Councils Corner v108
The Supremes Speak. Again.
I have written about this before. It is rare that the Texas Supreme Court will review a case involving a commercial landlord – tenant dispute. Well it just happened. Again.
Landlord Rohrmoos Venture executed a lease in 1996 with tenant UT Southwestern DVA Healthcare for a building in Dallas. I believe the building may be on Elmbrook Drive – very close to UTSW’s main campus facilities. The lease was modified and ratified in 2003. UTSW used the space for a dialysis clinic.
At some point UTSW experienced water penetration in the building’s concrete foundation. UTSW installed ceramic floor tiles in an attempt to contain the moisture problem.
In September 2007 Texas health inspectors evaluated the clinic and criticized UTSW because flooring had become loose and moisture could be seen under the tiles. UTSW notified Rohrmoos of the inspection results and the two parties exchanged communications over a period of several months. Neither party accepted responsibility.
Multiple engineers and contractors were engaged, but the issue persisted to 2009 and then began to worsen as the building suffered significant water penetration.
Because UTSW viewed the building as unsuitable for its intended commercial purpose, UTSW terminated the lease early, vacated, and relocated to Irving while still owing ~ $250k in unpaid rent. UTSW then sued Rohrmoos for breach of contract, breach of an implied warranty of suitability, and attorney’s fees.
At trial, the case was submitted to a jury. The jury found that: (a) both UTSW and Rohrmoos had failed to comply with the lease, (b) Rohrmoos breached the lease first, and (c) Rohrmoos breached an implied warranty of suitability.
The trial court, based on the jury’s verdict, held that UTSW properly terminated the lease and Rohrmoos owed UTSW over $1 million in attorney’s fees.
Rohrmoos appealed to the Texas Court of Appeals.
The Court of Appeals determined that UTSW had the right to terminate the lease based on Rohrmoos’ breach of an implied warranty of suitability. And, that UTSW was entitled to a judgment of $1+ million in attorney’s fees.
Rohrmoos appealed to the Texas Supreme Court. And (surprise, surprise) the Supremes agreed to review the case.
In a 56-page Opinion, the Supreme Court concluded that UTSW had the right to terminate the lease as a remedy for a material breach by the landlord. Since the jury found that Rohrmoos had materially breached the lease, then the relocation and termination actions of UTSW were justified.
All of that was concluded in the first 15 pages. The remainder of the decision concerned procedural matters and a $1+ million attorney fee award.
UTSW prevails on the right to terminate a lease and vacate following a landlord’s material breach of lease; Rohrmoos loses that point. However, the $1+ million attorney fee award was reversed and sent all the way back to Dallas County to present that singular issue to yet another trial jury.
See Rohrmoos Venture v. UTSW DVA Healthcare, LLP, Texas Supreme Court; Case No. 16-0006; April 26, 2019: https://law.justia.com/cases/texas/supreme-court/2019/16-0006.html.
Lessons Learned / Questions Asked:
1. Texas attorneys, landlords, tenants, lenders, and brokers all had questions about the viability of allowing tenants to terminate a commercial lease and vacate, claiming the commercial premises are unsuitable for its intended business purpose. We’ve had this theory since 1988, but precious little has been written about it. Now we know the theory is correct.
2. To Texas landlords: beware and quickly respond to the claim of commercial tenants that the premises are not suitable for its intended business purpose. To Texas tenants: if you have not committed a significant lease breach, this Rohrmoos case confirmed what we have believed since 1988 – you may have the right to relocate and terminate.
3. To Texas litigation attorneys: your ability to receive a fee award has been severely compromised. You don’t need to read the first 15 pages, but you might want to focus hard on the remaining 41.
Stuart A. Lautin, Esq.*
* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization
Licensed in the States of Texas and New York
Higier Allen & Lautin, PC
2711 N. Haskell Avenue, Suite 2400
Dallas Texas 75204