Leases Require Specific Allocation of Foreseeable Risks in Florida | Practical Law

Leases Require Specific Allocation of Foreseeable Risks in Florida | Practical Law

A recent Florida appellate case highlights the importance of specifically addressing foreseeable events when allocating risk among the landlord and the tenant in a commercial real estate lease. The court found that it was foreseeable that a daycare tenant may be denied an operating license from a state agency and reversed summary judgment on the issue of damages because the risk was not specifically mentioned in the lease.

Leases Require Specific Allocation of Foreseeable Risks in Florida

Practical Law Legal Update w-006-6529 (Approx. 3 pages)

Leases Require Specific Allocation of Foreseeable Risks in Florida

by Practical Law Real Estate
Published on 28 Feb 2017 • Florida
A recent Florida appellate case highlights the importance of specifically addressing foreseeable events when allocating risk among the landlord and the tenant in a commercial real estate lease. The court found that it was foreseeable that a daycare tenant may be denied an operating license from a state agency and reversed summary judgment on the issue of damages because the risk was not specifically mentioned in the lease.
On January 13, 2017, in Genuinely Loving Childcare, LLC v. Bre Mariner Conway Crossings, LLC, the District Court of Appeal of Florida for the Fifth District held that it was foreseeable that a daycare tenant may be denied a license from a state agency. The foreseeability issue supported the tenant's affirmative defenses causing the court to reverse an order of summary judgment in favor of the landlord because that risk was not explicitly addressed in the lease ().

Background

In Florida, a state agency requires that most daycare centers obtain an annually renewable license to operate. To qualify for the license, the daycare's location must have a certain amount of outdoor play space, unless the daycare receives an urban designation from the agency, in which case indoor play space is permitted.
The landlord and the tenant negotiated a five-year lease for a daycare center. The lease required the tenant to comply with all applicable government codes and licensing requirements. In an affidavit opposing summary judgment, the tenant stated that:
  • It received documentation from the county that the area was urban.
  • It consulted with the agency about the lack of outdoor play space.
  • It received an urban designation from the agency.
After signing the lease, the agency denied the tenant a permanent license because it did not believe the premises was in an urban area. The tenant was instead issued a one-year provisional license. Outdoor play space was needed for a permanent license, which was not allowed under the lease.
Within a few months of opening the daycare center, the tenant informed the landlord that it would vacate the premises if it did not receive a permanent license. One year after opening, the tenant abandoned the premises when its provisional license expired.
The landlord filed suit for possession of the premises and damages for past and future rent. In response to the landlord's motion for summary judgment, the tenant raised affirmative defenses including impossibility, impracticality, frustration of purpose, and commercial frustration of purpose.
Each affirmative defense contained an element of foreseeability at the inception of the lease. The landlord argued that the lease adequately allocated the risk of not obtaining a license to the tenant because it was the tenant's responsibility to comply with all laws and licensure requirements.

Outcome

The appellate court reversed the order for summary judgment in favor of the landlord because it found there were genuine issues of material fact for a jury to determine. The court found:
  • The lease did not specifically allocate the risk that the agency would deny the tenant the urban designation.
  • The landlord and tenant contradicted each other about whether an urban designation was granted before the lease was signed.
  • The lease did not address the intent of the parties as to the allocation of risk.

Practical Implications

Drafters of commercial real estate leases should ensure that the lease includes specific details about issues that could foreseeably affect the tenant's ability to use the premises for its intended purpose.
General statements and vague provisions about the allocations of certain foreseeable risks may not adequately protect the landlord and lead to unexpected consequences.