Every California lease includes a covenant of quiet enjoyment. It protects the tenant from any act or omission which interferes with the tenant’s right to use and enjoy the property for the purposes contemplated by the parties. The recent decision of Fritelli, Inc., v. 350 North Canyon involved a tenant who did not closely read the lease, and was surprised that they waived the covenant of quiet enjoyment. Unlike California residential rental agreements, commercial lessees can modify or waive the covenant of quiet enjoyment; most form leases have a waiver built in. Property owner / lessors and potential lessees concerned with the issue should consult with an experienced Sacramento, Yolo, or El Dorado real estate attorney to discuss the language in their agreements.
Fritelli entered a lease to operate a doughnut shop in a shopping center. The lease guaranteed the tenant “quiet enjoyment.” However, other provisions provided:
a. The lessor was granted authority to renovate the center, limiting liability for damages, and providing reduced of rent to the extent the use of the premises was impaired;
b. That, notwithstanding the lessor’s negligence or breach, lessor was exempt from any liability due to conditions of the premises;
c. Lessee was required to maintain insurance, and lessee’s sole recourse in the event of damages or injury was to file a claim on their insurance policy.
The doughnut shop was in business, and renovations of the shopping center began. In the ensuing lawsuit the lessee complained that scaffolding preventing customers from seeing and entering the shop, and dust and dirt entered the store every day, and that the business declined.
The court first noted that, in a commercial context, the tenant may agree to limit the scope of the covenant of quiet enjoyment. This was titled a “net” lease, which usually means that “the parties intended to transfer from the lessor to the tenants the major burdens of ownership of real property over the life of the lease.” It then reviewed the provisions of the lease, and found that the parties’ intent was to exempt the lessor from liability for breach of the lease and ordinary negligence. Specifically, the provision which allows remodeling without claims for damages modified the covenant of quiet enjoyment.
Interestingly, the court pointed out that nothing in the lease language limits the exemption from damages to the limits or forms of coverage of insurance available. So, the tenant could have uninsured harm caused by the landlord, but be stuck with the loss. Lastly, the court found that, in this context, the limitations of liability did not need to be printed in bold or large type or distinct from other contract provisions, unlike releases contained in recreational activities. This is a case where the lessor had tough terms in the lease but did all they could – they had a cleaning company in daily to clean the doughnut shop during construction, and reduced the rent. The court was not sympathetic of the tenant who did not read their lease before signing.