On Friday the Iowa Supreme Court released its opinion in Duck Creek Tire Service, Inc. and Midwest Mexican Connection, Ltd. v. Goodyear Corners, L.C., and has therein issued a warning to landlords (and “sub”landlords alike). The warning is simple (and rather commonsensical): If a landlord/lessor does not want to be held responsible for a breach of the covenant of quiet enjoyment caused by the actions of a paramount titleholder, the landlord/lessor should consider including such a provision in the lease.
The case involved a deep and convoluted web of leases, subleases, and assignments of interests therein, all related to a particular commercial property. I won’t even dare attempt to explain the details of this web without the graphical flowchart provided by the court in the opinion (proof that everyone likes flowcharts). Simply put, there was a primary lease for the property along with two additional subleases (not to mention the assignments of interests thereto). The tenant/lessee under the primary lease defaulted and the landlord/lessor under said primary lease terminated the lease with notification being sent to all sublessees and sub-sublessees that they no longer had a right to possession of the property. The sub-sublessees claimed that the sub-sublessor breached the contractual covenant of quiet enjoyment when the paramount titleholder (the landlord/lessor under the primary lease) terminated the primary lease (and thus the right of possession of all tenants/lessees, sublessees and sub-sublessees). Thus, the claim against the sub-sublessor was brought on only by the default of the lessee under the primary lease, which was really no fault of his own. However, as alluded to earlier, the court ruled that the explicit covenant of quiet enjoyment contained in the sub-sublease can still be deemed breached despite no fault on the part of the sub-sublessor in a situation such as this.
It is well known that there are many additional risks, concerns and issues related to subleasing arrangements (and even more so with sub-subleasing arrangements), and thus you should make sure you are aware of all risks, concerns and issues related thereto as either a sublessor or sublessee (or sub-sublessor or sub-sublessee) thereunder. Feel free to contact the firm for additional information and assistance in properly protecting and safeguarding yourself in such situations.