Duty of Care Turns on Contract...and Letter of Intent

A recent Iowa Court of Appeals decision should alert landlords of all kinds to their potential premises liability to third parties. Although the basic Iowa rule is that a lessor is not liable for injuries occurring after a lessee has taken possession of the property, there are a number of exceptions to the rule. In this case, the court found that the corporate landlord did have a duty of care toward the third party because it had (1) retained some control over the property and (2) contractually agreed to keep the premises in “good repair.”

The property at issue was a 30,000 square foot space that had once housed a supermarket. The owner leased half of the property to a videogame company, which used the space to assemble and disassemble videogames. The short-term lease provided that the tenant would use 15,000 square feet of the property, but it did not specify which portion of the property it would use. The lease also stated that the tenant took the property “as is,” except that the landlord was to keep the ceiling, floors, lighting, and other fixtures in “good repair.” The lease continued, “Landlord shall not be liable for failure to make any repairs or replacements unless Landlord fails to do so within a reasonable time after written notice from the Tenant.”

It was undisputed that the ceiling and lighting fixtures were in poor condition when the tenant took possession.  It was also undisputed that the tenant did not ask the landlord to make repairs. Shortly after the tenant began occupying the property, several lighting fixtures fell from a drop ceiling onto an employee of the tenant. She sued the landlord, alleging that she suffered serious injuries from the impact.

The district court granted summary judgment for the landlord, finding that it owed no duty of care to the employee under Iowa law. On appeal the Court of Appeals reversed. The court stated that with control comes a duty of care. Because the landlord had not assigned the tenant to a particular area, and had retained the ability to lease 15,000 square feet of the property, the court found that a material question of fact existed as to whether the employee was injured in an area subject to joint control (although the court stated elsewhere that a duty of care did arise because the landlord retained control).

The court also went on to find that the landlord had accepted a duty of care by contractually agreeing to keep the ceiling and lighting fixtures in good repair. The court rejected the landlord’s arguments that the tenant agreed to occupy the property “as is” and that the duty to repair did not arise under the contract because the tenant did not notify the landlord of the need for repair. The court looked to an earlier letter of intent signed between the parties and found that the parties contemplated that the landlord would make the lighting and ceiling in “good and safe working order” prior to the tenant’s occupancy and would continue to keep it in good repair throughout the lease term.  Having found a duty of care, the court remanded the case to the district court for trial.

This case should remind parties to clearly set forth their wishes in all written agreements. Here, despite a lack of ambiguity, this court looked beyond the clear language of the lease to establish intent introduced through a letter of intent. This should perhaps warn landlords that a court may be inclined to find a duty of care (so as to allow recovery by an injured party) where at all possible.  

Benson v. 13 Associates, LLC, No. 14-0132 (Iowa Ct. App. Feb. 11, 2015).