ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Wednesday, July 2, 2008

An Interesting New Unconscionability Decision

Garvin_larryThanks to the Ohio State University Moritz College of Law's Larry Garvin for sharing with us details and commentary on Knudsen v. Lax, 842 N.Y.S.2d 341 (Co. Ct. 2007), a recent case in which tenants sued their landlord seeking to terminate their lease.  Professor Garvin provides the following synopsis:

The plaintiffs, tenants in an apartment building, sued the landlord in an attempt to terminate their lease.  The lease provided that if the tenants quit the leasehold before the end of the lease term, they would be liable for the balance of the rent due, whatever the reasons for their departure.  What makes this interesting is the reason the tenants wanted to move: A registered Level 3 sex offender moved into the adjacent apartment.  (The tenants had three young daughters.)  The landlord refused to let them abandon their lease without paying the full rent -- hence the suit.

The court found that this did not breach the statutory warranty of habitability, but that the abandonment clause was unconscionable and its enforcement in bad faith.  On unconscionability, the court did fairly routine adhesion contract analysis on the procedural side.  Without much discussion, it found the contract substantively unconscionable for not permitting the tenant to abandon the lease without paying the full rent, even for good cause.  On good faith, the court found that the possibility that a Level 3 sex offender might move next door could not reasonably have been within the contemplation of the parties at the time of contracting, so it would be appropriate to use the implied-by-law good faith covenant to create a good-cause exception to the abandonment clause.  This would be a reasonable approximation of what the parties would have agreed to had they taken it into account, and in any case was consistent with the warranty of peaceful and quiet enjoyment.

Professor Garvin adds the following questions on the policy issues raised by the decision:

Is a sex offender different in kind from other obnoxious or potentially obnoxious neighbors?  What obligations does a landlord owe to existing tenants to choose new tenants cautiously?  And should this obligation -- whatever it may be -- fall under the heading of the duty of good faith and fair dealing?  It seems unlikely that the landlord derived special profit from leasing to the sex offender or otherwise acted opportunistically.  (And could this have been addressed under the rubric of frustration?)  And, if we are playing with public policy, one imagines we want sex offenders who have served their time to be able to live somewhere and restart their
lives.  What landlord would be willing to rent to a sex offender if the result would be the free departure of other tenants?  But one comes back to the particular susceptibility of this neighbor, which could easily have been anticipated at the time of contracting (assuming the tenants had small children then), and the likelihood
that they would not have rented had they known that a sex offender lived next door, or their reasonable expectation that the landlord would not rent a neighboring apartment to a sex offender.

My two cents: I think Professor Garvin points out the problems with the court's opinion in this case.  As other commentators have suggested, the court's use of unconscionability and bad faith is troubling in this context.  The better solution might be the standard one: the landlord has a duty to mitigate damages.  It may be that it is hard to find a tenant willing to move in next to a registered sex offender.  That may mean that the landlord will have to offer a special deal in order to attract a new tenant.  The tenant can leave and has to bear any cost to the landlord but not the full cost of remainder of the lease.

[Jeremy Telman]

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