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the prior tenant and with eviction procedures, the landlord is almost surely the cheaper evictor. For leases of agricultural land, where the tenant is likely to be familiar with the area and the identity of the prior tenant, and the landlord may be an absentee, the tenant may be the cheaper evictor. This illustrates the difficulty of having a single set of default rules that apply to all types of leases. It also may explain why the jurisdictions are divided as to the proper rule.
Models of the Lease Contract
If leases were always construed like ordinary bilateral contracts for the sale of goods or services, there would be little reason to study the contractual aspect of leasing as a distinct topic. Lease law would simply be an application of ordinary contract law. Unfortunately, things are not so simple. Lease law initially developed at a time when contract law was different from what it is today. Perhaps because of heightened respect for stare decisis in matters involving property rights, courts have been slow to update the understanding of the contractual aspect of leasing law. One can distinguish three phases in the evolution of the contractual model in lease law.5
The first phase conceived of the lease as a bundle of independent covenants or promises. Take a very simple lease in which L promises to transfer possession of Blackacre to T for three years, and in return T promises to pay L $100 per year in rent. The promise to provide possession and the promise to pay rent were originally regarded as independent of each other. Thus, if a foreign invader seized Blackacre, ousting T from possession, T was still obligated to
5.See generally Roger A. Cunningham, The New and Statutory Warranties of Habitability in Residential Leases: From Contract to Status, 16 Urb. L. Ann. 3 (1979); Mary Ann Glendon, The Transformation of American Landlord-Tenant Law, 23 B.C. L. Rev. 503 (1982).
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pay rent to L.6 Or, if T stopped paying rent, L was still obligated to provide T possession. The remedy for breach of any of the independent covenants, as was generally the case in actions at common law, was an award of damages. The one exception to this rule was if the landlord breached the so-called covenant of quiet enjoyment— the promise to provide possession to the tenant—by ousting the tenant during the term of the lease. Ouster by the landlord excused the tenant from further payment of rent, until the ouster was cured.
The model of independent covenants had a number of harsh consequences for both landlords and tenants. If the tenant abandoned the property and stopped paying rent, the model required the landlord to let the property stand idle while periodically suing the tenant for damages—often to no avail if the tenant was insolvent or had disappeared. Or, if the landlord breached covenants regarding the condition of the property, such as a covenant to provide heat, the tenant’s only recourse was to shiver and sue for damages.
In the second phase of the evolution of leasing law, which we can call the transitional model, courts and legislatures responded to these sorts of problems by adopting rules and doctrines designed to ameliorate the harshness of the independent covenants model, without abandoning its logic. The transitional model developed several rules that remain important today. To provide relief to the landlord faced with a defaulting and potentially insolvent tenant, courts permitted landlords to insert clauses in leases that allowed landlords to reenter and relet property upon default by the tenant. In effect, the landlord could elect to terminate the lease in the event of default. To cut off the tenant’s liability for rent when the tenant had abandoned and the landlord took steps to reenter, courts developed the surrender doctrine. This treated certain actions by the landlord, such as accepting the keys when proffered
6. See Paradine v. Jane, Aleyn 27, 82 Eng. Rep. 897 (K.B. 1647).
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by the tenant, as an implied release of further liability for rent. Again, surrender acted as a form of termination of further lease obligations. And to provide some relief to tenants faced with intolerable conditions created by a landlord’s breach of a covenant to repair, provide heat, or control the behavior of other tenants, the courts developed the doctrine of constructive eviction. This built on the rule that breach of the landlord’s covenant of quiet enjoyment would excuse further payment of rent, by holding that landlord breaches that made conditions so intolerable as to require the tenant to vacate were tantamount to an actual eviction. This doctrine, too, effectively permitted early termination of the lease.
Beginning in the middle years of the twentieth century, a third phase developed, in which courts began to conceptualize leases as ordinary bilateral contracts, in which promises are regarded as being mutually dependent. Under modern contract law, a material breach by one party—nonperformance that is significant enough to count as a failure of a condition of the exchange—gives rise to a variety of remedial options for the other party, including rescission of the contract. Applied to leases, this would mean, for example, that if the landlord promised to maintain an elevator in good working order, and it remained broken for some time, the tenant could argue that this was a material breach justifying rescission by the tenant; that is, the tenant could walk away from the lease without liability. Adoption of modern contract law would also mean that a duty to mitigate damages would be implied in all leases. This would mean that a landlord would have a legal duty to seek a substitute tenant in the event of abandonment by the original tenant. Perhaps most significantly, modern contract law might suggest that leased property includes an implied warranty of fitness for the tenant’s intended purpose, by analogy to contracts for the sale of goods.
Although the third phase in understanding the contractual aspect of leases has made substantial inroads, it has failed completely to vanquish the rules developed in the first two phases. Adoption of the third model remains selective. For example, in many states the duty to mitigate damages applies to residential leases,
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but not to commercial leases. Similarly, in most jurisdictions there is an implied warranty of habitability that applies to residential leases, but there is no implied warranty of fitness for intended purposes in commercial leases. Moreover, even where the third model has been expressly adopted, courts tend to allow parties to plead doctrines developed in the second or transitional phase in the alternative. For example, a residential tenant can allege breach of the implied warranty of habitability (a third-phase doctrine) and constructive eviction (a second-phase doctrine) in the alternative. As a result, the contractual aspect of lease law, which in principle could be simple and little different from ordinary contract law, is highly complicated and contains many elements unique to lease law.
Implied Warranty of Habitability
Perhaps the most controversial development in leasing law in recent years has been the widespread adoption of an implied warranty of habitability in residential leases. As noted above, during the transitional period between the model of independent covenants and the modern trend toward adoption of dependent covenants, courts developed the doctrine of constructive eviction. This relieved tenants of all liability under the lease if the conditions of the premises deteriorated so badly that the landlord had in effect ousted the tenant. The doctrine generally required tenants to abandon the property to claim constructive eviction, which obviously posed very severe risks for the tenant. If the courts concluded that constructive eviction had not been established, then the tenant could be held liable for all rent due and owing during the period when the tenant was out of possession. There is also confusion in the case law about whether the tenant must prove the breach of some specific lease provision by the landlord, such as a covenant to repair or provide heat, to establish constructive eviction, or whether it is enough that conditions are so bad that any “reasonable” person would be forced to vacate.
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In addition to constructive eviction, other doctrines developed in the transitional period also provided some relief for tenants. If the landlord knew or should have known about some defect in the condition of the property, and failed to disclose this to the tenant before the tenant took possession, some courts permitted the tenant to sue on grounds of fraud or implied misrepresentation.7 Also, leases of furnished houses or apartments for short terms have long been held to include an implied warranty of habitability.8 Generally speaking, however, unless constructive eviction or one of these narrow doctrines applied, courts in the transitional phase applied a rule of caveat lessee—let the tenant beware.
In a brief period beginning in the late 1960s, nearly all states overturned the rule of caveat lessee and replaced it with an implied warranty of habitability (IWH), at least for residential leaseholds. Two distinct legal theories were advanced in support of this rapid revision in leasing law.9 One relied on the adoption of housing codes after World War II by most municipalities. Courts reasoned that the codes were intended to define the minimal quality of rental housing in the community, and that every lease is conclusively assumed to incorporate the provisions of the code as implied lease terms. The other theory relied on the development of products liability law and the extension of tort liability to manufacturers for defects in products they sell, even if the product has passed into the hands of someone with whom the manufacturer has no direct contractual relationship. Products liability, in effect, imposes an implied warranty of quality that runs with the product, and courts reasoned that a similar warranty should be implied in residential leases.
7.See, e.g., Faber v. Creswick, 156 A.2d 252 (N.J. 1959).
8.See, e.g., Ingalls v. Hobbs, 31 N.E. 286 (Mass. 1892).
9.See Javins v. First Nat’l Realty Corp., 428 F.2d 1071 (D.C. Cir. 1970) (seminal decision discussing both theories).
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Both theories present a number of unresolved issues, many of which have not been addressed by courts. What exactly does the IWH guarantee? Under the housing code theory, the provisions of the codes would seem to define the duty, but some codes are highly precise, and others are vague and general. Much residential housing, especially in rural and unincorporated areas, is not governed by any code. Does this mean this housing is not subject to the IWH? Courts have said that not every code violation violates the duty, only “material breaches” that affect health or safety, and that judges have “wide discretion” in determining whether the conditions in any given rental unit amount to a material breach.10 The products liability theory provides even less guidance. As precedents slowly accumulate, the content of the warranty should become clearer, but local conditions (custom again) make variation inevitable, and prevent relying on precedents from other jurisdictions as sure guideposts.
The IWH also fits awkwardly with the modern trend to construe leases as ordinary bilateral contracts. The fit would be good if the IWH were regarded as a default rule, subject to disclaimer in the lease by the parties. In the context of sales of goods, there is generally an implied warranty of fitness for intended purposes. But sellers of goods are permitted to disclaim this warranty by specifying that the good is being sold “as is”; significantly, the same rule applies under the Uniform Commercial Code for leases of personal property (such as cars or equipment).11 Most courts and legislatures that have adopted the IWH for residential housing, however, have insisted that the warranty is not disclaimable, but rather is binding on landlords and tenants alike. This is in keeping with the housing code and products liability theories, because neither public regulations nor tort
10.Jablonski v. Clemons, 803 N.E.2d 730, 733 (Mass. App. Ct. 2004).
11.See UCC § 2-315 (implied warranty of fitness for particular purpose); id. at § 2-316(3)(a) (permitting warranty to be disclaimed); id. at §§ 2A-213, 2A-214(3) (adopting similar provisions in the context of leasing of personal property).
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duties to third parties can be disclaimed by contract. Perhaps the best contractual analogy is consumer protection law, where we do sometimes find nondisclaimable terms designed to protect relatively uninformed consumers. But like consumer protection law, nondisclaimability creates a disconnect between leasing law and the law’s general treatment of other bilateral contracts.
At a policy level, a number of justifications have been offered for the binding and nonwaivable IWH. Perhaps the one that enjoys the widest support is asymmetric information. In a typical residential tenancy, the landlord knows more about the condition of the property than a prospective tenant, and the landlord ordinarily has better information about the requirements of the law and the meaning of the provisions of the lease (which in residential tenancies is nearly always drafted by the landlord). By guaranteeing a minimal standard of quality, and making this nondisclaimable by fine print in the lease, the IWH corrects for this asymmetric information. The idea is that if both parties were fully informed, the tenant would insist on, and the landlord would agree to, a lease that includes the IWH.
More controversial is the idea that the IWH is justified because of unequal bargaining power between landlords and tenants. Unequal bargaining power is an ambiguous concept, and in many applications it may simply refer to asymmetric information, already discussed. To the extent it goes beyond the idea of asymmetric information, the unequal bargaining power rationale may depend on the vacancy rate in the relevant market. If the vacancy rate is low, then there will be many prospective tenants chasing few available units, and landlords will be in a position to drive hard bargains, including disclaiming any warranties of quality. If the vacancy rate is high, which is not unheard of in cities where developers have overbuilt or population is declining, then landlords will be in a weak bargaining position and may be willing to be flexible about lease terms. Many of the cases and commentaries assume that vacancy rates are always low, especially for low-income tenants. This is probably a safe assumption in cities where new residential housing
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construction has been restricted—either by limited available land, or strict zoning laws, or rent controls, or some combination of these factors (New York City suffers from all three). But in other cities and towns, such as those experiencing falling population, the assumption is open to question.
Another way to think of unequal bargaining power is to ask whether landlords have market power, in the sense of being able to affect prices by adding or withdrawing units from the market. If so, we would expect them to raise prices to supracompetitive levels. But whether such a monopolist would choose to lower quality as opposed to reducing supply and raising prices is more doubtful, quite apart from the problem of identifying the relevant localized market power in the first place. If regulators had perfect information about such localized market power (if any), they could use devices, such as rent control and conversion control, to prevent artificial supply restriction on the part of the monopolist, or regulate the quality dimensions furnished by the local monopolist under a fine-grained version of the IWH. But the informational assumptions here seem quite heroic.
The most controversial justification for the binding IWH is that it makes low-income tenants better off, and hence produces a more equitable distribution of wealth. This justification is highly debatable if the IWH is introduced in a rental market where landlords are otherwise free to make compensating adjustments, such as raising rents or withdrawing units from the market. If the IWH increases the quality of housing, demand for units may go up, and rents may increase. Alternatively, if coming into compliance with the IWH costs landlords money, the supply of housing may decline, through conversions to condominiums or abandonment, also causing rents to increase. If either or both of these forces is in play, then the question becomes whether the improvement in housing quality is worth more to low-income tenants than the higher rents they must pay. Various elaborate arguments have been advanced as to why ordinary laws of supply and demand may not apply in the rental housing market, but