obligation to pay rent was independent of any covenants made by the landlord.[1] In finding an implied warranty in residential leases courts moved away from the common law rule that covenants were independent and adopted the view that lease covenants are depending, as in contract law.[2] In other words, the tenant’s obligation to pay rent may be abated by the landlord’s failure to comply with an implied warranty of habitability, contrary to common law rules of independent covenants.

The common law rule that paying rent is an independent covenant still has application. For instance, courts still apply this rule to commercial leases, or if the landlord’s breach of an express covenant does not relate to habitability. [3]

Some courts have found an implied warranty of fitness for intended use or suitability in commercial leases.  Courts have reasoned that services such as air-conditioning, elevators, heat, light, and cleanings might be vital to the operation of a business and therefore the provision of these services by the landlord could be reasonably assumed to have been within the intent of the parties.  Also, small businesspersons should not be expected to discover or hire expects to discover code violations of latent defects.

Although some courts have declined to find an implied warranty in commercial leases, others have found such a warranty.

A significant number of commentators have recognized the similarities between residential and commercial tenants and concluded that residential warranties should be expanded to cover commercial property.[4] It cannot be assumed that a commercial tenant is more knowledgeable about the quality of the structure than a residential tenant…. Additionally, because commercial tenants often enter into short-term leases, the tenants have limited economic incentive to make any extensive repairs to their premises. Consequently, commercial tenants generally rely on their landlords’ greater abilities to inspect and repair the premises. In light of the many similarities between residential and commercial tenants and the modern trend towards increased consumer protection, a number of courts have indicated a willingness to apply residential property warranties to commercial tenancy situations.[5]

There is no valid reason to imply a warranty of habitability in residential leases and not in commercial leases.

Davidow v. Inwood North Professional Group-Pahse I, 1988.TX.40286; 747 S.W.2d 373, 31 Tex. Sup. J. 247  (1988).

[1] See our Short History of Landlord-Tenant Law.

[2] See, for example, Javins v. First Nat. Realty Corp., 428 F.2d 1071 (1970).

[3] See Schonshinski, American Law of Landlord and Tenant §3:29 and cases cited.

[4] Davidow v. Inwood North Professional Group-Pahse I, 1988.TX.40286; 747 S.W.2d 373, 31 Tex. Sup. J. 247  (1988), citing Chused, Contemporary Dilemmas of the Javins Defense: A Note on the Need for Procedural Reform in Landlord-Tenant Law, 67 Geo. L.J. 1385, 1389 (1979); Greenfield & Margolies, An Implied Warranty of Fitness in Nonresidential Leases, 45 Albany L. Rev. 855 (1981); Levinson & Silver, Do Commercial Property Tenants Possess Warranties of Habitability ?, 14 Real Estate L.J. 59 (1985); Note, Landlord-Tenant — Should a Warranty of Fitness be Implied in Commercial Leases ?, 13 Rutgers L.J. 91 (1981); see also Restatement (Second) of Property ? 5.1 at 176 (1977).

[5] Id. citing See Four Seas Investment Corp. v. International Hotel Tenants’ Association, 81 Cal.App.3d 604, 146 Cal.Rptr. 531, 535 (1978); Golden v. Conway, 55 Cal.App.3d 948, 128 Cal.Rptr. 69, 78 (1976); Vermes v. American District Telegraph Co., 312 Minn. 33, 251 N.W.2d 101, 105 (1977); Hodgson v. Chin, 168 N.J. Super. 549, 403 A.2d 942, 945 (App. Div. 1979); Demirci v. Burns, 124 N.J. Super. 274, 306 A.2d 468, 469 (App. Div. 1973); Westrich v. McBride, 204 N.J. Super. 550, 499 A.2d 546, 548-49 (Law Div. 1984); 40 Associates, Inc. v. Katz, 112 Misc.2d 215, 446 N.Y.S.2d 844, 845 (Civ.Ct. 1981); Teodori v. Werner, 490 Pa. 58, 415 A.2d 31, 34 (1980); Olson v. Scholes, 17 Wash. App. 383, 563 P.2d 1275, 1281 (1977); see also Klatman v. Barnett, 458 So.2d 806, 807 (Fla.Dist.Ct.App. 1984) (Glickstein, J., concurring); McArdle v. Courson, 82 Ill.App.3d 123, 402 N.E.2d 292, 297, 37 Ill. Dec. 402 (1980) (Craven, J., dissenting).

Posted in Commerical Landlord-Tenant Law, Implied Warranty of Habitability, Landlord Tenant Law, Texas Landlord-Tenant Law.