So, I spent most of last week climbing around and under the wreckage of Mantoloking, New Jersey (on the Barrier Islands so badly damaged by Sandy), trying to collect the pertinent facts for our clients’ insurance claims. On the day I’m writing this, Prince Harry himself has visited Mantoloking to witness the devastation firsthand. For some reason, the media paid more attention to his visit than mine. I need a new PR agent.
Visits from Royals aside, though, Sandy has spawned a number of interesting (and painful) legal issues. Suppose, for example, you own and lease out a building. Suppose the building lost power and heat for two weeks thanks to Sandy. Can tenants avoid paying the rent for that period, on the ground that they shouldn’t be forced to pay for something that they couldn’t use?
This was the issue recently faced by a New Jersey Court in Gardens at Maplewood v. Fowlin. A landlord sought to evict a tenant based on nonpayment of one-half of one month’s rent, representing the two weeks that the tenant could not use an apartment following Sandy. The tenant had withheld the rent, arguing that the apartment wasn’t habitable without power or heat.
The Court first discussed the implied covenant of habitability, writing that the covenant is “a covenant that, at the inception of the lease, there are no latent defects in facilities vital to the use of the premises for residential purposes because of faulty original construction or deterioration from age or normal usage. And further it is a covenant that these facilities will remain in usable condition during the entire term of the lease. In performance of this covenant the landlord is required to maintain those facilities in a condition which renders the property livable.” (Citations omitted.)
But the Court held that the covenant was insufficient to allow rent abatement because of Sandy, writing: “I do not believe that the parties in this case, as ‘fair and reasonable men,’ would have contemplated this type of situation, nor that if they had contemplated it, that the landlord would have agreed to have been responsible for the results of a situation such as ‘Sandy’…the lack of lights and heat (in this instance) was not the result of any ‘latent defects in facilities’ nor the result of a fault by the landlord (to maintain or repair) but rather a (hopefully) unique situation unquestionably beyond the power of the landlord to have reasonably avoided or corrected. Restoration of power…was within the control of the power supplier, rather than the landlord.”
What about requiring the landlord to have a generator handy? No, said the Court: “Although the landlord may have had a generator provided for the benefit of his tenant/s, the emphasis on this point is the word ‘reasonably’ – and I find it unreasonable to expect landlords to have generators installed for unforeseen events, such as ‘Sandy,’ except, perhaps, in a ‘luxury’ rental with a corresponding rent. That is not the situation here.”
This case is interesting because, in many instances, New Jersey courts stretch to protect the rights of consumers. Here, the Court refused to make the landlord an absolute guarantor of the usability of the rented space. The Court did, however, include that (not fully defined) loophole that, in certain instances (luxury rental with corresponding rent), a landlord might be required to supply an alternative power source.
A couple of additional observations about this situation. First, at our firm, we generally don’t get involved in matters until a dispute happens, and we don’t draft leases. Those who do that kind of work, though, might want to include language clearly providing that the landlord is not responsible for loss of power or heat beyond its control, and that the tenant will remain responsible for the payment of rent in such a circumstance. Second, if you’re a landlord, keep in mind that offsite utility outages are typically excluded or covered only on a limited basis by insurance policies. You may want to have your insurance consultant review your coverage program before problems happen to make sure that you’re adequately protected.
- Gene Killian