Court enforces acceleration clause in a commercial lease without regard to whether landlord mitigated damages

Posted on November 12th, 2011 by Joseph William Singer.
Categories: Leaseholds, Real estate transactions.

Many courts uphold acceleration clauses in commercial leases that require tenants to pay the rest of the rent due for the remainder of the lease term if the tenant breaches the lease. Such clauses are usually not enforced in the context of residential leases because they disclaim the duty to mitigate damages. The only issue for acceleration clauses in commercial leases is whether the amount exceeds a reasonable estimate of the likely damages from breach and thus constitute an invalid “penalty” rather than a valid liquidated damages clause. See, e.g., Cummings Properties, LLC v. National Communications Corp., 869 N.E.2d 617 (Mass. 2007). Many courts make this determination by assuming that the landlord still has a duty to mitigate damages by attempting to relet the premises and thus the remaining rent will be invalid if it far exceeds the damages that would be sustained if the landlord found a replacement tenant. See HealthSouth Rehabilitation Corp. v. Falcon Management Co., 799 So. 2d 177 (Ala. 2001). However, some courts hold that the duty to mitigate damages is irrelevant in this context. NPS, LLC v. Minihane, 886 N.E.2d 670 Mass. 2008). The Massachusetts Appeals Court recently explained that this means that it does not matter when the breach occurs during the course of the lease, i.e., at the beginning when many months or years of rent are left and the landlord might be able to obtain a replacement tenant and mitigate damages, or at the end of the lease when replacement of the tenant might be impossible within the remaining time. The only thing that matters is whether the figure chosen by the parties in the acceleration clause (the remaining rent for the lease term) is a reasonable estimate of the damages that might be sustained upon the tenant’s breach. Although this is a difficult determination to make, the court explained that acceleration clauses in commercial leases are presumptively enforceable and should be disregarded only if they are clearly unreasonable. Panagakos v. Collins, 80 Mass. App. Ct. 697, 2011 WL 5067707 (Mass. App. Ct. 2011).

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Eighth Circuit upholds finding that landlord sexually harassed a tenant in violation of the Fair Housing Act but affirms the trial court’s reduction of the jury’s punitive damages award

Posted on June 3rd, 2011 by Joseph William Singer.
Categories: Antidiscrimination law, Due process, Fair Housing Act, Leaseholds.

In Quigley v. Winter, 598 F.3d 938 (8th Cir. 2010),the Eighth Circuit upheld a trial court ruling that landlord sexually harassed tenant in violation of the Fair Housing Act (FHA), but it affirmed the  trial court’s reduction of the jury’s punitive damages award. The jury awarded $13,685 in compensatory damages and $250,000 in punitive damages. The trial court reduced the punitive damages award to $20,527.50.

The landlord engaged in a variety of inappropriate behavior, rubbing tenant’s arm, standing close to her and rubbing his genital area, following tenant and her sister into the bedroom while conducting an inspection and they were in their pajamas and then refusing to leave until asked to do so three times, calling tenant while drunk at 2:30 or 3:00 am.  The Eighth Circuit held that a claim for hostile housing environment created by sexual harassment is actionable under the FHA, that there was sufficient evidence to find that landlord’s conduct in tenant’s home rose to that level, and that landlord had engaged in quid pro quo harassment by suggesting tenant undress for him to get her security deposit back. The court also found a violation of 42 U.S.C. §3617 when landlord engaged in coercion, intimidation, and interference with tenant’s enjoyment of her housing rights.

However, the court approved the trial judge’s reduction of the punitive damages award from $250,000 to $$20,527.50 on the basis of Supreme Court precedents holding it violates due process to award punitive damages claims that are out of proportion to actual damages. See, e.g., State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003);  BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996). While the court found landlord’s conduct “reprehensible,” it did not find the degree of reprehensibility to justify a punitive damages award eighteen times the compensatory damages. The Eighth Circuit agreed with the trial judge that an award one and a half times the compensatory damages sufficiently reflected the reprehensibility of landlord’s conduct.

 

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Texas courts allow fraud claims in real estate transactions despite a non-reliance clause

Posted on May 4th, 2011 by Joseph William Singer.
Categories: Leaseholds, Real estate transactions, Statute of frauds.

The states disagree about whether parties to real estate transactions can sue each other for fraud when the contract of sale contains a “non-reliance clause” stating that neither party is relying on any representations made by the other party that are not included in the written contract. Some states allow such claims on the ground that “fraud vitiates consent” and such clauses do not amount to agreements to be defrauded. But other states hold that such clauses immunize the contracting parties from claims of fraud based on oral statements made prior to the deal. The Texas Supreme Court has waffled on this issue, first holding that contracts can be avoided on the ground of fraudulent inducement, Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990), and then ruling that the sophisticated parties are free to bargain around this rule by non-reliance clauses, Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171 (Tex. 1997). See also Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008). However, the court clarified in Italian Cowboy Partners, Ltd. v. Prudential Ins. Co., 2011 Tex. LEXIS 291 (Tex. 2010), that  a non-reliance clause in a real estate contract will not immunize a real estate seller from liability for fraud if it contains a “standard merger clause” which recites that no representations were made other than those in the contract. Only if the clause states that the buyer is not relying on oral statements made by the seller would the buyer be foreclosed from suing for damages for fraud or to rescind the agreement because of fraud. Another way to waive the right to sue for fraud is to do so directly by a clear statement waiving the right to sue for fraudulent inducement.

In this case, the court allowed tenants to rescind a restaurant lease and recover damages when the landlord lied about the condition of the premises which were afflicted with persistent sewer gas odor.

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Tenant allowed to keep emotional support dog

Posted on April 25th, 2011 by Joseph William Singer.
Categories: Fair Housing Act, Leaseholds.

A tenant with AIDS and related illnesses won $25,000 in emotional distress damages from his landlord for refusing to make an exception to a no-pets policy to allow the tenant to live with his emotional support dog. The Massachusetts Commission Against Discrimination made the award and ordered the landlord to allow the dog as a reasonable accommodation to his disability which included depression and anxiety. The landlord was also fined $5,000. read article

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New Massachusetts law protects rent-paying tenants from being evicted from foreclosed property

Posted on July 30th, 2010 by Joseph William Singer.
Categories: Leaseholds, Mortgages.

Assuming Governor Deval Patrick signs the law, the Massachusetts legislature just passed a statute called “An Act to Stabilize Neighborhoods” that protects tenants from being evicted from property after foreclosure as long as they are paying the rent. Tenants can be evicted if the property is being sold to a third party, but if the lender buys the property at foreclosure, it must continue renting to the tenant–and complying the landlord’s obligations under state law to provide habitable housing. The law also requires lenders to have at least one meeting with the defaulting borrower to try to work in good faith to negotiate a new arrangement; this must happen before the bank forecloses on the property. If the lender does not do this, it must wait an extra two months before beginning foreclosure proceedings.  The bill also criminalizes mortgage fraud. read article

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