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Massachusetts Law Review

Real Estate Law: Supreme Judicial Court Abandons the Independent-Covenant Rule in Commercial Leases

Wesson v. Leone Enterprises, Inc.

In Wesson v. Leone Enterprises, Inc.1 the Supreme Judicial Court (SJC) dramatically altered the law governing commercial landlord-tenant relationships by overturning the long-standing common law rule of independent covenants in favor of a rule of mutually dependent covenants. Under the common law independent-covenant rule, the respective promises of tenant and landlord in commercial leases were considered independent of one another. Consequently, a tenant was obligated to pay rent even if a landlord breached a covenant under the lease. Under the mutually dependent-covenant rule adopted by the court in Wesson, the promises made by the landlord and tenant are (as the name of the rule indicates) dependent on one another. Thus, when a landlord fails to fulfill an obligation imposed by the lease (such as a duty to repair a leaking roof as in Wesson) the tenant may be justified in terminating its lease.

John T. Wesson (landlord) rented space in a multi-tenant commercial building to Leone Enterprises, Inc. (tenant), a financial printing company. Over a five-month period, the tenant lodged numerous complaints with the landlord about leaks from the roof. The landlord took measures to repair the roof. After a period of two months without additional leaks or complaints of leaks, the tenant sent notice to the landlord that it was terminating its lease because of (amongst other reasons) "the serious leakage problem."2 The landlord sued the tenant claiming a breach of the lease and damage to the demised premises.3 The tenant raised counterclaims of constructive eviction and deceptive business practices under chapter 93A, section 11 of the Massachusetts General Laws.

After a bench trial, the Superior Court judge found the tenant had been constructively evicted from the premises, finding the landlord's failure to adequately repair the leaking roof put the tenant's "business at risk."4 As an alternative theory, the Superior Court judge held that even if the landlord's inaction did not rise to the level of constructive eviction, the tenant nonetheless rightfully withheld rent under the dependent-covenant rule as the landlord failed to provide an "essential" service in the lease - a "dry space."5 The judge awarded the tenant relocation damages. The landlord appealed and the SJC took the case on its own motion.

The SJC rejected the tenant's (and the lower court's) constructive eviction argument, citing insufficient evidence to establish that the leaking roof made the premises untenantable for its intended purpose. In fact, the court found that the tenant could carry on its business in the premises, even though the leaking roof may have made the tenant's operation less convenient and more expensive.6 The SJC, nonetheless, found for the tenant and upheld its lease termination based on the court's precedent-setting adoption of the dependent-covenant rule. The facts in Wesson are particularly interesting because the court upheld a termination of the lease even though the roof had actually been repaired before the tenant terminated the lease.

In reaching its conclusion, the SJC applied to commercial leases existing Massachusetts case law developed in the residential landlord-tenant context.7 The court noted that the theory underlying the independent-covenant rule - that a lease is a conveyance of property under which the right to possession of the land was far more important than the landlord's contractual obligation to provide services - no longer was viable in connection with modern commercial leases. Modern leases, the court reasoned, are more contractual in nature and tenants are more dependent upon landlords for the provision of services necessary for the use of the leased premises.8 The SJC determined that the mutually dependent-covenant principle set forth in the Restatement (Second) of Property was "the better rule."9 Section 7.1 of the Restatement provides, in pertinent part, that:

Except to the extent the parties to a lease validly agree otherwise, if the landlord fails to perform a valid promise contained in the lease to do, or to refrain from doing, something . . . and as a consequence thereof, the tenant is deprived of a significant inducement to the making of the lease, and if the landlord does not perform his promise within a reasonable period of time after being requested to do so, the tenant may (1) terminate the lease. . . .10

The dependent-covenant rule does not require a finding that the premises are untenantable for their intended purposes (as in a constructive eviction defense). Rather it is enough for a tenant to establish that the landlord failed, after notice, "to perform a promise that was a significant inducement to the tenant's entering the lease in the first instance."11 The SJC concluded that, at the time the lease was made, the parties understood that the tenant needed a dry space to safely conduct its printing business, and that the landlord would provide the same by agreeing to maintain the roof and repair any roof leaks. The court expressly declined to reach the issue of whether an implied warranty of suitability (similar to the implied warranty of habitability found in residential leases) should be adopted for commercial leases.12

The Wesson decision marks a significant change in commercial lease law in Massachusetts, albeit a change that may have been anticipated.13 While Wesson steadfastly rejects the common law independent-covenant rule, it creates great uncertainty as to the rights and obligations of commercial landlords and tenants under their leases. The most significant issue left unresolved in Wesson is the level at which the landlord's failure to provide the promised services will entitle a tenant to withhold rent or terminate its lease. Also left unanswered is whether tenants confronted with a landlord's failure to provide services have a menu of potential remedies (e.g., abatement, self-help with offset rights) in addition to the common law remedy of termination allowed by the court. It remains unclear whether the courts will enforce offset, abatement and termination provisions in current leases in accordance with their terms, or add a common law termination right to the existing contractual rights. It also remains to be seen what impact Wesson has in today's declining office market where tenants stuck with either an above-market lease or excess leased space may attempt to use this case to terminate their leases or gain the leverage to negotiate more favorable lease terms aunder a threat to terminate.

Deborah F. Howitt

1. 437 Mass. 708 (2002).[back]

2. Id. at 710.[back]

3. The lower court found that the damages sustained constituted normal wear and tear.[back]

4. Id. at 712.[back]

5. Id.[back]

6. The court noted there was no evidence that the leaks caused work stoppages or missed or delayed deliveries. The only evidence of untenantability at trial was that one of tenant's cameras got wet (and was thereafter covered with plastic); a portion of a customer's preprinted paper stock was dampened by a leak; and at times ceiling tiles crumbled and fell out due to dampness. Id. at 715.[back]

7. In 1973, the Supreme Judicial Court abolished the independent-covenant rule in residential leases noting that a residential lease is "essentially a contract... wherein the landlord promises to deliver and maintain the demised premises in habitable condition and the tenant promises to pay rent for such habitable premises." Boston Hous. Auth. v. Hemingway, 363 Mass. 184, 198 (1973). "These promises constitute interdependent and mutual considerations." Id.[back]

8. See Wesson, 437 Mass. at 716.[back]

9. Id. at 720.[back]

10. Id. (quoting Restatement (Second) of Property: Landlord Tenant § 7.1 (1977)).[back]

11. Id. at 721-22.[back]

12. Id. at 721 n.25.[back]

13. The court notes that its abandonment of the independent-covenant rule in commercial leases was foreshadowed by its decision to abandon the rule in residential leases; by the adoption of the Restatement; and in the cases of Holmes Realty Trust v. Granite City Storage Co., 25 Mass. App. Ct. 272 (1988) (Superior Court questions continued viability of the independent covenant rule in Massachusetts law) and Reed v. United States Postal Serv., 660 F. Supp. 178 (D. Mass 1987) (Applying Massachusetts law allowing tenant to withhold rent for landlord's breach of its duty to repair.) [back]

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