Legal Memorandum: Breach of a Commercial Lease Claim in PR

Issue: When does a business’s conduct in ceasing operations at a leased premises constitute a breach or violation of a lease?

Area of Law: Business Organizations & Contracts, Real Estate Law
Keywords: Breach or violation of a lease; Contract; Landlord
Jurisdiction: Federal, Puerto Rico
Cited Cases: 36 F.3d 370
Cited Statutes: None
Date: 03/01/2013

Research suggests that there are three potential theories upon which a landlord may attempt to base a claim for breach of a commercial lease under circumstances generally similar to those here.  When a retail tenant discontinues operation of its store at the leased premises before expiration of the lease term, frequently landlords will assert breach claims based on (1) breach of an express provision of the lease; (2) breach of the implied covenant of good faith and fair dealing; and (3) breach of an implied covenant of continuous operation.  See John Glenn, Lease of Store as Requiring Active Operation of Store, 40 A.L.R.3d 971 (1971 Supp. 2013); J.C. McKinney, Are You Trying to Imply Something? Understanding the Various State Approaches to Implied Covenants in Commercial Leases, 31 U. of Ark. at Little Rock L. Rev. 427, 428 (2009); Richard Lord, 15 Williston on Contracts § 48:4 (4th ed. 2013 Supp.); P.A. Randolph, Going Dark Aggressively, ABA Probate & Property, Nov./Dec. 1996.

Most jurisdictions recognize that every contract, including commercial leases, contains an implied covenant of good faith and fair dealing.  Carma Developers Inc. v. Marathon Development California, Inc., 826 P.2d 710, 726 (Cal. 1994).  A common formulation of this implied covenant is:  “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.”  Restatement (Second) of Contracts, § 205.

Because it is difficult to define exactly what this implied covenant requires, courts say each situation must be […]