Opinion ID: 2304474
Heading Depth: 1
Heading Rank: 7

Heading: Breach of Contract and the Covenant of Good Faith and Fair-Dealing

Text: Old Europe contends that Double H Family breached the original Lease between Double H Family and Desbois (purportedly transferred to Old Europe) and violated the covenant of good faith and fair-dealing by failing to provide a rental space fit for ordinary use. Old Europe posits that it is a valid assignee of the Lease and that Double H Family waived its ability to contest the assignment to Old Europe when it accepted Old Europe's rent with knowledge of Old Europe's presence on the premises. To establish that Double H Family knew of and consented to a landlord-tenant relationship, Old Europe points to the change in the signage on the building, [8] its payment of seventeen consecutive months of rent, [9] and the timely response by Double H Family's agent in making repairs to the shop during the alleged assignment period. Old Europe also contends that the Court of Special Appeals was correct in its conclusion that it was a commercial tenant at common law. Further, Old Europe argues that it was a periodic tenant of Double H Family based upon its entry onto the premises and subsequent payment of rent. In that regard, Old Europe relies primarily on Annapolis Fire v. Rich, 239 Md. 573, 212 A.2d 249 (1965). Double H Family contends, however, that the Court of Special Appeals's holding erroneously creates a commercial tenancy at common law. Specifically, it argues that the payment of rent by a non-tenant is insufficient to create a new commercial tenancy in favor of the entity making the payment. Double H Family posits that Old Europe was never a tenant because Double H Family, as landlord, never granted Old Europe the right of possession. In this regard, Double H Family argues that the attempted assignment of the leasehold from Desbois to Old Europe was invalid because Desbois provided no written notice of the assignment to Double H Family as required by the written Lease; and, moreover, prior to the flood, Desbois failed to provide any notice of the assignment whatsoever (verbal or written). In addition, Double H Family contends that an employee's continued presence at a place of employment and payment of rent is insufficient to create a commercial tenancy by operation of Maryland law. Double H Family specifically points out that this case is distinguishable from Annapolis Fire because in that case, the tenant clearly and unambiguously gave verbal or written notice that an assignment occurred, and the landlord consented to the change in the lease's terms. Pertinent to this contention, Double H Family argues that the only verbal or written notice of intent it received from Sanchez-Tintenier was when she stated [I am] going to take care of the store and that this statement is ambiguous and implies a future action or one that has not come to fruition yet. Moreover, Double H Family asserts that under Maryland law, a landlord must have clear notice of and consent to its involvement in a commercial tenancy and that holding otherwise will create ambiguity and inconsistency in landlord/tenant relationships. In essence we are asked to determine, for purposes of our review of a grant of summary judgment, whether on the record before us, Old Europe held a legally cognizable property interest in the premises known as 4124-F Howard Avenue at the time of the flood. First, we must determine whether Desbois made a valid assignment of the original Lease to Sanchez-Tintenier. This requires us to determine if the alleged assignment is enforceable in accordance with the written Lease between Double H Family and Desbois and in accordance with the Maryland Statute of Frauds. A lessee may transfer his or her interest in a lease agreement by assignment. Italian Fisherman v. Middlemas, 313 Md. 156, 163, 545 A.2d 1, 4 (1988). When a lease is assigned, an assignee steps into the lessee's shoes and acquires all the lessee's rights in the lease. Italian Fisherman, 313 Md. at 163, 545 A.2d at 4. Privity of estate ends between the lessor and lessee and is created between the lessor and the assignee. Italian Fisherman, 313 Md. at 163, 545 A.2d at 4. Contractual rights are assigned when the assignor manifests the intent to make the assignment. See Central Collection v. Columbia Medical, 300 Md. 318, 331, 478 A.2d 303, 309 (1984) (In determining the validity of [the] assignment we look to the intent of the parties.); accord E. ALLEN FARNSWORTH, FARNSWORTH ON CONTRACTS, Assignment and Delegation, § 11.3 at 69 (3rd ed. 2004) (Whether the owner of a right has manifested an intention to transfer it is a question of contract interpretation to be answered from all the circumstances, including words and other conduct.). For an assignment of a leasehold interest to be enforceable, however, it must comply with provisions found within the original lease agreement and applicable statutory law. See Julian v. Christopher, 320 Md. 1, 7, 575 A.2d 735, 737 (1990) (Contractual restrictions on alienability of leasehold interests are permitted.); See also Lamm v. Port Deposit Homestead Association, 49 Md. 233, 240 (1878) (explaining that the Statute of Frauds applies to contracts for the sale of land and in any interest in or concerning them). In pertinent part, the Lease between Desbois and Double H Family stated: Tenant will not assign this Lease, in whole or in part, or sublet all or any part of the Premises, without first obtaining the Landlord's written consent.... The acceptance by Landlord of the payment of rent following any assignment or subletting shall not be deemed to be a consent by the Landlord to such assignment or subletting. On this record, there is no evidence of any writing purporting to assign Desbois's leasehold interest prior to the flood. There is also no evidence that Desbois notified Double H Family verbally or in writing of his intent to assign his leasehold interest to Sanchez-Tintenier. There is, however, evidence that Sanchez-Tintenier, who often interacted with Double H Family on Desbois's behalf, notified Double H Family's agent, Michael Management, Inc., that she was taking over the premises and that Desbois no longer wanted the store. During this conversation, David Dant indicated to Sanchez-Tintenier that it would be no problem and fine for her to takeover. The record further indicates that Double H Family accepted rent payments from Sanchez-Tintenier (rather than Desbois) for several months after this conversation. We hold that the record before us presents genuine issues of material fact regarding whether Double H Family waived its ability to contest the validity of the assignment from Desbois to Sanchez-Tintenier under the terms of the Lease and whether Double H Family is estopped from arguing the assignment is non-enforceable under the Statute of Frauds. [10] A party waives a contractual right by intentionally relinquishing the right or engaging in conduct that warrants the inference that the right has been relinquished. Food Fair v. Blumberg, 234 Md. 521, 531, 200 A.2d 166, 172 (1964). Whether a waiver has taken place is generally an issue of intent, which is determined by the factual circumstances of each case. See Chertkof v. Southland Corp., 280 Md. 1, 6, 371 A.2d 124, 127 (1977) (We have, in common with many other courts, treated waiver of a breach by the acceptance of rent as a matter of intent, which necessarily turns on the factual circumstances of each case.); Chas. J. Frank, Inc. v. Assoc. Jewish Ch., 294 Md. 443, 449, 450 A.2d 1304, 1306-07 (1982). Generally under Maryland law, when a lessor accepts rent from a new entity with knowledge that the lease has been assigned to that entity, the lessor waives the ability to contest the assignment under a lease covenant that provides the lease may not be assigned without the lessor's written consent. See Chertkof, 280 Md. 1, 371 A.2d 124 (Landlord's acceptance of rent from assignee for two years, along with repeated negotiations to renew lease, constitutes waiver of the breach of covenant prohibiting the assignment of the lease without consent); See also RICHARD POWELL, POWELL ON REAL PROPERTY, § 17.04(2)(a) at 17-50 (Michael A. Wolf ed. 2000) (Although the mere acceptance of rent after a prohibited assignment will not normally be considered a waiver, continued acceptance of rent coupled with knowledge of the assignment generally is construed as a waiver.); accord Sarete, Inc. v. 1344 U St. Ltd. P'ship, 871 A.2d 480 (D.C.2005). On this record, a trier of fact could also find that an assignment occurred by operation of law and that Double H Family is estopped from contesting its validity pursuant to Md.Code (1974, 2003 Repl.Vol.), Real Property Article § 5-103. According to § 5-103: No corporeal estate, leasehold or freehold, or incorporeal interest in land may be assigned, granted, or surrendered, unless it is in writing signed by the party assigning, granting, or surrendering it, or his agent authorized lawfully by writing, or by act and operation of law. An assignment that occurs by act and operation of law escapes the purview of § 5-103's writing requirement. See Prevas v. Gottlieb, 229 Md. 188, 193-194, 182 A.2d 489, 492-93 (1962) (illustrating that act and operation of law does not involve a writing, but refers to conduct a party engages in that may not be denied because of the principal of estoppel). A leasehold interest in land is assigned, granted, or surrendered by operation of law when the parties form the common intent for the assignment, grant, or surrender to take place and then engage in acts that are tantamount to a stipulation to effectuate the assignment. See Eidelman v. Walker & Dunlop, 265 Md. 538, 544, 290 A.2d 780, 784 (1972) (explaining how a surrender occurs by operation of law under § 5-103); See also Prevas, 229 Md. at 193-194, 182 A.2d at 492-93. We conclude, on the basis of the record before us, that a reasonable trier of fact could find that the attempt to assign the leasehold estate to Old Europe was a departure from the terms of the written Lease and constituted a transfer within the Statute of Frauds. Notwithstanding the terms of the Lease and the requirements of the Statute of Frauds, the trier of fact could find that Double H Family waived both the requirements of the Lease and the Statute of Frauds. As a result of these findings, the trier of fact could conclude that Old Europe stands in the shoes of the original tenant, Debois, pursuant to the original Lease. Thus, based upon a determination that the leasehold was transferred by operation of law, the trier of fact could then decide the merits of Old Europe's breach of contract and breach of covenant of good faith and fair dealings claims. Accordingly, we disagree with the Court of Special Appeals's conclusion that the Circuit Court correctly determined that Old Europe, as a matter of law, cannot assert the rights of an assignee under the Lease entered into between Double H Family and Desbois. Assuming there was no assignment by operation of law, Old Europe posits that its possession of the leased premises and payment of rent to Double H Family created a tenancy at common law. [11] Old Europe cites Annapolis Fire to support this position. In Annapolis Fire, General and Excess Underwriters, Inc., the original tenant under a written lease, notified the landlord that two other entities would begin leasing the premises along with it. 239 Md. at 578, 212 A.2d at 252. The landlord expressly agreed to this arrangement and confirmed that agreement in writing. Annapolis Fire, 239 Md. at 578-79, 212 A.2d at 252. This Court concluded that the parties' oral agreement to add the two new tenants constituted a surrender of the original lease between the original parties and the creation of a new agreement between the landlord and all three tenants. Annapolis Fire, 239 Md. at 585, 212 A.2d at 255. When the oral tenancy expired and the two newer tenants stayed on, we held they had a common law periodic tenancy, reasoning that such a tenancy is implied when one is both in possession of the premises by grant of the owner and pays rent to the owner. Annapolis Fire, 239 Md. at 582, 585, 212 A.2d at 254. Here, in order to determine if Old Europe established a common law tenancy (or commercial tenancy) in the premises at 4124-F Howard Avenue, it is first necessary to determine whether Desbois surrendered his existing leasehold interest in the premises. Surrenders, like assignments, are subject to § 5-103 and can arise by act and operation of law. For this to occur, both parties to the original lease agreement must evidence the common intent to relinquish their legal relationship and take actions that clearly evidence that intent. Eidelman, 265 Md. at 543-44, 290 A.2d at 783-84; Prevas, 229 Md. at 193, 182 A.2d at 492; accord Beall v. White, 94 U.S. 382, 389, 24 L.Ed. 173 (1876) (A surrender occurs by operation of law when the parties without express surrender do some act which implies that they have both agreed to consider the surrender as made.). Determinations of whether a surrender has occurred are made on a case by case basis and are generally a matter for the trier of fact. See Eidelman, 265 Md. at 543, 290 A.2d at 783. A surrender of the original leasehold interest occurred in Annapolis Fire when the original tenant expressly indicated to the landlord that the tenant wished to share his leasehold interest in the premises with two other tenants, the landlord clearly agreed to this arrangement (verbally and in writing), and the parties engaged in conduct consistent with this agreement. It was only after the surrender of the original lease that the new lease between the three entities, and later the periodic tenancy, came into existence. The record before us, and the reasonable inferences drawn therefrom, presents genuine issues of material fact as to whether Desbois and Double H Family surrendered their lease agreement. Intent is a key inquiry in this case. The trier of fact must determine whether Double H Family and Desbois intended to surrender the Lease and/or whether Double H Family intended to accept Old Europe as an assignee under the Lease, and whether Double H Family, by its actions, waived the requirements of the Lease and Statute of Frauds. [12] If the trier of fact determines that Desbois and Double H Family surrendered the Lease agreement, then the inquiry properly turns to whether Old Europe acquired a common law tenancy in the premises.