All Landlords Need to be Aware of These Rules

A case decided by the Louisiana Court of Appeal for the Second Circuit in January of 2016, KM, Inc. v. Weil Cleaners, Inc., should be viewed as totally routine and utterly unremarkable. It followed several rules of law that are well established in both the cases and the Civil Code. Yet many landlords are unaware of these important rules and therefore continue to make mistakes that cause them to lose cases like this one.

KM, Inc. v. Weil Cleaners, Inc. - The Background

KM, Inc. was the landlord to Weil Cleaner’s Inc. Over many years, Weil experienced water intrusion through the storefront of its leased premises. The landlord made some efforts to try to fix the problem, without success, and ultimately left the tenant with premises that leaked.

The landlord and the tenant developed a contentious relationship. The tenant, in an effort to force the landlord to fix the water intrusion problem once and for all, deliberately failed to pay its rent from time to time. The landlord and tenant developed a pattern whereby the tenant would get the landlord’s attention by failing to pay rent, the tenant and the landlord would negotiate about the water intrusion problem, and the tenant would ultimately capitulate and pay its rent. As the water intrusion problem continued, the tenant and landlord would engage in the same pattern of behavior.

Over the course of 2014, this pattern repeated itself numerous times. However, when the tenant failed to pay its rent for August, 2014, the landlord decided that this pattern had continued for long enough, and the landlord sought to terminate the lease.

KM, Inc. v. Weil Cleaners, Inc. - The Ruling

The Louisiana Court for Appeal for the Second Circuit correctly decided that the landlord was not entitled to terminate the lease. The court ruled that the landlord had engaged in a pattern of acquiescence to late payments by accepting numerous late payments from the tenant over the course of the lease, including several in 2014. Therefore, the court stated, in order to insist on strict compliance with the lease, the landlord was required first to give the tenant advance notice that the past practice of leniency was going to be discontinued and that the landlord was thereafter going to insist on strict compliance with the lease.

The Rules for Landlords

All landlords need to be aware of this rule. If the landlord has engaged in an established pattern of leniency with the tenant, the landlord cannot suddenly switch to require strict compliance with the lease. The landlord must first give the tenant direct and clear notice that the past practice of leniency will be discontinued, and that thereafter strict compliance with the lease will be enforced.

Although this most often shows itself in a situation where the landlord has repeatedly accepted late rental payments, it can apply to any pattern of leniency on any issue. For example, it could apply to the tenant’s failure to maintain its premises in good repair or a failure by the tenant to carry the insurance that the lease requires.

The Weil Cleaners case also touches on one more important legal principle that landlords need to be aware of. All actions to terminate a lease are subject to a general principle known as “judicial control according to the circumstances.” As the Second Circuit described this principle:

Judicial control is an equitable doctrine by which the courts will deny cancellation of the lease when the lessee’s breach is of minor importance, is caused by no fault of his own, or is based on a good faith mistake of fact.

In other words, courts can deny termination of the lease if it appears that the landlord is overreaching or has exhibited some problem behavior toward the tenant. The Weil Cleaners court was frank to admit that this doctrine means that:

Louisiana courts are vested with discretion under certain circumstances to decline to grant a lessor cancellation of a lease although such right appears to be otherwise available to him.

So, the second important rule for a landlord is: don’t try to terminate a lease unless your behavior is entirely spotless. In the Weil Cleaners case, the court obviously felt that the landlord had not dealt fairly with the tenant by failing to solve the water intrusion problem over the course of many years and so the court was in no hurry to allow termination of the lease.

The Upshot for Landlords

Every landlord would be well advised to respect these legal rules and to engage in the behaviors they require, before trying to terminate a tenant’s lease.