Case: Reliastar Life Insurance Co. of NY v. Home Depot, U.S.A., Inc., 570 F.3d 513 (7th Cir. 2009) (applying New York law)
The One Sentence Summary: A federal court applying New York law holds that a tenant’s execution of an estoppel certificate creates no warranties about present or future conditions not known by the tenant at the time of execution; and court holds that constructive eviction relieves a tenant of the obligation to pay rent even where the tenant signed a “hell or high water” clause.
What They Were Fighting About: Home Depot entered into a lease providing that the landlord was responsible for the “building pad.” When the original landlord assigned the lease to a subsequent landlord, Home Depot signed an estoppel certificate providing: “Tenant has fully inspected the Premises and found the same to be as required by the Lease, in good order and repair, and all conditions under the Lease to be performed by the landlord have been satisfied; including but not limited to payment to Tenant of any landlord contributions for Tenant improvements and completion by landlord of the construction of any leasehold improvements to be constructed by landlord; . . . As of this date, the Mortgagor, as landlord, is not in default under any of the terms, conditions, provisions or agreements of the Lease and Tenant has no offsets, claims or defenses against the Mortgagor, as landlord with respect to the lease.”
At the time of the assignment, Home Depot also signed a Recognition Agreement including the following “hell or high water” clause: “Tenant agrees that notwithstanding anything in the Lease or this Agreement contained to the contrary, until Mortgagee notify [sic] tenant that the Assignment has been released, Tenant shall be unconditionally and absolutely obligated to pay to Mortgagee in accordance with the Assignment all rents, purchases payments and other payments of whatever kind described in the Lease without any reduction, set off, abatement, or diminution whatever.”
Two years after the assignment, Home Depot detected cracks in its store walls resulting from a defective building pad. Home Depot vacated the premises, stopped paying rent and claimed constructive eviction. The landlord/assignee filed suit against Home Depot for all moneys owed under the lease.
- Home Depot’s execution of the estoppel certificate did not bar its constructive eviction defense because Home Depot had no knowledge of the building pad failure at the time it signed the estoppel certificate. In the estoppel certificate, Home Depot made no warranties about present or future conditions that were not known when it was executed.
- The Court stated that its holding “is consistent with the general purpose of an estoppel certificate, which is to assure one or both parties to an agreement that there are no facts known to one and not the other that might affect the desirability of entering into the agreement, and to prevent the assertion of different facts at a later date.” (citing Lawyers Title Ins. Corp. v. Honolulu Fed. Sav. & Loan Ass’n, 900 F.2d 159, 163 (9th Cir. 1990)).
“Hell or High Water” Clause
- Although “hell or high water” clauses are generally enforceable under New York law, Home Depot was relieved of its obligation to pay rent if it was constructively evicted.
- Constructive eviction terminates a lease and relieves a tenant of all obligations under the lease.