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Constructive Eviction-a Risky Defense for a Commercial Tenant

A constructive eviction is when a landlord’s actions, in breach of the lease, creates a situation that results in its tenant not being able to use the premises. For example, if the landlord fails to make structural repairs to the roof resulting in water damage to the office tenant, the tenant could claim that the landlord has deprived them of the right to use their premises, i.e. the right to quiet enjoyment.

Many commercial tenants come to me for advice in situations such as these. They want to know if they can stop paying their rent. Their common-sense tells them that if their landlord has breached the lease, why should they abide by the agreement? Not paying rent will get the attention of the landlord and likely get the necessary repairs performed quickly. I always have to advise them that withholding rent would be a huge mistake, regardless of the landlord’s conduct. To successfully claim a constructive eviction and withhold rent, a tenant has to vacate the premises without any unwarranted delay. Unlike a residential tenant, they cannot continue to stay in the premises while seeking a deduction of rent for the unsuitable environment.

Even if the tenant immediately moves out, there is no guarantee that the landlord-tenant court will find that a constructive eviction has occurred. The concept is still a challenging one for the courts. A recent case involved a securities firm moving out of their office three years before the end of the lease term and stopping all rent payments. In response to the landlord’s suit for the payment of the balance of the rent , the office tenant alleged that the landlord was in breach because it failed to renovate the space and rented neighboring space to another securities firm in violation of the their lease. The landlord-tenant court concluded that the tenant violated the terms and the appellate court agreed. The appeals court maintained that when a “material” term of a contract is violated, the responsibilities of the other party to the agreement are deemed void. The court stated that violating “the essence” of an agreement would be considered a material breach. But the appeals court upheld the trial court’s decision that the leased office was still usable even with these breaches by the landlord as they did not materially affect the tenant’s ability to effectively run their business.

This is the reason it is important to refer to an experienced and skilled commercial landlord-tenant lawyer before you consider withholding rent in response to a landlord’s breach of the lease.