In its recent decision, Sears, Roebuck & Co. v. 69th Street Retail Mall, L.P., 2015 WL 5778622, the Pennsylvania Superior Court affirmed the liability of a commercial landlord on a claim of constructive eviction based on the cumulative effect of years of landlord neglect that ultimately rendered the property substantially unsuitable for the purpose for which it was leased, forcing the tenant to vacate the premises. The court’s acceptance of this collective approach – the "death by a thousand cuts" theory – to the constructive eviction inquiry in a commercial context constitutes a significant development in Pennsylvania law.
As background, Sears had operated its department store at the shopping center since 1988, pursuant to a lease with a prior landlord. 69th Street Retail Mall, L.P. (the Landlord) acquired the property in 2005. By this time, the lease was a below-market-value rental, and the Landlord sought to buy out Sears' remaining lease term to install a more lucrative tenant. After declining a February 2006 buyout offer, Sears alleged that the Landlord retaliated by failing to provide routine maintenance and ignoring repair requests, causing the property to fall into substantial disrepair. Subsequently, the Landlord repeatedly reneged on promises to repair and restore the condition of the premises and threatened Sears with default, should Sears exercise its right to self-help remedies under the lease.
Sears eventually vacated the premises in May of 2012, three years after it began issuing notices of default. The trial court's account of the property’s decrepit condition at the time Sears officially ceased operations described a range of defects, including: an ugly, unkempt building exterior with bricks falling from the façade, a rodent infestation, periodic sewage overflow, routine flooding, neglected landscaping, concrete debris falling from the parking garage ceiling, as well as deficient lighting and the regular occurrence of illicit activity, such as drug sales and prostitution, in the parking garage. Sears' claim for constructive eviction alleged that these incidents and issues of landlord interference so substantially impaired the utility of the premises as to render the property unsuitable for the purpose for which it was leased. The jury agreed, ruling that Sears was entitled to withhold rent for the remaining lease term at the time of abandonment.
On appeal, the Superior Court deemed it appropriate to consider instances of landlord interference collectively, based on their cumulative effect, to evaluate whether the tenant had met its evidentiary burden for a claim of constructive eviction. "Problems that might not constitute a constructive eviction were they isolated, rare and promptly addressed by the landlord may rise to a constructive eviction when they persist, remain unremedied and substantially interfere over time with the tenant’s quiet enjoyment of the leasehold." Additionally, the court rejected the notion that alleged landlord interference must be so severe that it becomes impossible for the tenant to use the premises in the manner contemplated by the lease.
The Superior Court decision clarified the legal standard for constructive eviction. Noting it to be one species of a violation of the lessee's right to quiet enjoyment, the court opined that "constructive eviction occurs when a lessor’s violation of a lessee’s entitlement to quiet enjoyment is so extreme as to interfere seriously with the lessee’s ability to use the leasehold as it was intended to be used, and the violation prompts the tenant to abandon the property within a reasonable amount of time." Further, the court found a business' commercial "attractiveness" to be protected by the tenant's right to quiet enjoyment. Citing the panoply of problems outlined in the record, the court held that the evidence presented was adequate for a jury to conclude that the deficiencies and non-responsiveness of the Landlord substantially deprived Sears of its beneficial enjoyment of the premises.
The court also addressed the issue of what constitutes a reasonable amount of time in the context of constructive eviction. Relying on Reste Realty Corp. v. Cooper, 251 A. 2d 268 (N.J. 1969), the court articulated a fact intensive, case-by-case approach to ascertain whether a tenant vacated the premises in a timely manner. The court recognized the risk and practical inconveniences associated with vacation and determined that a tenant should not be punished for exhibiting patience and exercising self-help, or other contractual remedies, in an attempt to resolve the issues and adhere to the lease. Further, "the scale of the premises and [tenant’s] operation" are relevant considerations; "[p]acking up a department store is not a weekend’s affair." In ruling that a jury could have concluded that Sears vacated in a reasonable amount of time, the court counseled judicial sympathy for a tenant’s predicament in evaluating constructive eviction claims.
The Sears decision presents a cautionary tale for commercial landlords moving forward. The key takeaway from the Superior Court’s opinion is the widened avenue of relief for commercial tenants raising claims of constructive eviction. Through its affirmation of landlord culpability based on the cumulative effect of years of landlord neglect, and its incorporation of a business' commercial “attractiveness” in the inquiry, the court signaled heightened landlord responsibilities and greater rights for tenants, in a significant departure from prior Pennsylvania case law. Additionally, the decision highlights the importance, for both landlords and tenants, of preserving communication records and documenting each and every maintenance issue, request and response in order to prevail at trial.