This is Part 2 of a multi-part series of articles discussing the duties, rights and remedies of commercial real estate tenants in Illinois. Part 1, entitled “Getting It Right” discussed the importance of clarity in lease drafting, and the potential for unintended leasehold easements for parking, and other uses.
In March 2015, the Illinois Institute for Continuing Legal Education (“IICLE”) published its 2015 Edition practice handbook entitled: Commercial Landlord-Tenant Practice. To provide best-practice guidance to all Illinois attorneys, IICLE recruits experienced attorneys with relevant knowledge to write each handbook chapter. For the 2015 Edition, IICLE asked R. Kymn Harp and Catherine A. Cooke to write the chapter entitled Tenant’s Duties, Rights and Remedies. We were, of course, pleased to oblige. Although each of us represent commercial landlords at least as often as we represent commercial tenants, a clear understanding of the duties, rights and remedies of commercial real estate tenants is critical when representing either side of the commercial lease transaction.
The following is an excerpt (slightly edited) from our chapter in the 2015 Edition. We hope you find this excerpt, and the excerpts that will follow, informative and useful. Feel free to contact IICLE directly to purchase the entire volume.
The COVENANT OF QUIET ENJOYMENT
What Is It? — General Principles
It has long been the law in Illinois that a covenant of quite enjoyment is implied in all lease agreements. Blue Cross Ass’n v. 666 N. Lake Shore Drive Associates, 100 Ill.App.3d 647, 427 N.E.2d 270, 273, 56 Ill.Dec. 290 (1st Dist. 1981); 64 East Walton, Inc. v. Chicago Title & Trust Co., 69 Ill.App.3d 635, 387 N.E.2d 751, 755, 25 Ill.Dec. 875 (1st Dist. 1979); Berrington v. Casey, 78 Ill. 317, 319 (1875); Wade v. Halligan, 16 Ill. 507, 511 (1855).
A covenant of quiet enjoyment “promises that the tenant shall enjoy the possession of the premises in peace and without disturbance.” [Emphasis in original.] Checkers, Simon & Rosner v. Lurie Co., No. 87 C 5405, 1987 WL 18930 at *3 (N.D.Ill. Oct. 20, 1987). This does not mean, however, that no breach of the covenant of quiet enjoyment may be found in a leasehold without a finding that the lessor intended to deprive the lessee of possession. Blue Cross Ass’n, supra, 427 N.E.2d at 27. It simply means that a tenant must actually be in possession of the premises to claim a breach of the covenant of quiet enjoyment. If the tenant has already vacated the premises before the disturbance has commenced, no breach of the covenant of quiet enjoyment occurs. Checkers, Simon & Rosner, supra, 1987 WL 18930 at *3.
An implied covenant of quiet enjoyment includes, “absent a lease clause to the contrary, the right to be free of the lessors’ intentional interference with full enjoyment and use of the leased premises.” Infinity Broadcasting Corporation of Illinois v. Prudential Insurance Company of America, No. 86 C 4207, 1987 WL 6624 at *5 (N.D.Ill. Feb. 9, 1987), aff’d, 869 F.2d 1073 (7th Cir. 1989), quoting American Dairy Queen Corp. v. Brown-Port Co., 621 F.2d 255, 258 (7th Cir. 1980).
If the landlord breaches the covenant of quiet enjoyment, the lessee may remain in possession and claim damages for breach of lease. In such case, the measure of damages is the difference between the rental value of the premises in light of the breached covenant of quiet enjoyment and the rent that the tenant agreed to pay under the lease, together with such special damages as may have been directly and necessarily incurred by the tenant in consequence of the landlord’s wrongful act. 64 East Walton, supra, 387 N.E.2d at 755.
Although Illinois cases defining the precise scope of a covenant of quiet enjoyment are rare, BLACK’S LAW DICTIONARY, pp. 1248 – 1249 (6th ed. 1993) defines “quiet enjoyment” in connection with the landlord-tenant relationship as “the tenant’s right to freedom from serious interferences with his or her tenancy. Manzaro v. McCann, 401 Mass. 880, 519 N.E.2d 1337, 1341. (Ringing for more than one day of smoke alarms in an apartment building could be sufficient interference with the tenants’ quite enjoyment of leased premises to justify relief against the landlord.).”
HOW THE COVENANT OF QUIET ENJOYMENT MAY APPLY— CASE LAW
In Blue Cross Ass’n v. 666 N. Lake Shore Drive Associates, 100 Ill.App.3d 647, 427 N.E.2d 270, 273, 56 Ill.Dec. 290 (1st Dist. 1981), the First District Appellate Court discussed the covenant of quiet enjoyment in the lease as granting the tenant a right of quiet and peaceful possession and enjoyment of the whole premises and equated a breach of quiet enjoyment under a lease to a private nuisance. “A private nuisance in a leasehold situation is ‘an individual wrong arising from an unreasonable, unwarranted or unlawful use of one’s property producing such material annoyance, inconvenience, discomfort, or hurt that the law will presume a consequent damage.’ ” Id., quoting Great Atlantic & Pacific Tea Co. v. LaSalle National Bank, 77 Ill.App.3d 478, 395 N.E.2d 1193, 1198, 32 Ill.Dec. 812 (1st Dist. 1979).
The tenant had entered into a five-year lease on August 22, 1978, with a five-year renewal option, for approximately 53,000 square feet of the 15th floor of the building located at 666 North Lake Shore Drive in Chicago. The lease stated that the premises were to be used for computer installation and general office space, and the tenant expended in excess of $2,000,000 in leasehold improvements, installed approximately $6,000,000 in computer equipment, and was fully operational in August 1980.
In April 1979, the building was purchased by a new owner for the purpose of converting it to a mixed-use residential, commercial, and office facility. In August 1979, the new owner advised the tenant that the renovation program required alternations in the plaintiff’s leasehold in the form of physical penetrations for installation of plumbing, ventilation, and electrical risers to service the condominium and office areas on floors above and below the tenant’s leased premises. The tenant refused to permit penetrations into the plaintiff’s leased space. Notwithstanding the tenant’s refusal, the landlord proceeded with construction and penetrated the tenant’s space for installation of the risers in accordance with the landlord’s renovation plans. The tenant sued to obtain a preliminary injunction, but the trial court declined to issue injunctive relief. The tenant appealed.
On appeal, the appellate court reversed the trial court, stating: “Paragraph 42A of the lease expressly grants (tenant) the right of quiet and peaceful possession and enjoyment. The meaning of this clause is not controverted. (Tenant) had a right to seek injunctive relief for its breach when the conduct of (landlord) substantially interfered with (tenants’) use and enjoyment of the premises.” 427 N.E.2d at 273.
PRIVATE NUISANCE DISTINGUISHED
Similar to breach of the covenant of quiet enjoyment is the tort of maintaining a nuisance. In Great Atlantic & Pacific Tea Co. v. LaSalle National Bank, 77 Ill.App.3d 478, 395 N.E.2d 1193, 1198, 32 Ill.Dec. 81 (1st Dist. 1979), the First District Appellate Court stated:
A private nuisance is a nontrespassory invasion of another’s interest in the private use and enjoyment of land. . . . It is an individual wrong arising from an unreasonable, unwarranted or unlawful use of one’s property producing such material annoyance, inconvenience, discomfort, or hurt that the law will presume consequent damage. . . . What is an unreasonable use of one’s property under the circumstances, is determined by weighing the following factors:
(a) The extent of the harm involved;
(b) the character of the harm involved;
(c) the social value that the law attaches to the type of use or enjoyment invaded;
(d) the suitability of the particular use or enjoyment invaded to the character of the locality; and
(e) the burden on the person harmed or avoiding the harm.
. . . The weight that each factor is accorded is relative to the circumstances of the case.” [Citations omitted.]
SCOPE OF INVASION
Although Blue Cross Ass’n, supra, involved a physical invasion of the tenant’s space, physical invasion is not necessarily required. A tenant has a right to the full use and enjoyment of the leased premises without the landlord’s intentional interference, absent a lease clause to the contrary. Infinity Broadcasting, supra. By equating a breach of the covenant of quiet enjoyment to a private nuisance, the Illinois Appellate Court, in Blue Cross Ass’n, supra, inferred that the breach could be a nontrespassory invasion into the tenant’s leased premises.
Query: Do the following activities by a landlord constitute a breach of the covenant of quiet enjoyment, absent an express lease clause permitting these activities, if the activities cause material annoyance, inconvenience, discomfort or hurt to the commercial tenant?
√ Loud construction on adjacent or nearby premises during normal business hours?
√ Prolonged disruption of elevator service or other access to the premises during normal business hours?
√ Failure to maintain working HVAC suitable to the tenant’s commercially reasonable use of the leased premises?
A landlord in a multi-tenant building would be wise to include as part of the landlord’s “standard boilerplate” provisions, a modified covenant of quiet enjoyment granting landlord the right to reasonably penetrate the leased premises as necessary, appropriate or convenient to install and maintain plumbing, electrical, telecommunications, fire suppression, HVAC and other components and systems as determined by landlord, in landlord’s sole discretion, to be necessary, useful or convenient to the preparation, use and/or occupancy of other portions of the building, and to conduct construction activities in adjacent or nearby premises, and to temporarily modify the means and/or configuration of access to the premises for safety or convenience, so long as such activities do not unreasonably interfere with commercially reasonable use of the leased premises by tenant for the purposes for which the premises are leased. If the landlord fails to include such a provision, the tenant may have to right to stop landlord’s work.
LIGHT AND AIR
The covenant of quiet enjoyment does not guarantee a tenant a right to unobstructed light and air. In Keating v. Springer, 146 Ill. 481, 34 N.E. 805, 807 (1893), the Illinois Supreme Court held that “a landlord will not be liable for obstructing his tenant’s windows by building on an adjacent [lot], in the absence of any covenant or agreement in the lease forbidding him to do so.”
Similarly, in Baird v. Hanna, 328 Ill. 436, 159 N.E. 793, 794 (1927), the Illinois Supreme Court held that “the simplest rule, and that best suited to a country like the United States, in which changes are continually taking place in the ownership and in the use of lands, is that no easement of light can be acquired without the express grant of an interest in, or covenant relating to, the lands over which the right is claimed.”
TELEVISION AND RADIO SIGNALS
A claimed right to unobstructed transmission of television and radio signals has been held to the same standard and analysis as a claimed right to unobstructed light and air. While not actually a landlord-tenant case, People ex rel. Hoogasian v. Sears, Roebuck & Co., 52 Ill.2d 301, 287 N.E.2d 677 (1972), is instructive in its clarification that claimed easements for television and radio signals will be governed by the same analysis as claimed easements for light and air.
In Hoogasian, certain villages in the Chicago area sued to enjoin Sears from constructing the high-rise office building that became known as “Sears Tower” (now Willis Tower), contending that the tower would distort television reception and depress real estate values, and therefore constitute a nuisance. The Illinois Supreme Court upheld dismissal of the case, determining that the same standard applicable to light and air applies to television and radio signals, and applied the general rule that a landowner has no legal right to the free flow of light and air across the adjoining land of his or her neighbor. See also Infinity Broadcasting Corporation of Illinois v. Prudential Insurance Company of America, No. 86 C 4207, 1987 WL 6624 at *5 (N.D.Ill. Feb. 9, 1987), aff’d, 869 F.2d 1073 (7th Cir. 1989).
DAMAGES FOR BREACH OF THE COVENANT OF QUIET ENJOYMENT
In 64 East Walton, Inc. v. Chicago Title & Trust Co., 69 Ill.App.3d 635, 387 N.E.2d 751, 25 Ill.Dec. 875 (1st Dist. 1979), the landlord did not contest that there was a breach of the covenant of quiet enjoyment but did contest the amount of damages awarded. In analyzing the scope of damages a tenant could recover for breach of the covenant of quiet enjoyment, the court stated:
The relevant law, although by no means plentiful, is clear. A covenant of quiet enjoyment is implied in all lease agreements. . . . If the lessor breaches the covenant, the lessee may remain in possession and thus be liable for rent but still maintain an action for damages. . . . The measure of damages in such a case is the difference between the rental value of the premises involved and the rent which the lessee has agreed to pay, together with such special damages as may have directly and necessarily occasioned to the lessee by the lessor’s wrongful act. . . . Thus, we must examine the wrongful acts of defendant and determine whether they directly and necessarily occasioned the damages awarded, keeping in mind that a trial court’s assessment of damages will be set aside only if it is manifestly erroneous. (Citations omitted.) 387 N.E.2d at 755.
Generally speaking, a breach of a covenant of quiet enjoyment is a breach of a contractual covenant contained (or implied) in a lease, constituting a cause of action against a landlord. If the “material annoyance, inconvenience, discomfort, or hurt” is caused by a nearby property owner or cotenant, the proper cause of action against such adjacent property owner or cotenant is likely “maintaining a private nuisance” rather than a breach of any covenant of quiet enjoyment, since, under those circumstances, there is no privity of contract through which a “covenant” of any sort might arise.
The covenant of quiet enjoyment, while implied in all leases, is a covenant often expressly stated in the so-called “standard boilerplate” provisions of a commercial lease. As a contract covenant, it can be modified and adapted to the needs of the landlord and tenant by appropriate and careful drafting. Had the landlord in Blue Cross Ass’n, supra, included in the lease appropriate language granting it the right to enter upon and penetrate the tenant’s space for the purpose of installing plumbing, ventilation and electrical risers as determined by landlord to be reasonably necessary for the build-out and use of other portions of the building, no breach of the covenant of quiet enjoyment would have likely occurred. As noted by the court, a breach of the covenant of quiet enjoyment requires an intentional interference with a tenant’s full enjoyment and use of the leased premises which interference is unreasonable, unwarranted or unlawful. If the lease had included a suitable clause or provision expressly permitting the landlord to penetrate a portion of the leased space to install plumbing, ventilation, electrical risers and other systems to serve other portions of the building, no breach of the covenant of quiet enjoyment would have occurred.
If you are a property owner/developer planning to reconfigure a multi-tenant commercial property, or planning an adaptive reuse of commercial property encumbered with existing leases, proper due diligence requires a close examination of existing leases to confirm your rights to implement your development plan. If there is a risk of violating the covenant of quiet enjoyment, a strategy to mitigate that risk should be developed as part of the overall development plan. Otherwise, you may find yourself unable to proceed with your development plan, as existing commercial tenants enjoin implementation to your potential extreme financial detriment.
Thanks for listening,
R. Kymn Harp and Catherine A. Cooke
COMING UP . . .
In Part 3 of this series, we will discuss Constructive Eviction—including the rights and remedies available to a commercial tenant who is constructively evicted by its landlord.