MANY A SLIP 'TWIXT CUP AND LIP'
(What happens when a California landlord cannot deliver or the tenant does not take possession)

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It does not happen very often, but it happens often enough to deserve a few comments. There is usually a brief, and sometimes not so brief, passage of time between execution of the lease or rental agreement and occupancy by the tenant. Our topic concerns what happens when the landlord is unable to deliver possession or the tenant is unable to move in. Who is liable and for what?

This column is devoted to a discussion of residential settings only. Anchor tenants in shopping malls, for example, may execute binding leases contemplating possession a year or more after execution because the mall has not yet even been built. Commercial leases being what they are, the agreements between the parties are much more complicated, and the remedies for breach similarly complex. The principles are essentially the same, but the stakes and details involved are such as to make them beyond our scope. While it is written mostly with reference to California law, landlords from other states may still find some useful ideas in the more general parts.

Upon execution of the lease, the landlord is under a duty to deliver possession of the premises in a habitable condition and the tenant is under a duty to take possession and pay rent. Simple as this may sound, difficulties can arise which disarrange the expectations of the parties.

Suppose that the landlord is advised by an otherwise reliable tenant that the tenant will move at the end of the month. A valid thirty day notice terminating tenancy is given by the tenant and he cooperates in permitting the landlord to show the unit to prospective occupants. About a two days before the scheduled move, the tenant announces that the house he was moving to across town was rented to someone else at the last minute, or maybe that it burned down, and he has nowhere to go. The landlord is now forced to start an eviction proceeding against the tenant. In any event, he is in no position to deliver possession to the prospective occupants.

In another example, the unit may, in fact, be empty, but two days before the projected move in, evidence of a leak is found in the ceiling of the unit below. The landlord's plumber announces that the leak is emanating from the vacant unit and extensive replacement of pipes and fixtures will be necessary, some of which will require extensive work in the bathroom and kitchen. The new tenants may be able to live there, but their first week will be quite unpleasant, and they may even be without water for a time. Here the landlord can deliver possession, but will instantly be in breach of the implied warranty of habitability.

On the tenant's side, many things may occur which make occupancy impractical. Unexpected deaths or family break ups are obvious examples. Sometimes, between the signing and occupancy, tenants will simply find another unit which they like better, or is cheaper, and will appear demanding refund of their rent and deposit and extinguishment of the lease. In these circumstances, the landlord does have some specific rights to compensation for his actual losses.

UNIT UNAVAILABLE

This is the situation in our first example. We are not here dealing with impossibility of performance, which is usually an excuse from performance of contractual obligations. Impossibility of performance typically only arises in two circumstances. First, the parties may contract with respect to something which they both believe exists, and then discover it to be non-existent. Second, the parties may contract with respect to a certain object, and then, with no fault on their part, the object of the contract is completely destroyed. In our example, the rental unit was neither a mirage, nor was it struck by lightning and burned to the ground.

The landlord is under a legal duty to deliver possession to the prospective tenant. This means that he gives the prospective tenant all he needs to gain access to the unit and secure it (usually just the keys, but sometimes also the garage opener or gate remote) and does not interfere with his doing so. But he does interfere by having another tenant in there. The tenant is entitled to rescind the lease, or hold the landlord to the lease and move in when the unit becomes available.

The landlord is liable to the tenant for contractual damages for breach of the lease or rental agreement, plus any expenses which the prospective tenant can show that he incurred as a result of his reliance on the promise of the availability of the unit, which would have been reasonably foreseeable. It goes without saying that the landlord must refund any deposits and rent payments made to date. The landlord is not liable to the tenant for tort damages, such as "emotional distress," etc. Under the current state of California law, such damages are not deemed foreseeable in the context of an executory lease or rental agreement. It is theoretically possible, but practically implausible due to the expense involved, that a prospective tenant would attempt to obtain equitable relief to force the landlord to rent to him.

RENTAL UNIT AVAILABLE BUT UNTENANTABLE

In our second example, the rental unit is available, but the landlord is in breach of the implied warranty of habitability. In California, the landlord may only offer for residential rental use properties which substantially comply with the implied warranty of habitability. Just as a purchaser is not obliged to accept delivery of an obviously defective or damaged car, he is probably not obligated to accept delivery of a defective or damaged rental unit. If he does so, however, all his remedies for breach of the implied warranty apply, including rent abatement. This is so even if the tenant knows the unit is uninhabitable and agrees to waive his rights.

TENANT REFUSES TO TAKE POSSESSION

The tenant cannot absolve himself of responsibility under a lease or rental agreement by refusing to take possession if it is available. The comments above about "impossibility of performance" apply as well to the tenant as to the landlord. Where the tenant refuses to take possession, the landlord is entitled to contractual damages, including rent loss, costs of advertising attributable directly to re-offering the unit on the rental market, any expenses incurred by agreement to prepare the unit to the tenant's specifications (usually only applicable in long term leases or higher end properties), and anything else foreseeable which is directly attributable to the prospective tenant's failure to move in. In a month to month situation, it is difficult to see how this could ever amount to more than one month of rent, since the tenant could give a thirty day notice on the day he moves in. Even in a long term lease setting, present market conditions render the possibility of damages in large amounts remote.

PRACTICAL CONSIDERATIONS

All this implies that the landlord and prospective tenant will not be dealing in amounts of money which make litigation worthwhile. The landlord should be scrupulously honest and fair so as to defuse the situation, regardless of whether he is at fault or the aggrieved party. The following are some suggestions which may be of assistance.

1. Often, the prospective tenant is willing to wait a while to allow the unit to become available. If unavailability is due to a holdover tenant, the landlord should realize that this holdover tenant has already breached one promise and legal duty to move and may breach others. Physical eviction can take months. The prospective tenant should be made thoroughly aware of this, and that there is no way to guarantee when the unit will be free. The landlord should accept this alternative only if he is convinced the prospective tenant fully understands, and then confirm the understanding by letter.

2. Where the non-availability is due to physical obstruction, delay in delivery of possession is more feasible. In our plumbing example, the plumbing contractor should be able to undertake to have the place ready in a predictable period of time. If he cannot, there are other plumbers who can. If the tenant agrees, the landlord should take the initiative in offering a modest but fair compensation, for example, a one week's rent credit on the second month's rent, a new lease start date coupled with a Blockbuster gift certificate, and so on. Again, this agreement should be memorialized in a letter.

3. It is probably not a good idea to permit the prospective tenant physically to occupy the rental unit if the landlord discovers major problems which need correction, which is the only circumstance in which this kind of problem can arise. Repairs will be more difficult with the tenant there. "Professional tenants" specialize in moving into such units, effectively blocking the repairs, perhaps doing a bit of sabotage on their own, twisting the true circumstances of the move-in, and then living there rent free for months. Any landlord seriously contemplating such an arrangement should first rent and view the film Pacific Heights, then do so with both eyes wide open.

4. If the prospective tenant elects to rescind the agreement, the landlord should instantly refund all deposits, credit check fees, and the first month rent. In this case, however, it would probably not be a good idea to offer to pay other expenses, as it may plant unreasonable expectations in the prospective tenant's mind. There will be plenty of time to deal with this issue if the prospective tenant actually makes a demand.

5. If the unavailability was the landlord's responsibility, he has a moral obligation and would be well advised to do whatever he can to assist the tenant in finding an alternate rental unit. A list of referrals which the landlord has taken a few minutes to research might do a lot to smooth ruffled feathers, and might have the practical effect of minimizing claims of inability to find other comparable units, if they are made in the future.

6. The landlord should never lie. The prospective tenant will be mad enough as it is, lying to him, if he discovers it, will only give him further reason to be upset and take unpleasant and expensive actions, even if they are not truly in his best interest. The reasons for the inability to turn over possession should be explained in detail, and the emphasis placed on resolving the problem.

7. If the failure to take possession is the tenant's fault, the landlord should have an equally realistic view of that to which he is entitled. This is not an opportunity to keep the rental unit off the market for a month or two at the prospective tenant's expense while the landlord does a leisurely remodeling job. The landlord is under a duty to mitigate whatever damage he suffers as a result of the tenant's breach, just as the tenant is.

8. The landlord is in the rental business, not the litigation business. When the prospective tenant announces he will not move in, the landlord should make an effort to liquidate the problem at once. In a typical case, the landlord can predict with reasonable certainty how soon he will get a new tenant, and how much renewing the newspaper ad will cost. The landlord should consider offering to withhold this amount and refund the balance of the tenant's funds as a settlement, in preference to holding all the tenant's funds until a new tenant moves in. This has the advantage of getting the flaky prospective tenant out of the landlord's life once and for all, permitting the landlord to move on to profitable endeavors. Any such agreement should be memorialized in a writing, of course.

This column is designed to provide information about an annoying problem which can arise in the course of renting residential rental units. It is not designed to cover circumstances such as a projected five year lease of a $3 million estate, or the master lease of a 50 unit residential hotel. In high stakes circumstances such as these, the landlord should seek legal counsel immediately.

In most cases, however, the disruption of the landlord/tenant relationship at its inception is really something which the parties can deal with themselves, fairly and inexpensively. While the situation must be conceded to be an unmitigated negative, it is easily dealt with if the parties will approach it as an unfortunate accident the effects of which both parties must act responsibly to ameliorate.

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