Commercial Leases: Midtown Glass Company, Inc. v. Levent Industries, Inc.

The most definitive case dealing with clauses surviving the expiration of a commercial lease can be found in the decision from the Court of Appeals of Georgia in a case this firm successfully handled.Midtown Glass Co., LLC v. Levent Indus., Inc., 316 Ga. App. 422, 729 S.E.2d 556, 557-59 (2012). In this case, this firm successfully argued that Georgia law does not allow a clause designed to protect the landlord from suit to survive the expiration of the lease.

Information on the Case

In Midtown Glass, the tenant, Midtown Glass, rented warehouse space to store inventory. After the expiration of the lease, a fire occurred in the warehouse that resulted in damage to Midtown Glass' inventory. Midtown Glass sued the landlord for negligence. The trial court awarded summary judgment to the landlord; however, this firm was able to convince the Court of Appeals to reverse the trial court's decision and rule that the lease's exculpatory clause did not survive the expiration of the lease.[1]

In Midtown Glass, the tenant and the landlord had entered into a five-year lease agreement which contained the following exculpatory language, commonly referred to as a waiver of subrogation clause:

Landlord and Tenant mutually waive all rights of recovery against the other or any party claiming through or under the other for any loss or damage to property of the other caused by fire or other insured casualty notwithstanding that such damage was caused by the negligence of the other, its agents, or employees. Landlord and Tenant agree with respect to their insurance policies to include standard waiver of subrogation clauses therein.

After the expiration of the lease, Midtown Glass continued to occupy the warehouse, making it a tenant-at-will.[2] As a result of the fire, the tenant's insurance paid Midtown Glass for a portion of the damages resulting from the fire.[3] In a subrogation action, Midtown Glass sued the landlord to recover the money paid out by the insurer and argued that the landlord negligently failed to the maintain the fire protection system.

The landlord argued that Midtown Glass was "still subject to the waiver of subrogation clause in the lease agreement even though the lease term had ended. That clause precluded [the tenant] from recovering any losses that were compensated by insurance and barred the tenant from suing the landlord or its agents for negligence."[4] The trial court granted summary judgment to the landlord as a result of this argument.[5]

However, on appeal this firm argued, among other things, that the only provisions that would survive this particular lease were those portions essential to the operation of the lease, such as those clauses related to the duty to make necessary repairs, the amount of monthly rent and the demised premises.[6] The firm stated that the waiver of subrogation clause and "the clause limiting [landlord]'s liability are not general terms and conditions of the lease and would not be considered 'indispensable' to the continuing landlord/tenant relationship under Georgia law. Specifically, these clauses [could not] be considered part of the general terms and conditions of the lease, which courts have routinely held include only those provisions for rent and repairs." [7]

DECISION FROM THE GEORGIA COURT OF APPEALS

The Georgia Court of Appeals, agreeing with this firm's argument, held that the subrogation provision did not survive the end of the lease, stating "such a provision is not necessary for the landlord/tenant relationship to continue. It [was] not a provision addressing rent, operating costs, damages to the property by the tenant, or default, but merely a reallocation of risks. Therefore, the waiver of subrogation provision did not continue to apply after the lease expired, and the trial court erred in applying it to grant summary judgment to the [landlord] in the case."[8]

As a result of this case, the law in Georgia now appears well settled that only those portions of the lease which are essential to the landlord/tenant relationship will survive the expiration of the lease. While there may still be debates about what constitutes "essential to the landlord/tenant relationship," it appears that any clause which is related to the rental rate or the duties of the parties will most likely be considered essential, but clauses related more to the protection of the parties or allocation of responsibilities for a future event will most probably not be considered essential.

Midtown Glass has been marked as a significant ruling in the area of landlord/tenant law concerning the validity of lease provisions for at-will tenants. It has been cited in Pindar's Georgia Real Estate Law and Procedure, a widely used legal authority on real estate law in the state of Georgia, as well as several other legal publications.[9] As such, it will likely continue as controlling precedent in this area of law for years to come.