Case Name: 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 Appeal
Jurisdiction: Florida
Decision Date: 1982-02-16
Citations: 411 So. 2d 221
Docket Number: Nos. 79-1067, 79-2013 and 80-504
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.
Judges: Before HENDRY, SCHWARTZ and NESBITT, JJ.
Reporter: Southern Reporter, Second Series
Volume: 411
Pages: 221–228

Head Matter:
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.

Opinion:
SCHWARTZ, Judge.
In 1971, Continental Equities, Inc., the owner of vacant land in Dade County, agreed to construct a furniture warehouse and showroom 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.
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 Lev-itz' 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. We disagree with this conclusion and reverse for trial.
The landlord's potential responsibility 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. Cas-ner 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.
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 nondelega-ble 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).
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. 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, la tent defects excepted, [emphasis supplied]
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 obli gation with respect to its essentially separate and preterm undertaking to build its potential tenant a building that may be used for the purposes specified. 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 defective that it fell down and the tenant, for a long period, could not use it. There is nothing in the law, in the agreement, nor in net lease theory which requires the acceptance of what is, on its face, such an astonishing contention.
For the reasons stated, the orders under review are reversed and the cause remanded for further proceedings not inconsistent with this opinion.
Reversed and remanded.
. The paragraph states:
IMPROVEMENT OF DEMISED PREMISES
3. Landlord shall, at its own cost and expense, forthwith improve the demised premises by constructing thereon a warehouse, showroom, and office building according to plans and specifications to be prepared for Tenant at Tenant's cost and expense, by William C. Webb and Associates, Inc., from preliminary plans and specifications supplied by Tenant. . . .
. Subsequent to that time, the agreement also provided for Levitz to make, without prejudice, monthly rental payments less than those required by the lease. It made no payments at all during the several-month period in which it was unable to occupy the building.
. A later order, also on review, granted attorneys' fees to Continental under a contract provision which permitted such an award whenever it successfully maintained an action under the lease. Our reversal of the underlying judgments to that effect requires, of course, a reversal of this order as well.
. We emphasize that we do not pass upon the factual questions of whether such defects existed; the extent to which, if they did, Levitz was or should have been on notice of them; or the effect of any such actual or imputed knowledge. While Continental did not establish its right to a summary judgment based on any of these issues, Holl v. Talcott, 191 So.2d 40 (Fla. 1966), they remain open for resolution at trial.
. We note also that, with respect at least to housing, Brooks v. Peters has been overruled by Mansur v. Eubanks, 401 So.2d 1328 (Fla.1981).
. To the extent that, on these facts, the implied warranty of fitness of the completed building and the duty imposed by the construction contract may be differentiated, it is clear that the nondelegability rule applies to the former as well. See Ferguson v. Westinghouse Electric Corp., 408 So.2d 659 (Fla.3d DCA 1981); Easton v. Weir, 125 So.2d 115 (Fla.2d DCA 1960), cert. denied, 129 So.2d 141 (Fla.1961).
.The lease contains a requirement that the tenant carry $10,000 in property damage liability insurance. It is clear, and not even the appellee really asserts otherwise, that this provision — which probably refers only to protection against claims, say, for damages to customers' automobiles — does not conclusively establish the intention of the parties to shift the risk of losses of the nature in question here from the landlord to Levitz or its carrier. See Fairchild v. W. O. Taylor Commercial Refrigeration and Electric Co., 403 So.2d 1119 (Fla. 5th DCA 1981).
. A supplement, executed well after completion, stated in part:
3. LANDLORD has completed the improvements to the demised premises contemplated by said Lease Agreement, as well as said additional improvements; and TENANT has accepted and taken possession of the demised premises, as modified, together with said improvements.
Continental strenuously argues that this statement abrogates the effect of paragraph 22. This contention is wholly without merit. The statement did no more than acknowledge that the building had in fact been completed and accepted. It had nothing to do with the legal consequences of that acceptance, including the lack of effect upon any liability for "latent defects," as set forth in the primary agreement.
.This view is entirely consistent with the clause upon which Continental most heavily relies.
8. Subject to the provisions of paragraph 16 hereof, it is the purpose and intent of Landlord and Tenant that the rent herein-above provided to be paid to Landlord by Tenant be absolutely net to Landlord, so that this Lease shall, except as herein provided to the contrary, yield net to Landlord the rent as herein provided, to be paid in each year during the term of this Lease, and that all costs, expenses and obligations of every kind or nature whatsoever, relating to the demised premises, or any improvements thereon, which may arise during the term of this lease, shall be paid by Tenant, [emphasis supplied]
The defects involved here did not "arise during the term of this lease," but rather before the term ever commenced. And, in any case, this provision is ineffective to shift the burden of the landlord's own fault in the building's construction to the tenant. Charles Poe Masonry, Inc. v. Spring Lock Scaffolding Rental Equipment Co., 374 So.2d 487 (Fla.1979).
. We regard this claim, with respect to the structure, as equivalent to, and equally unacceptable as one that Continental would be entitled to the rent in full even if it did not have title to the underlying realty and the tenant was therefore evicted from the property.
. If there is such a thing.
. We need not discuss and express no opinion upon any of Levitz' other contentions and arguments.