The Third Circuit Court of Appeals just released an opinion regarding several legal issues involving a commercial lease in Bldg. B1 v. Component Repair Servs., 2017 Fla. App. LEXIS 9956 (Third Court of Appeal of Florida, July 12, 2017). The Court’s ruling has bearing on how courts could rule on similar issues involving residential leases. Below are a few highlights of the Court’s rulings and this author’s practice tips and comments.
The Appellate Court set forth the relevant facts (Id., 1-4), which were established in trial, to rule on the issues as follows.
On November 22, 2000, Building B1 (landlord) and CRS (tenant) entered into a commercial lease for a warehouse in Miami. The lease was for a term of five years commencing in January 2001 and terminating on December 31, 2005. The terms provided CRS an option to renew the lease for an additional five-year term beginning in January 2006 and ending on December 31, 2010. The exercise of this option was required to be made in writing and sent by certified mail to Building B1 120 days before the end of the five-year lease period.
In October of 2005, Hurricane Wilma caused damage to the warehouse. CRS spoke to Baitinger about the damage and Building B1 instructed CRS to make and pay for the repairs, and represented that Building B1 would reimburse CRS for the expenses related to the repairs. CRS made the necessary repairs.
On January 1, 2006 (after expiration of the five-year lease period), CRS remained in the warehouse. Several discussions were held and written correspondence exchanged in an unsuccessful attempt to formally renew the lease or enter into a new lease. From January 1, 2006 through July 31, 2009, CRS remained in the warehouse and continued to pay rent on a monthly basis. On July 31, 2009, CRS vacated the warehouse without notice to Building B1.
In May of 2012, Building B1 filed a one-count complaint against CRS, alleging that, through discussion and correspondence, the parties had agreed to renew the lease for the period of January 1, 2006 through December 31, 2010, and that CRS breached the renewed lease agreement by vacating the premises on July 31, 2009 and failing to pay, inter alia, rents that were due and unpaid through December 31, 2010.
CRS filed its answer and affirmative defenses. CRS also filed a counterclaim, seeking damages for Building B1’s breach of the lease for failing to return the security deposit and for failing to reimburse CRS for repairs made to the warehouse following Hurricane Wilma.
One issue that wasn’t appealed but was ruled on in trial was whether the five year lease was renewed or not. The trial court ruled that the lease was not renewed but operated as a month-to-month tenancy.
The five-year lease signed by the parties naturally expired on December 31, 2005. The tenant complied with the terms of the lease during the first five years. After the lease naturally expired, the tenant remained in the property, and the landlord continued to allow the tenant to remain on the property and accepted rent payments from the tenant. The landlord had not demanded the tenant vacate the premises, and the parties had not signed any new agreement to renew.
The trial court found that the lease converted to a month-to-month tenancy, and any communications by the parties about the tenancy amounted to offer-and-counter-offer discussions. Since the tenancy was month-to-month, the landlord had no rightful claim to future rent from the tenant.
Practice tip: if a landlord allows a tenant to remain on the property and accepts rent after the lease naturally expires, the court will most likely rule that the tenant was not a holdover tenant and will not order double rent.
Practice tip: if a lease renewal or new lease is not executed after the natural expiration of the lease but the tenant remains with permission and landlord accepts rent on a monthly basis, the court will most likely find that the tenancy is month-to-month.
Practice tip: if a landlord does not want a tenant to remain on the property in a month-to-month tenancy, landlord must give timely notice to vacate and not accept rent from the tenant.
Practice tip: landlord should file an eviction after the natural expiration of the lease once the landlord has given notice to tenant to vacate the property.
One issue that was not appealed but was ruled on in trial was whether the tenant was liable for one month’s rent after it vacated when it did not give proper notice of terminating the month-to-month lease. The court ruled that the tenant owed the landlord one month’s rent, for the month of August 2009.
The tenant vacated the property on July 31, 2009 without giving proper notice. Proper notice would have been giving at least 15 days’ notice prior to the beginning of the next month, since the tenancy was month-to-month. Since the tenant did not give proper termination notice pursuant to FS 83.03(3), the court ruled that the tenant owed the landlord rent for the month of August, 2009.
Practice tip: note that the court ordered the tenant to pay only one month’s rent for failing to give the landlord notice of terminating the month-to-month lease. Landlords should avoid thinking that they can get a windfall from a tenant in this situation, e.g. charging the tenant for all months’ rent following termination of the month-to-month tenancy until the landlord is able to re-lease the property.
One issue that was appealed was whether the trial court erred by failing to award double rent to the landlord under the “holdover tenant” theory. The appellate court ruled that the trial court did not err by not awarding double rent.
The appellate court stated that the landlord never pleaded any entitlement to double rent under the holdover theory. The court noted that the landlord pled in its lawsuit that the tenant had renewed the lease for a five-year period and that the tenant had breached the 5 year lease by vacating early. On this ground, the appellate court ruled that the landlord could not now argue on appeal that the trial court erred by not awarding double rent.
Practice tip: the party must allege in its complaint everything it wants the trial court to do.
Practice tip: landlords should avoid alleging inconsistent legal theories in their complaint. Note here, the appellate court noted that the landlord argued on appeal that the tenant was a holdover (meaning, tenant had no right to possess the property); yet at trial, the landlord argued that the tenant was bound to a 5 year lease. Clearly these theories are incompatible and cause the landlord to lose credibility.
Practice tip: in this case, the most logical and sensible conclusion about the tenancy in this situation was that the tenancy was a month-to-month, not a 5 year term. The landlord chose to pursue the extreme of the two theories The parties had not signed a 5 year commercial lease, so there would have been no sound basis to argue that the tenant agreed to a 5 year lease. Here, the landlord got greedy. Getting greedy in these, at best, unclear situations never ends well. The best approach is to find the most common ground with the tenant to resolve the issue. The parties then can move on with their lives and attempt to recover whatever losses they incurred.
The next issue was whether the trial court erred in finding in favor of the tenant on its counterclaim that the landlord breached an oral agreement, promising to repay tenant for repair expenses. The appellate court ruled that the trial court did not err by ruling in favor of the tenant on this issue.
The appellate court first noted that while the tenant did not plead this action in its counter complaint that the parties tried the issue by consent, and as such, the trial court was within his authority to rule on the issue.
Practice tip: if the defendant consents to trying an issue raised by the plaintiff but not alleged in its complaint, the defendant will have waived the defense; thus, the defendant must object at or before trial on any issue not raised by the plaintiff in the complaint.
The appellate court found that the evidence supported the trial court’s ruling that the parties in fact made an oral agreement that the landlord would reimburse the tenant for repair expenses–damages which were caused by a hurricane. Apparently, the landlord did not even limit the amount of expenses the landlord would reimburse the tenant. The tenant reasonably relied on the landlord’s promise to repay the tenant, but the landlord did not fulfill its promise to repay the tenant. The amount the tenant expended for the repairs was $7,553.10. Therefore, the trial court was correct to award the tenant damages in that amount on the breach of oral contract theory.
Practice tip: if a landlord agrees to repay a tenant in exchange for the tenant’s work or expenses and the tenant relies on the promise, the landlord will most likely be ordered to pay the tenant’s expense.
Practice tip: landlord should avoid any oral agreement with the tenant. Any agreement should be made in writing, signed by the parties.
Practice tip: landlord should avoid allowing tenant to do any repair on the lease property. The simplest and cleanest way to handle any property damage is to have the repairs performed by the landlord, and if they are to be charged to the tenant, charge as additional rent (assuming the lease allows for such to be added as a rent).