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Takeaways:
- Be sure to understand the lease obligations and responsibilities of the parties when purchasing, vacating, or surrendering a property.
- As applicable, confirm any voluntary surrender in writing with a Deed of Surrender or Termination Agreement, and ensure proper written communication is received acknowledging the surrender.
- Consult legal counsel about including lease provisions (e.g., Surrender of Possession, Continuous Operation Clause, etc.) that establish the parties’ responsibilities if the property is vacated prior to the lease’s conclusion.
- Consider using estoppel certificates to verify operations and the status of lease agreements when performing due diligence on a potential property.
- Work with legal counsel and other professionals to avoid breach of contract issues and potential liability.
Despite an operative and effective lease agreement requiring the tenant to maintain gas and electric utilities, a Wisconsin Federal District Court granted summary judgment in favor of the vacated tenant in a suit brought by the property owner for extensive damages to a commercial building caused by burst pipes in January of 2019.
Beginning in April 2015, defendant JTH Tax Inc. (“JTH”) entered a lease agreement with then-property owner Miriam Walters to rent commercial space for the operation of a tax services business. In August of 2018, with approximately eight months remaining on the lease’s term, JTH ceased operations and took steps to vacate the property ahead of the April 2019 lease end date. On August 16, 2018, JTH returned the keys to the daughter of the owner, therefore relinquishing access to the property. The daughter of the owner filled out a form titled “Verification of Keys Returned” acknowledging that the keys had been surrendered. Despite vacating the property, the lease agreement remained effective, and JTH continued to fulfill its monthly financial obligations.
In September of 2018, one month after JTH vacated the property, Lynn Properties, LLC (“Lynn”) purchased the property and assumed the rights as Landlord under the still-effective lease agreement. Prior to purchase, Lynn acknowledged that JTH had previously vacated the property and that no other party had access or possession of the property. Then, between January 31 and February 1, 2019, extremely low temperatures in Wisconsin caused pipes to burst at the property. The damage impacted the building to the extent that it ultimately needed to be demolished.
The damage prompted Lynn to sue JTH and its insurer, Hartford Fire Insurance Company, for claims alleging negligence and breach of contract based on JTH’s alleged failure to properly maintain the property. The court granted summary judgment in favor of the vacated JTH, finding that their return of the property to the property owner effectuated a legal surrender.
Lynn argued JTH did not legally surrender the property and should be liable based on JTH’s continued fulfillment of its financial obligations as tenant under the lease, and because the possibility existed for a sub-tenancy. The court disagreed, highlighting how the previous owner unambiguously accepted and acknowledged in writing the receipt of all JTH’s keys, and Lynn was made aware JTH vacated prior to purchasing the property in September of 2018, five months before the damage. The parties did not dispute Lynn received written notice as part of the purchase documents that no other person had possession or right of possession. In addressing JTH’s continued rent payments, the court found nothing in Wisconsin law supporting the contention that a tenant must cease paying rent to effectuate a legal surrender.
Lastly, Lynn argued JTH should be responsible because a provision in the lease specified that in the event of an abandonment, the tenant was in breach and should be responsible for ensuing damages. Finding Lynn’s argument unpersuasive, the court distinguished an ‘abandonment’ from the circumstances of JTH vacating the property with the owner’s consent and highlighted how Lynn failed to argue what JTH could or should have done differently to prevent the damage. Based on the undisputed facts, the court found that no reasonable jury would have found for plaintiff Lynn in its claims against JTH for breach of contract and negligence.
Lynn Properties, LLC v. JTH Tax Inc., 2022 WL 3908774 (W.D. Wis. Aug. 30, 2022)