On December 5, 2013, the Iowa Court of Appeals upheld a district court ruling prohibiting a landlord of commercial lease space from entering upon the leased premises without the consent of the tenant. The Court's decision in Alta Vista Properties, LLC v. Mauer Vision Center, P.C., No. 3-1017/13-0496, is an important reminder to landlords and tenants to carefully review and consider all terms of a proposed lease prior to signing on the dotted line.
The facts of the case are simple. Mauer Vision Center ("Mauer") entered into a lease with I4NI, LLC for commercial office space. Among other things, the lease contained the following provision:
Landlord, during the last ninety (90) days of this Lease, or any extension, shall have the right to maintain in the windows or on the building or on the premises a "For Rent" or "For Sale" sign, and Tenant will permit, at such time, prospective tenants or buyers to enter and examine the premises.
The lease further provided:
Landlord covenants that Landlord's estate in said Premises is in fee simple; and that the Tenant on paying the rent herein reserved and performing all the agreements by the Tenant to be performed as provided in this Lease, shall and may peaceable have, hold and enjoy, the non-exclusive use of the Leased Premises for the term of this Lease.
I4NI subsequently sold the leased property to Alta Vista Properties ("Alta Vista"). Alta Vista later contacted Mauer requesting permission to enter upon the leased premises for purposes of showing the property to prospective buyers. Mauer refused. Alta Vista was unable to sell the property, and sued Mauer, asserting that Mauer's refusal to permit Alta Vista to show the property to buyers undermined Alta Vista's efforts to sell the property, causing damage to Alta Vista. The district court ruled in favor of Mauer, and the Iowa Court of Appeals affirmed.
The Iowa Court of Appeals first determined that the meaning of the provision of the lease permitting Alta Vista to access the leased premises for purposes of showing it to prospective buyers was plain and unambiguous: Alta Vista had such right of entry only during the last ninety days of the lease with Mauer.
The Court then rejected Alta Vista's argument that the "non-exclusive use" provision granted to Alta Vista a contractual right to access the property notwithstanding the provision in the lease permitting the landlord to show the property to prospective buyers during the last 90 days of the lease. Applying basic rules of contract interpretation, the Court determined that the non-exclusive use provision did not override the 90-day provision. It noted that "the term ‘nonexclusive use' is a recognition of the rights to access retained by [Alta Vista]," but that absent reservation of a right of access to show the property to prospective buyers at a time other than the last 90 days of the lease term, the express terms of the lease gave to the tenant the right to "peaceably have, hold and enjoy" the use of the leased premises.
Finally, the Court refused to recognized a general implied right of access to landlords of commercial leases. It noted that the "well-established and accepted" rule in Iowa is that a "lease vests in a tenant the right of exclusive possession" precluding entry by landlords except as otherwise provided by the landlord-tenant lease. As the Court explained, "[a] landlord who desires to create a right to access his or her leased property must contract for that right." (Although not addressed by the Court, there are narrow exceptions to this rule, such as accessing leased premises through the eviction process and accessing leased premises on a limited and temporary basis when necessary to preserve and protect the property from loss, damage or destruction in emergency situations.)
The decision of the Iowa Court of Appeals is not surprising. It results from a simple application of the rule that, generally speaking, courts will interpret and apply contracts according to their plain language and will not rescue disappointed parties from decisions made during the negotiation process that they later regret. Landlords of commercial lease space who wish to retain the right to access the leased premises for purposes of showing the property to prospective purchases will need to carefully draft such provisions in their leases.
Note that the 90-day access provision in this dispute is almost identical to language in the Iowa State Bar Association's standard long form lease for commercial property. Landlords using that standard form should carefully consider whether to modify that language to ensure that Landlords will have greater access rights when attempting to sell leased premises.
Categories: Litigation, Real Estate Law