Medico-Dental Building Co. of Los Angeles v. Horton & Converse

Supreme Court of California · 1977 · Property

PropertyLandlord and tenantLeasesRestrictive covenantsrentrestrictive covenantexclusive-use clausedependent covenants

Facts

Defendant leased ground-floor space in the Medico-Dental Building to operate only a drug store, and plaintiff's lease promised not to lease any part of the building to anyone else for maintaining a drug store or selling drugs or ampoules. Plaintiff later leased the ninth floor to Dr. Boonshaft under a lease that, as construed by the trial court, permitted him to maintain a drug operation for the treatment of his own patients, and he in fact opened a licensed pharmacy there where drugs were sold and prescriptions compounded and filled for charges. After learning of this in late July 1938, defendant promptly notified plaintiff and demanded that it stop the activity; plaintiff ultimately told defendant it could do nothing with Boonshaft. Defendant then gave notice of rescission and vacated before the end of the month.

Issue

Whether the landlord's covenant not to lease other parts of the building for a drug store or drug sales was dependent on the tenant's covenant to pay rent, so that the landlord's material breach justified the tenant's rescission and departure without further liability for rent. Also, whether plaintiff breached that covenant by leasing to and acquiescing in Dr. Boonshaft's competing drug operation, and whether defendant waived the breach.

Rule

Covenants in a lease are construed as dependent or independent according to the intention of the parties, the nature and relation of the obligations, the lease provisions, and the factual setting of the transaction. A lessor's restrictive covenant is dependent when it goes to the whole consideration of the lease; if the lessor materially breaches such a covenant, including by leasing for the prohibited purpose or acquiescing in a competing use that defeats the covenant's protection, the lessee may rescind, surrender possession, and refuse further rent. Waiver may arise from conduct inconsistent with enforcing the right, but is a factual question.

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In Seattle, Harbor Square Properties leased a lobby storefront to Maya Patel for 12 years. The lease required Patel to use the space only as a florist, stated that Harbor Square would not lease any other space in the building for a flower shop, and added that all lease terms and covenants were conditions; Patel's business relied almost entirely on office tenants in the building.

Harbor Square later leases an upper-floor suite to another tenant for a competing flower-delivery counter. Patel vacates and stops paying rent, arguing the landlord's promise was dependent on her promise to pay rent. Which result is most likely?

Explanation. The majority treated leases as having both conveyance and contract aspects, so whether covenants are dependent turns on the parties' intent, the lease language, the relation of the promises, and the factual setting. An exclusivity promise can be dependent when it goes to the whole consideration of the lease, especially where the tenant is restricted to that business and depends on building traffic. In that situation, a material breach can justify rescission, surrender, and refusal to pay further rent. (Derived from Medico-Dental Building Co. of Los Angeles v. Horton & Converse (1977).)