Levitz Furniture Co. of Eastern Region, Inc. v. Continental Equities, Inc.

• Citation: 411 So.2d 221
• Decision Date: 16 February 1982
• Docket Number: Nos. 79-1067,79-2013 and 80-504,s. 79-1067
• Parties: LEVITZ FURNITURE COMPANY OF the EASTERN REGION, INC., a Florida corporation, and Levitz Furniture Corporation, a Pennsylvania corporation authorized to transact business in Florida, Appellants, v. CONTINENTAL EQUITIES, INC., and American Casualty Company of Reading, Pennsylvania, Appellees.
• Court: Florida District Court of Appeals

Page 221

411 So.2d 221

LEVITZ FURNITURE COMPANY OF the EASTERN REGION, INC., a Florida corporation, and Levitz Furniture Corporation, a Pennsylvania corporation authorized to transact business in Florida, Appellants, v. CONTINENTAL EQUITIES, INC., and American Casualty Company of Reading, Pennsylvania, Appellees.

Nos. 79-1067, 79-2013 and 80-504.

District Court of Appeal of Florida, Third District.

Feb. 16, 1982.

Rehearing Denied April 5, 1982.

Blackwell, Walker, Gray, Powers, Flick & Hoehl and James E. Tribble and James C. Blecke, Miami, for appellants.

Podhurst, Orseck, Parks, Josefsberg, Eaton, Meadow & Olin and Joel D. Eaton, Greene & Cooper and Robyn Greene, Miami, for appellees.

Before HENDRY, SCHWARTZ and NESBITT, JJ.

SCHWARTZ, Judge.

In 1971, Continental Equities, Inc., the owner of vacant land in Dade County, agreed to construct a furniture warehouse and showroom ¹ and to rent the thus-improved premises to the Levitz Furniture Company on a "net lease" basis. On May 9, 1973, about one year after the building was completed and Levitz had taken possession, a substantial portion of the roof and supporting walls collapsed. About two weeks after that, the county building department required the evacuation of the entire building because of its discovery of dangerous construction defects which extended well beyond the immediate area of the collapse. The order was complied with at once. Under an arrangement with Continental reserving their respective rights, Levitz repaired the building, at a cost of over $1,000,000, and reoccupied the premises in December, 1973. ²

Levitz then instituted this litigation against Continental, among others, to recover the damages sustained, inter alia, by way of lost profits, stock, and the expenses required to repair the building. Continental counterclaimed for the full amount of the rent required by the lease for the entire period in question. There was extensive, though disputed, evidence developed in discovery that the collapse and the ensuing orders of the county to evacuate and repair were the result of latent construction defects in the building which existed, but were neither discovered nor discoverable, when Levitz took possession. Nonetheless, the trial court entered summary judgment for the landlord both on its counterclaim for the full rentals under the terms of the lease-over $1,200,000-and dismissing Levitz' complaint for damages. These rulings were based on the theory that, under the lease agreement and as a matter of law, Continental was not liable in any way for any latent defects in the building it agreed to construct and was therefore entitled to the rental agreed upon without regard or deduction for the facts that the defects resulted in great expense to the tenant and even its inability to use the demised premises. ³ We disagree with this conclusion and reverse for trial.

The landlord's potential responsibility ⁴ for latent defects is based upon two legal

principles, which coalesce in their clear application to this case

First, it is a well-settled and well-founded rule of law that when, as here, the parties enter into a lease agreement with respect to a building which is to be constructed or is as yet uncompleted, an implied warranty or covenant arises that the completed structure will be suitable for the lessee's intended use. Woolford v. Electric Appliances, Inc., 24 Cal.App.2d 385, 75 P.2d 112 (1938); Swift v. The East Waterloo Hotel Co., 40 Iowa 322 (1875); Panagos v. Fox, 310 Mich. 157, 16 N.W.2d 700 (1944); J.D. Young Corp. v. McClintic, 26 S.W.2d 460 (Tex.Civ.App.1930), rev'd on other grounds, 66 S.W.2d 676 (Tex.Comm.App.1933) (landlord liable to tenant for damage to furniture store caused by leaky roof in building under construction at time of lease); American Law of Property § 3.45 (A.J. Casner ed. 1952) ("(W)here the lessee is restricted to a particular use and accepts the lease before the premises are completely constructed or altered, the courts have held that there is an implied covenant that the property will be suitable for the purpose for which leased."); 2 R. Powell, The Law of Real Property § 225(2) (rev. ed. P. Rohan 1981); Restatement (Second) of Property § 5.2, Comment e (1977). The landlord's claim that this rule is not in accordance with the Florida law is incorrect. The authorities relied upon, primarily Butler v. Maney, 146 Fla. 33, 200 So. 226 (1941) and Brooks v. Peters, 157 Fla. 141, 25 So.2d 205 (1946), hold only that there is no warranty of prior inspection or against latent defects in the entirely different case of an already completed structure and therefore have "no application to the question here presented." Woolford v. Electric Appliances, Inc., supra, at 75 P.2d 113. ⁵

Moreover, the landlord's contractual undertaking to erect the building, see note 1, supra, itself gave rise to an obligation, enforceable by Levitz as the contracting party, that it perform that agreement with reasonable care. Holbrook v. City of Sarasota, 58 So.2d 862 (Fla.1952); Banfield v. Addington, 104 Fla. 661, 140 So. 893 (1932). It is also the case that, since such a contractually-assumed duty is a nondelegable one, it does not matter, despite the appellee's contrary argument, whether the defective work was actually done by the general contractor hired by Continental to discharge its obligation or by a subcontractor engaged by the general. Mills v. Krauss, 114 So.2d 817 (Fla.2d DCA 1959), cert. denied, 119 So.2d 293 (Fla.1960). ⁶

Of course, the parties were free to have contracted for a negation or modification of the effects of these rules of law. Our review of their extensive and elaborate agreement reveals, however, that they did not. ⁷ To the direct contrary, the lease contains an affirmative recognition of the existence of Continental's continuing obligation for the proper construction of the building. Paragraph 22 states

POSSESSION AND MAINTENANCE

22. Tenant, by taking possession thereof, will be deemed to have acknowledged that the demised premises, with all appurtenances, were in good order and condition when received by Tenant, latent defects excepted. (emphasis supplied) ⁸

The "latent defects" exception would be meaningless if, as the landlord contends, there is no pre-existing responsibility for such defects. Thus, the very presence of this provision demonstrates the unsoundness of its basic position. Furthermore, by its very terms, it disposes of Continental's argument that Levitz waived any claim with respect to defective construction by taking possession of the building. In this regard, paragraph 22 merely tracks and expresses the law, as established by Slavin v. Kay, 108 So.2d 462 (Fla.1959) and its numerous progeny, that acceptance does not terminate responsibility for a latent defect which, by definition, could not have been discovered by a reasonably careful inspection. That this principle is also controlling in this situation, even were there no paragraph 22, is shown by Restatement (Second) of Property, supra, see § 5.3, Comment e:

If the tenant at the time of entry neither knows nor should have known of the condition of the leased property that creates the unsuitable condition, his entry does not constitute a waiver of any remedies. In that case, he will have a reasonable time after learning of the unsuitable condition to notify the landlord to cure the unsuitable condition.

Continental's ultimate argument is that, because it entered into a "net lease," an arrangement supposedly designed to secure the landlord a guaranteed return on its investment, the rentals should not be reduced in any way or for any reason from those provided in the agreement. This argument is basically a fallacious one, since it attempts to deduce the legal effect of an instrument from what it is called, rather than from what it says and does. Walls v. Endel, 20 Fla. 86 (1883). As the court pointed out with respect to this very question in Chicago City Bank & Trust Co. v. Ceres Terminals, Inc., 93 Ill.App.3d 623, 630, 49 Ill.Dec. 108, 115, 417 N.E.2d 798, 805 (1981):

We need not pronounce an all-encompassing definition of the terms "net" and "gross" as they are applied to leases. The better approach, we believe, is to examine the lease as a whole to determine which rights and obligations are specifically indicated, and resort to general usage or constructive principles only where the lease is silent.

See also Howard, The Essential Elements of a Net Lease, 8 The Practical Lawyer 15, 16 (1967) ("... there is no such thing as a standard or typical form of Net Lease. Each lease, whether it be gross or net, must be 'tailor-made' to fit the requirements of the particular business transaction.") As has already been demonstrated, this particular contract certainly does not preclude and, in a significant aspect, paragraph 22, actually reinforces the determination that general principles of landlord responsibility are applicable to this transaction.

Even on its own terms, however, the landlord's contention does not bear analysis. A "net lease" is essentially one

which shifts the burdens of ownership, for a stated period, from the landowner to the occupant, and reserves to the owner during that period a net return on his investment. (emphasis supplied)

Van Doren, Some Suggestions for the Drafting of Long Term Net and Percentage Leases, 52 Colum.L.R. 186 (1951). The fact that the net tenant, as under this lease, must pay all taxes, insurance and other expenses required during the term of the leasehold does not affect the landlord's obligation with respect to its essentially separate and preterm undertaking to build its potential tenant a building that may be used for the purposes specified. ⁹ See Railway Express Agency, Inc. v. Commissioner of Taxation, 307 Minn. 245, 239 N.W.2d 245 (1976). The appellee's position is that it was entitled to the full prescribed rental for a building it agreed to and did construct, even though it was so...