Leases and the Covenant of “Quiet Enjoyment”
When property is leased, the tenant is entitled to “peaceable possession” of the leased premises. Sometimes that is termed “quiet enjoyment.” But, just exactly what does “quiet enjoyment” involve. At its core, the covenant of quiet enjoyment is a promise that, during the term of the tenancy, “the tenant shall not be disturbed in the enjoyment of the premises by the lessor or anyone claiming under him or by anyone claiming paramount title.” That was at issue in this case – a case involving two sub-leases containing an express covenant for quiet enjoyment and the assignment of those subleases.
When two assignees of sublessees (essentially sub-sublessees) were forced out of their rented premises by the termination of the underlying lease, they sued the superior leaseholders, asserting that they were expressly guaranteed the right to quiet enjoyment of the property under the sub-sublease. At trial, the court found that while the sublessees had assumed all of the obligations under the original lease and were entitled to the same rights as superior leaseholders, they were not at fault for the eventual termination of the underlying lease. The court concluded that since the sub-sublessees never signed “sub-subleases” agreeing to all of the terms of the original lease, they had no right to complain of the termination. Basically, the sub-sublessees were out of luck. The sub-sublessees appealed.
The Iowa Court of Appeals, while reiterating that the sub-sublessees were bound by the terms of prior leases, reversed. In Iowa, a covenant of quiet enjoyment is implied in every lease (in essence, a promise that “during the term of the tenancy, the tenant shall not be disturbed”). The purpose of a written lease is to give the tenant the right to possession of the property for the time specified in the lease. The sub-subleases signed by the sub-sublessees did contain the convenant of quiet enjoyment, thus, the sub-sublessees were entitled to possession for the specified time in this case.
On further review, by the Iowa Supreme Court, the Court focused on the difference between an assignment of a leasehold interest and a sub-lease of a leasehold interest. According to the court, “an assignment of a leasehold interest occurs when the lessee transfers its entire interest in the premises, for the unexpired term of the original lease, without retaining any reversionary interest.” In other words, when a lease is assigned, the assignee accepts both the benefits and the burdens of the lease and steps into the shoes of the original lessee. On the other hand, a sublease reserves a “reversionary interest” in the original lessee.
Procedurally, this was a complicated case, involving several transfers of the same leasehold interests. Here, the original lessor of the premises assigned its interests in the property to the sublessees (assignees). Through that assignment, the sublessees assumed all of the obligations of the lessor. The sublessees entered into a sub-sublease agreement with the sub-sublessees and before the lease expired a paramount title holder terminated the entire lease agreement.
The essential question, in the opinion of the Iowa Supreme Court, was whether the sub-sublessees could enforce the covenant of quiet enjoyment against the sublessees even if the breach was not the fault of the sublessees. In Iowa, the covenant of quiet enjoyment “runs with the land.” Thus, the sublessee, when they acquired the burdens and benefits of the original lease through an assignment, owed a duty to the sub-sublessees. Despite the fact that it was not the sublessees’ fault that the tenancy was terminated, the “eviction of a tenant by the holder of a paramount title is attributable to the tenant’s landlord and constitutes a breach of the covenant of quiet enjoyment, entitling the tenant to seek damages from its landlord.” Though the sub-sublessees had some knowledge of title problems with the property, the sublessees were not excused from their duties. The case was remanded, once again, to the trial court for an assessment of damages against the sublessees for failing to uphold the covenant of quiet enjoyment. Duck Creek Tire Service, Inc., et al. v. Goodyear Corners, L.C., No. 09-0999 (Iowa Sup. Ct. Apr. 8, 2011), aff’g., and rem’g., No. 0-092/09-099, 2010 Iowa App. LEXIS 270 (Iowa Ct. App. Apr. 8, 2010).
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