State courts disagree about whether commercial landlords have a duty to mitigate damages

/ Leaseholds

While it is settled now in almost all states that residential landlords have a duty to mitigate damages by attempting to relet the premises if the tenant leaves before the end of the lease term, courts are not in agreement about whether the same principle applies to commercial leases. When there is a duty to mitigate, it is generally nondisclaimable. Thus a liquidated damages clause that requires a defaulting tenant to immediately pay the rest of the rent due for the rest of the lease term will not be honored if it exceeds the amount of damages that would accrue if the landlord had made reasonable efforts to relet the premises. But Massachusetts courts do not apply this principle (either the duty to mitigate or the nonenforcement of liquidated damages clauses) in the context of commercial leases. See Cummings Props, LLC v. Hines, 217 N.E.3d 604 (Mass. 2023) (upholding a …

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Chemical manufacturer and seller may be liable for public nuisance and trespass when they know that chemical causes environmental harm but continue to sell it anyway

/ Nuisance, Trespass

The Delaware Supreme Court has held that Monsanto (the manufacturer and seller of PCBs) can be held liable for public nuisance and trespass when it knew PCBs caused environmental harm but continued to sell them anyway. State ex rel. Jennings v. Monsanto Co., 299 A.3d 372 (Del. 2023). While the trial court had held that Delaware did not recognize nuisance claims against product manufacturers or sellers, the supreme court reversed since the company had actively misled its customers and the public as to the dangerousness of the chemicals it was selling.

Real estate buyer entitled to specific performance when sellers mistakenly omitted a contingency from the sales agreement

/ Real Estate Transactions

Intending to buy a lot to build a new home, sellers put their house up for sale and signed a contract with buyers. Then the lot the sellers hoped to buy was purchased by someone else and sellers tried to back out of their promise to sell their home to buyers. Although the sellers had intended the sale to be contingent on their getting title to the now-unavailable lot, that contingency was not included in the sales contract for their home because the realtor that drew up the agreement left it out and sellers apparently did not notice that when they signed the agreement. The buyers wanted to go through with the deal and refused to accept damages instead; they sought specific performance of the real estate sales contract, and the Wyoming Supreme Court gave it to them.  Morningstar v. Robison, 527 P.3d 241 (Wyo. 2023). The trial court relegated …

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Arizona Supreme Court holds that the implied warranty in new home sales cannot be disclaimed

/ Consumer Protection, Real Estate Transactions

In an important decision, the Arizona Supreme Court held that buyers of new homes have a nonwaivable right to a warranty of fitness. Zambrano v. M & RC II, LLC, 254 Ariz. 53, 517 P.3d 1168 (Ariz. 2022). The court explained that allowing waivability would mean the end of the implied warranty since all builders would include such a waiver in their agreements and buyers would neither know to contest it nor have the power to get the buyer to change the contract terms. The dissent argued that “freedom of contract” should prevail and that it is important to give the parties the benefit of the bargain they made, whatever that is.

Prescriptive easements do not actually require “exclusive” use no matter what courts say

/ Adverse Possession, Easements, Servitudes

Many courts say that prescriptive easements can only be acquired if the use is “exclusive” among other elements. This is a mechanical holdover from the requirements for adverse possession where courts simply keep the same requirements and substitute “use” for “possession.” But it make no sense for an easement to be “exclusive” since the dominant estate owner retains whatever rights of use are not inconsistent with the easement. It is simply not how easements work for them to be exclusive of the land owner. If the landowner cannot use the easement in any way then the owner has lost title to the property. Of course, one can write an express easement to limit the freedoms of the land owner, but in general, the way easements work is to grant a limited use to another while the land owner retains all rights not inconsistent with that use. In effect, an easement …

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Tax foreclosures violate the takings clause if they government entity retains proceeds beyond the unpaid taxes

/ Real Estate Transactions, Takings

In an important case, the Supreme Court held in Tyler v. Hennepin County, 143 S.Ct. 1369 (2023), that it violates the takings clause for a municipality to foreclose on property for nonpayment of property taxes and to retain the value of the property that exceeds the unpaid taxes (with costs). The purpose of a tax foreclosure is to pay off the taxes owed. The equity in the property beyond that belongs to the homeowner (and/or the lender). In one sense, the ruling is unexceptional and tracks the goals of tax foreclosure laws (and other foreclosure laws in general). In a different sense, the opinion goes beyond other cases that have been held to be takings and could have significant consequences for mortgage foreclosures that are effected through court proceedings (judicial foreclosures). Most foreclosures do not result in paying of fair market value for the property, thereby (in my view, improperly) shifting …

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Covid-19 closure order does not excuse tenant from paying rent

/ Leaseholds

Applying New York law, the Second Circuit held that a business tenant was not excused from paying rent because of business closure order from the Governor of New York to protect the public from exposure to Covid-19 at the height of the pandemic crisis. In re NTS W. USA Corp., 2022 U.S. App. LEXIS 28811, 2022 WL 10224963 (2d Cir. 2022). The court refused to apply the defensive doctrines of “frustration of purpose” or “impossibility.” The court found that the frustration of purpose doctrine applies only when a catastrophic event renders the lease valueless to one of the parties. Impossibility arises when the inability to perform comes from an unanticipated event. In this case, the express terms of the business lease stated that the tenant had a duty to pay rent even if a condition arose if that condition was not in the landlord’s control. The leas also required payment even if the …

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Marketable title act does not prevent enforcement of reversionary interest in the root of title

/ Estates and Future Interests, Real Estate Transactions

The Ohio Supreme Court ruled that a reversionary interest in a deed donating a park to the city was not extinguished by operation of the state marketable title act. Cleveland Botanical Garden v. Worthington Drewien, 2022 Ohio LEXIS 2153 (Ohio 2022). When the park was donated to the city of Cleveland, it contained a possibility of reverter that would be activated if the city ever stopped using the property for public park purposes. The deed required the park to be “open at all times to the public” and to be used only for “park” purposes. The heir complained when the city’s lessee closed the park on Mondays, began charging admission to enter the park, and constructed and operated a parking garage on part of the property. The court first determined that the terms of the conveyance had not been violated because the city (and its lessee) had the power to create …

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NY court holds short term rentals violate a covenant limiting property to “single family residential purposes”

/ Servitudes

With continued disagreement among courts on this question, a trial court in New York has ruled that a covenant limiting property to “single family residential purposes” precludes an owner from renting to short term tenants, effectively preventing use of the property for Airnbnb (and similar) purposes. W. Mountain Assets LLC v. Dobkowski, 2023 WL 2398675 (N.Y. Sup. Ct. 2023).

Eighth Amendment prohibits punishing homeless people for using bedding supplies like blankets, pillows, or sleeping bags while sleeping on public lands when there are no available shelter beds

/ Homelessness, Trespass

In a straightforward application of the ruling in Martin v. City of Boise, 902 F.3d 1031 (9th Cir. 2018), the Ninth Circuit held that an Oregon city could not punish homeless people for “camping” on public property and using bedding supplies, such as blankets or pillows or sleeping bags, while doing so, when there were no available beds in city homeless shelters. Johnson v. City of Grants Pass, 50 F.4th 868 (9th Cir. 2023). The Eighth Amendment prohibits punishing someone for engaging in actions like sleeping that are necessary to human life when there is no place where they are legally entitled to do those things. Punishing someone in such circumstances effectively penalizes them for the status of being homeless and that violates rule of law norms. “The anti-camping ordinances [here] prohibit Plaintiffs from engaging in activity they cannot avoid,” the court explained. Nor can the city avoid this by criminalizing “using …

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