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.

Court Enters Take Nothing Judgment in Former Tenants' Security Deposit Lawsuit

Following a bench trial, a Bexar County Judge entered a Take Nothing Judgment in a lawsuit filed against D'Ann Harper Property Management Corporation by the former tenants of a managed property in San Antonio, Texas. Trey Wilson represented the Defendant in the suit.

The tenants filed their suit when -- after vacating the property -- the property manager withheld a portion of the security deposit to pay for damage to a door frame. The damage occurred during the term of the lease, but the Tenants demanded that the landlord make and pay for the repairs. Citing a provision in the standard TREC lease form that requires tenants to pay for all repairs to doors, windows and screens, the landlord refused. Thereafter, the tenants vacated and filed suit claiming that their security deposit was wrongfully withheld.

After considering the lease, the Tenants' testimony and various other exhibits admitted into evidence, the Court granted a verdict in favor of the property management company, and denied all of the Tenants' claims.

Wilson Secures Dismissal of Tenants' Suit Against Property Manager and Owner

Trey Wilson has secured dismissal of a Bexar County District Court lawsuit seeking a declaratory judgment over the term of a Residential Lease Agreement, and the Tenants' right to occupy a San Antonio, Texas rental home. The Tenants of the property claimed that they entered a 3 year lease, while the Owner maintained that the lease was for a 1 year term. The Owner, having recently retired from the U.S. Air Force, desired to settle down in San Antonio, and permanently occupy the property he had been using as a rental during his various tours in the military.

The Owner and his property manager, Coldwell Banker D'Ann Harper Realtors Property Management, indicated that the Lease would not be renewed, and demanded that the Tenants vacate the property at the end of the 1 year term. Rather than vacate, the Tenants hired a lawyer, who sued both the Owner and Coldwell Banker D'Ann Harper Realtors. The Defendants retained Trey Wilson, who immediately went on the offensive.

After reviewing the condition of the property, and noting that the Tenants had committed several violations of the Lease, Wilson filed an eviction proceeding in the Bexar County Justice Court. The Tenants objected to the eviction proceeding, claiming that the disputes should be reserved for consideration by the District Court handling their previously-filed declaratory judgment suit. Bexar County Justice of the Peace Steve Walker disagreed, and conducted an eviction trial which lasted approximately 3 hours.

The Owner and Coldwell Banker D'Ann Harper Realtors Property Management prevailed in the eviction trial, with Judge Walker ordering the Tenants to vacate based upon breaches of the written Lease Agreement (and notwithstanding the pending district court lawsuit).

Following this victory in the Justice Court, and given the fact that the Owner was granted immediate possession of the rental property, the Tenants agreed to dismiss their district court lawsuit in exchange for a short extension of time in which to vacate the property, and a refund of their security deposit.

The district court lawsuit was then dismissed with prejudice, with all claims against the Owner and Coldwell Banker D'Ann Harper Realtors Property Management denied.

Landlord's Remedies When Tenants Abandon Leased Premises

As a real estate lawyer in San Antonio, I am frequently asked about a Landlord's options upon learning that a Tenant has moved-out without notice, or who simply abandoned the leased premises before a lease ends. The Texas Supreme Court has recognized four distict causes of action that a landlord may assert against a tenant who breaches a lease by abandoning the premises:

(1) maintain the lease and sue for rent as it becomes due;
(2) treat the breach as an anticipatory repudiation, repossess, and sue for the present value of future rentals reduced by the reasonable cash market value of the property for the remainder of the lease term;
(3)treat the breach as anticipatory, repossess, re-lease the property to a new tenant, and sue the original tenant for the difference between the contractual rent and the amount received from the new tenant; or
(4) declare the lease forfeited (if the lease so provides)and relieve the tenant of liability for future rent.

See Austin Hill Country Realty, Inc. v. Palisades Plaza, Inc., 948 S.W.2d 293, 300 (Tex. 1997).

However, it is important to remember that a landlord has a duty to mitigate its losses/damages when a tenant abandons the leased premises and stops paying rent. Id., at 295–300. This principle recognizes that a landlord who claims anticipatory breach has a duty to mitigate because the landlord’s claim is contractual in nature. Id. at 300.

Further, the Texas Legislature has codified the landlord’s duty to mitigate as section 91.006 of the Property Code. See TEX.PROP.CODE ANN.§ 91.006 (Vernon 2007). That same section prohibits, and makes "void," lease terms that attempt to exempt a landlord from a liability or duty to mitigate its losses. Id.