Breach of the Covenant of Quiet Enjoyment – Commercial Lease Issues

In California, the covenant of quiet enjoyment is a lease provision that grants a tenant the right to "enjoy" – basically, to use – the property for its intended purpose without interference.  Quiet enjoyment provisions are usually written into lease contracts, but in the event that one is not explicitly written into the lease contract, California courts generally apply the covenant of quiet enjoyment anyways.

The right to quiet enjoyment may be applicable in a variety of conflict circumstances between the landlord and tenant, and even the tenant and other tenants (or neighbors), but much of the guidance is to be found in case law as opposed to statutory law.  To be clear, a tenant has a right to quiet enjoyment, but what constitutes actual "interference" is usually the substantive issue.

The right to quiet enjoyment belongs to both residential and commercial tenants, but these rights differ substantially for such parties.  The residential tenant’s right to quiet enjoyment may not be modified or waived.  This limitation is designed to prevent a landlord from tricking or otherwise inducing a residential tenant into accepting a lease contract that lacks fundamental protections for the tenant.  On the other hand, the commercial tenant’s right to quiet enjoyment may be modified or waived in the lease contract.  The removal of this limitation for lease contracts involving commercial tenants accounts for the resources (legal, financial, and contract experience) available to commercial tenants that residential tenants do not normally enjoy.

If you are a commercial tenant entering a lease contract with a landlord, it is crucial that you closely examine the contract to ensure that you are not signing onto any provisions that modify or waive your right to quiet enjoyment.

As the right to quiet enjoyment can vary substantially depending on the circumstances, let’s first consider some of the basics of the right to quiet enjoyment before pushing forward.

What constitutes a breach of the covenant of quiet enjoyment?

A breach of the covenant of quiet enjoyment requires that the landlord not interfere with or otherwise disturb the tenant’s intended use of the real estate property – but what constitutes interference?

Unfortunately, the case law can be inconsistent and somewhat subjective-based, but as a general rule, a landlord’s interference in a breach of the covenant of quiet enjoyment action will be found when there is some physical element to the interference.

Consider the following circumstances wherein a court might find that a landlord has interfered such that a breach of the covenant of quiet enjoyment might be found:

- A tenant runs a retail store in the landlord’s building.  During opening hours for the retail business, the landlord is constructing and modifying the space above the retail store, resulting in serious noise pollution and dust pollution that may potentially scare off the tenant’s retail customers.  It is likely that a court would find that the landlord’s timing for such construction constitutes substantial interference with the tenant’s right to quiet enjoyment.  To avoid causing interference, the landlord could commit to such construction and modification at a better time (when the retail store is closed).

- A tenant runs a small regional office for his company in the landlord’s building. During the lease, the electricity is very inconsistent due to the landlord’s failure to properly maintain the electrical infrastructure.  This causes the tenant serious issues as the available office man-hours are reduced due to inconsistent electricity.  Such interference would most likely be considered a breach of the right to quiet enjoyment.

- A tenant runs private tutoring sessions out of a small office on the landlord’s property.  The landlord continuously investigates, inspects, and makes unannounced visits to the tenant’s office to perform said investigations and inspections.  These visits disturb and interfere with the tenant’s business.  If the tenant can show that these visits are unreasonable and illegitimate, then it is likely that the court will find that the landlord’s behavior constitutes a breach of the covenant of quiet enjoyment.

Modifying or Waiving the Right to Quiet Enjoyment

In some commercial lease contracts, the landlord and tenant may agree to modify or even waive the right to quiet enjoyment.  Of course, not all modification is bad for the tenant – in fact, with sufficient bargaining power, a commercial tenant may be able to negotiate a contract where the covenant of quiet enjoyment is modified so as to expand rather than reduce the tenant’s right to quiet enjoyment.

Let’s consider two examples, one involving a modification that reduces the scope of the right to quiet enjoyment for a commercial tenant, and another involving a modification that expands the scope of the right to quiet enjoyment for a commercial tenant.

Reducing the Scope

Suppose that a tenant owns a retail store in a landlord’s shopping center.  In the lease agreement, the landlord wanted to make sure that she was insulated from liability for any construction or renovations conducted on adjacent or nearby stores on the premises.  As such, there is a provision in the lease agreement providing for an exemption from liability for the landlord for breach of the covenant of quiet enjoyment in the event that the landlord is acting to construct, modify, or otherwise renovate adjacent or nearby stores on the premises.  Normally, such construction might constitute a breach, but given the provision in the commercial lease agreement, it is likely that the court will find that there was no breach.  Of course, the provision in the agreement is simply one part of the case – other facts, such as the tenant’s lost income due the interference, or the extent of the tenant’s and landlord’s discussions concerning said interference, will play a role in influencing the court’s decision.

Increasing the Scope

Suppose that a tenant is concerned about the landlord’s warranty of good title (they would like to enter a multi-year lease).  The tenant wants to ensure that the property does not come with any liens or third-party claims.  The landlord is happy to oblige, and they negotiate a lease agreement where the landlord assures that there are no existing liens, encumbrances, or third-party claims on the property, and that any third-party interference with the tenant’s right to quiet enjoyment will be indemnified by the landlord.  Thus, if a third-party begins to claim part of the property as their own, and begins to interfere with the tenant’s quiet enjoyment, then the tenant can assert that the landlord has failed to uphold their end of the bargain – and they will be indemnified for any losses thereof.

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