Section Review

The perils of retroactive application when overruling established precedent

Walter McLaughlin has practiced law in Boston for 43 years and was counsel for Leone Enterprises in the Supreme Judicial Court appeal.

The case of Wesson v. Leone Enterprises, Inc., 437 Mass. 708 (2002) involved a landlord tenant dispute. Leone Enterprises, Inc., the tenant, leased space to operate his financial printing business in an industrial building owned by the landlord, Wesson. When the landlord failed after repeated requests to fix the roof that leaked over a substantial period of time, the tenant gave notice that he was terminating the lease and moved out before the end of the term.

The landlord sued for the unpaid rent and the tenant defended on the basis of a constructive eviction and breach of covenants by the landlord. The trial judge found that the landlord's conduct in failing to fix the leaking roof constituted a constructive eviction, relieving the tenant of the obligation to pay rent. Alternatively the trial judge found that even if the tenant had not been constructively evicted, the tenant could have lawfully withheld the rent under the dependent covenants rule, where the landlord had failed to provide a "dry space," a service essential to the lease.

On appeal, the Supreme Judicial Court conducted a very thorough review of the judge's findings concerning constructive eviction and held that although the landlord failed to adequately maintain the roof, the tenant had not proven that the leaks made the premises untenantable for the purposes for which they were used. Therefore, the court ruled that the trial judge's ruling for the tenant on the basis of constructive eviction could not stand.

The court next turned to the alternative finding of the trial judge, that the tenant could lawfully have withheld rent because the landlord failed to provide an essential service. In upholding the trial judge's finding on this issue and permitting the tenant to terminate the lease because of a breach of the landlord's covenant, the court abandoned the common-law rule of independent covenants in commercial leases in favor of the modern rule of mutually dependent covenants as reflected in Restatement (Second) of Property section 7.1 (1977).

In overruling long-established precedent in landlord tenant law, the court clearly set forth the reasons why the change was necessary, explaining that the nature of the commercial landlord tenant relationship in a modern industrial society is fundamentally different from its origins in an agrarian society. The court also indicated that it would look to the Restatement of Property as it fleshed out the developing law in this area so that practitioners could anticipate the required standard of conduct of landlords and tenants.

However, the Wesson decision raised great concern among lawyers specializing in commercial leases. Their concern arose not because the court changed the law, but because the court changed the law retroactively. It applied the dependent covenants rule to permit the tenant to terminate his lease with the landlord executed 14 years earlier on the basis of law that was not in existence at the time the lease was executed.

In the past, the court has been very reluctant to change property law retroactively. For example in Sullivan v. Burkin, 390 Mass. 864 (1984), the court held that property in revocable inter vivos trusts should be considered part of the probate estate when computing the statutory forced share of the surviving spouse. However, it applied that ruling only to inter vivos trusts created or amended after the date of the opinion. In ruling that the decision would only be applied prospectively, the court said:

The rule of Kerwin v. Donaghy has been adhered to in this Commonwealth for almost forty years and was adumbrated even earlier. The bar has been entitled reasonably to rely on that rule in advising clients. In the area of property law, the retroactive invalidation of an established principal will be undertaken with great caution.

The court attempted to justify retroactive invalidation in Wesson in footnote 26.

Ordinarily, judicial changes to contract and property law are applied prospectively only, "primarily because of concern for litigants and others who have relied on existing precedents" (citations omitted). Such concerns are compelling where the changes of existing laws involves a previously unquestioned aspect of law in which reliance interests exert a strong influence (citations omitted). These are not the circumstances of the rule we adopt in this case. The abandonment of the rule of independent covenants in commercial leases has been foreshadowed at least since our 1973 decision in Boston Hous. Auth. v. Hemingway (363 Mass 184), in which we abandoned the rule in residential leases. In the interim the Restatement of Property Second (Landlord and Tenant ) 1977 adopted the rule of independent covenants and the lack of continued vitality in Massachusetts of the rule of independent covenants has been foreshadowed in cases decided by the Appeals Court…and by the Federal Court… In these circumstances, commercial landlords and tenants have had ample warning and opportunity to anticipate such a change and to incorporate appropriate provisions in their lease agreements. The concern for reliance or unquestioned precedent is simply not present here. Consequently, we apply the rule to the lease in this case.

Even if the court is justified in requiring a practitioner to anticipate trends in property law and provide for them in their leases, the court fails to consider the longevity of many commercial leases that are essential to finance large commercial projects. Leases with options extending for 30 or 40 years are not uncommon. There were many leases outstanding on Sept. 9, 2002, that were executed before the decision in Boston Housing Authority v. Hemingway, 363 Mass. 184 (1973), or the Restatement in 1977. At least with respect to those leases, the decision of the court upset the justifiable reliance of practitioners on established precedent and fundamentally altered the balance of power between landlords and tenants.

The retroactive application applied in this case is even more difficult to understand when the court could have reached the same result by giving more deference to the findings of the trial judge on the issue of constructive eviction and announcing that the rule of independent covenants would be abandoned only for leases executed or amended after the date of the decision.

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