We recently had an opportunity to revisit the Breach of the Implied Warranty of Suitability in a suit brought by a coffee shop owner against the lessor of the commercial building that housed the coffee shop. The coffee shop owner brought suit for physical damage and lost profits under Negligence and Implied Warranty of Suitability theories of recovery after a defective outlet caused a fire on the premise.
Since the Texas Supreme Court’s decision in Davidow v. Inwood North Professional Group-Phase I ((747 S.W. 2d 373 (Tex. 1988)), it has been the law in Texas that commercial lessors, absent an agreement to the contrary, impliedly warrant that the leased premises are suitable for the lessee’s commercial purposes. Texas courts have generally established the following elements of a Breach of Implied Warranty of Suitability claim: (1) The landlord leased commercial property to the tenant; (2) the leased property had a latent physical or structural defect at the lease inception, (3) the defect was in an area vital to the intended commercial purpose of the property, (4) the defect made the property unsuitable for its intended commercial purpose, and (5) the tenant suffered injury. See Airport Garage, L.L.C. v. Dollar Rent a Car Sys, Inc., 245 S.W. 3d 488, 506 (Tex. App.–Houston [14th Dist.] 2007, pet. filed).
Claimants typically seek to enforce this warranty under fact patterns that comport with the Davidow rationale. Most cases involve odors, infestations, leaks and other issues that render a space unfit for the lessee’s business purpose. Though intuitively one knows that the Implied Warranty of Suitability was not intended to create a new path for lessees and their insurers to recover in the fire loss context, establishing this as a matter of law can be difficult. A defect in an outlet could be deemed latent (i.e. not discoverable after a reasonable inspection) and the presence of the outlet in the kitchen of a coffee shop could arguably place it in an “area vital to the intended commercial purpose.” Though we do not accept that a fire caused by a defective outlet satisfies the “made the property unsuitable” element, there is little support for this argument beyond a common sense discussion of the genesis and prior application of the Implied Warranty of Suitability. An adverse finding by a jury should ultimately be overturned, but the process could be a particularly stressful process for the lessor due to the fact that many commercial liability policies contain implied warranty exclusions.
However, this situation is wholly avoidable if one is careful in the crafting of their lease agreements. In Gym-N-I Playgrounds, Inc. v. Snider ((220 S.W. 2d 905 (Tex. 2007)), the Texas Supreme Court evaluated the following disclaimer:
Tenant accepts the Premises “as is.” Landlord has not made and does not make any representations as to the commercial suitability, physical condition, layout, footage, expenses, operation or any other matter affecting or relating to the premises and this agreement, except as herein specifically set forth or referred to and Tenant hereby expressly acknowledges that no such representations have been made. Landlord makes no other warranties, express or implied, of merchantability, marketability, fitness or suitability for a [document not legible]. Any implied warranties are expressly disclaimed and excluded.
The court held that the above language waived the breach of Implied Warranty of Suitability because the “as is” clause in the lease expressly disclaimed such a warranty. The court went on to say that the “as is” clause also negated the causation element which was essential to the tenant’s claims of negligence per se, gross negligence, violations of Deceptive Trade Practices and fraud. As such, we would recommend that commercial lessors review their lease agreements and make certain that the agreements contain the above-discussed protections and all other protections currently afforded to commercial landlords under Texas law.