Can You Terminate a Commercial Lease because of a Property Defect?
When you lease property, whether it’s residential or commercial, you expect that the premises will be in a condition that allows you to either safely reside or conduct your business there. Though such warranties are almost never expressly stated in the language of a property lease, the state of New Jersey has recognized an “implied warranty of habitability” for residential leases. That warranty allows a tenant to stop paying rent and vacate the premises if there are defects that make the property “uninhabitable.”
The implied warranty of habitability in New Jersey (and across the country) has, however, generally not been extended to commercial leases. The courts typically consider commercial tenants to be in a better position to effectively bargain with a landlord. Courts have also expressed concerns that such an implied warranty would necessarily cause commercial landlords to increase rents, and commercial tenants to pass on the additional rents to their customers.
Nonetheless, a similar type of warranty, known as the “implied warranty of suitability,” has been applied in a number of states. Such a warranty has typically been used to allow termination of leases where there are:
- Continual water leaks in walls, ceilings and roofs
- Physical or structural defects in buildings or premises
- Malfunctions or defects in utilities or appliances, such as HVAC, electrical and plumbing
Though New Jersey was the first state to adopt something similar to the “implied warranty of suitability,” its application in the state has been extremely limited. In 1969, in the case of Reste Realty Corp. v. Cooper, the New Jersey Supreme Court found an “implied warranty against latent defects” in a commercial lease. However, the New Jersey Supreme Court has declined to expand that ruling in subsequent opinions. Nonetheless, an argument can be made that such a warranty has not been rejected in New Jersey.
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