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Retail Leasing: The Nuances of Nuisance

07/16/2014

Imagine that you are handling the retail leasing in a shopping center. Prospective tenants include a trendy clothing store that plays loud music, an art gallery which intends to hold after-hours parties, a nail salon, an outdoor retailer that allows pets on the premises, a sandwich shop which bakes its own bread, and a hot new creole restaurant which has long waits for tables. The respective leases for these tenants will generally provide that each tenant may quietly have, hold and enjoy the leased premises during the lease term. Additionally, under Colorado law, unless expressly agreed otherwise, there is an implied covenant of quiet enjoyment in every lease of real property. Western Stock Center, Inc. v. Sevit, Inc., 578 P.2d 1045, 1051 (Colo. 1978). A question arises, however, as to how the landlord upholds this covenant when faced with differing uses in a shopping center.

All of these tenants may be desirable tenants. Yet, each tenant’s respective use poses a risk that noise, odors, waste, loitering or other nuisance related to the tenant’s occupancy and use of the premises will negatively affect the other tenants or violate local ordinances. This may create liability for the landlord under law or based on the breach of its lease obligations to provide quiet enjoyment. However, landlords can minimize the risks and liabilities associated with potential tenant nuisances through good leasing, planning on the front end, and timely and effective response to tenant nuisance complaints during the lease term.

Most leases include a provision which prohibits tenants from engaging in any public or private nuisance or doing acts which disturb the quiet enjoyment of other tenants. They also frequently contain a provision absolving the landlord of liability for the acts of other tenants in the shopping center to the extent allowed by law. These are both important provisions; nevertheless, they are not always enough to protect the landlord from nuisance claims. In a multi-use retail leasing environment, it is necessary to be clear with tenants during the leasing process as to what is and is not allowed on the property and to timely enforce shopping center rules. Otherwise, a landlord may be subject to costly disputes.

For example, the landlord should have shopping center rules that are incorporated into every lease. These rules should cover sound, odor, hours of operation, after-hours events, music, pets, loitering, use of the parking lot, and other issues affecting the everyday operation of the shopping center. These rules must be uniformly applied to all tenants and should be very clear. For example, it may not be enough to require a tenant to prevent unpleasant odors from emanating from a restaurant. Tenants should be required to prevent all odors from emanating from their premises. An odor that may be pleasing to one person, such as the smell of baking bread, may be intolerable to the neighboring tenant. Likewise, one tenant’s signature music may be detrimental to the neighboring tenant’s business. Rules regarding sound leakage should be clear and consistent.

In situations such as noted above, it is important for the landlord and tenant to work together during the leasing process so that both are clear on the expectations for the property. For example, it is inevitable that a restaurant will cause orders. Consequently, it is important for the landlord to include language regarding grease traps, ventilation systems and garbage disposal in the lease that will minimize safety hazards, odor leakage and other nuisances. The lease should also provide the landlord with the right of entry and repair in the event the tenant does not adequately maintain its equipment. Provisions such as these help landlords fulfill their obligations to other tenants.

Alternatively, in the case of the teen clothing shop that plays loud music in its stores, the landlord should work with the tenant on the front end to ensure that the tenant will comply with property rules about noise and that the build-out is conducted to minimize sound leakage. If these issues are not properly dealt with, the landlord may find itself involved in expensive litigation involving the offending tenant and neighboring tenants. The offending tenant may believe that the landlord is breaching the lease by prohibiting it from playing its signature music, while neighboring tenants may make claims for breach of contract, nuisance and constructive eviction.

While sounds and odors are two of the most common nuisances in a shopping center, the landlord may also face nuisance claims relating to loitering, alcohol consumption, waste disposal, criminal activity and other activities that may occur on the property. Even legitimate and desirous business activities may give rise to potential nuisances. Consequently, it is important to have good lease documents in place to clearly identify the tenant’s and the landlord’s rights and responsibilities, to minimize the landlord’s liability, and to permit the landlord mechanisms for addressing potential nuisances in a timely and effective manner.

Originally published in the Colorado Real Estate Journal.

ABOUT THE AUTHOR

Bethany A. Johnson

Attorney

Nicholas M.P. Reckman

Attorney

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