Supreme Court Rules in Decade-long Commercial Lease Dispute - Tenant at Sufferance Not Liable for Breach of Terminated Lease

TENANT REMAINED IN POSSESSION FOR 6 YEARS AFTER IT LOST ITS LEASE WHEN THE PROPERTY WAS SOLD IN FORECLOSURE

San Antonio Texas Real Estate Attorney Trey Wilson wrote:  Sometimes truth is stranger and more entertaining than fiction!  The Texas Supreme Court, in November 2013, issued its opinion in Coinmach Corp. vs. Aspenwood Apartment Corp. -- a decade-long commercial lease dispute involving a coin-operated laundry machine operator and a Houston apartment complex owner.

Although the facts of the case are somewhat convoluted, the gist of the dispute is: following entry (in 1980, renewed in 1989) of a long-term Commercial Lease of an apartment complex's laundry room (in which machines were operated by the tenant), the owner of the complex lost the property to foreclosure (in 1994). Additional sales of the property occurred, and the "new" owner terminated the Lease and sought to evict the laundry operator (and its machines) from the complex' laundry room.  Even after various eviction proceedings and appeals, the tenant refused to vacate. Ultimately, a suit for damages and declaratory relief was filed in state district court in 1998.

Counterclaims were filed in the suit, and in 2000, a jury returned a verdict against the tenant for $1,500,000.00 consisting of actual damages, DTPA treble damages, exemplary damages, attorney’s fees, and prejudgment interest. Following the verdict, the tenant vacated the premises, but requested a new trial.

When the trial court granted the new trial, the complex owner (Aspenwood)  reasserted all of its prior claims except for statutory and common law fraud, while the tenant (Coinmach) continued to deny liability but dropped all of its counterclaims. In May 2007, the trial court ruled ethat the foreclosure sale terminated the lease and that Coinmach became a tenant at sufferance. Based on these holdings, the court struck all of Aspenwood’s breach of contract claims. In June 2008, the trial court ruled that Aspenwood was not a "consumer" under the DTPA and that Coinmach had a possessory interest in the property from the time of foreclosure until it vacated the premises in 2000, and concluding that the effect of its legal rulings was to preclude Aspenwood’s remaining claims as a matter of law. The court thus entered judgment that Aspenwood take nothing on its claims. [AUTHOR's NOTE:  In other words, Aspenwoods $1.5m jury verdict from 2000 had been reduced to ZERO].

The Court of Appeals modified the trial court's Judgment, and further appeal was taken to the Texas Supreme Court. The Supreme Court ruled:

(1) a tenant at sufferance cannot be liable for breach of the previously-terminated lease agreement; 

(2) a tenant at sufferance is a trespasser and can be liable in tort (although the extent of liability depends on the nature of the trespass), including, in this case, tortious interference with prospective business relations; 

(3) the tenant in this case cannot be liable under the DTPA because the property owner was not a consumer; and 

(4) the property owner in this case cannot recover under the UDJA.

The first 3 of these rulings are significant with respect to the measure of damages that can be received in a Texas breach of lease lawsuit. The 4th ruling -- concerning the Declaratory Judgments Act is case-specific and immaterial for the purposes of this Texas Real Estate Law Blog.

Significant to this post is the first ruling (i.e. that a tenant at sufferance cannot be liable for breach of a previously terminated lease -- even where that tenant was a party to the lease).   

A tenant at sufferance is “[a] tenant who has been in lawful possession of property and wrongfully remains as a holdover after the tenant’s interest has expired.” BLACK’S LAW DICTIONARY 1605 (9th ed. 2009); see also Bockelmann v. Marynick, 788 S.W.2d 569, 571 (Tex. 1990) (“A tenant who remains in possession of the premises after termination of the lease occupies ‘wrongfully’ and is said to have a tenancy at sufferance.”). The defining characteristic of a tenancy at sufferance is the lack of the landlord’s consent to the tenant’s continued possession of the premises. A tenant at sufferance is distinguishable from a 'holdover tenant," who is party that remains in the property after a lease term, but without objection from the landlord.

In its ruling, the Supreme Court held because the foreclosure terminated Coinmach’s prior lease agreement, and because: (i) the lease did not contain a holdover provision, (ii) the parties did not expressly or impliedly form a new agreement, and (iii) Aspenwood did not consent to Coinmach’s continued possession, then Coinmach became a tenant at sufferance. The legal significance of a tenant at sufferance (by that term's very definition) is that  no agreement between Aspenwood and Coinmach ever existed. Resultantly, Coinmach could not have (and did not) incur liability for breach of any lease. 

In the words of the Court: "Coinmach cannot be liable for breaching a contract that did not exist."

But the Court's ruling was more expansive than just the parties' particular dispute, and clarified the rights, generally, of tenants at sufferance vis-a-vis landlords:

We hold that chapter 24’s procedural protections do not grant to tenants at sufferance any legal interests in or possessory rights to the property at issue; rather, the statute provides procedural protections that apply once the tenant has lost, or allegedly lost, all legal interests and possessory rights. Although the landlord must comply with the statute’s procedural requirements to evict the tenant at sufferance, eviction is allowed only if the tenant has no remaining legal or possessory interest, which makes the tenant a tenant at sufferance." 

This commentator predicts that the holding quoted above will have far-reaching implications in breach of lease lawsuits, and will bring additional clarity to the rights of tenants facing evictions.