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  • Kevin Cleveland

The Implied Covenant of Good Faith and Fair Dealing

The landlord and tenant relationship should be based on the idea that both parties want to profit and succeed. In fact, the California Supreme Court in 1942 opined that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. See Universal Sales Corp. v. Cal. Etc. Mfg. Co., 20 Cal.2d 751, 771 (1942). Consequently, no landlord should be allowed to drive its tenant out of business.

Back in 1955, a landlord put a grocery store next door to another grocery store, and, when the latter store did not meet the minimum sales requirements of the lease, the landlord terminated that lease. The landlord, though, did not realize that the court would not applaud such conduct, and the court found that the landlord’s conduct violated the lease. The court based its decision on the implied covenant of good faith and fair dealing. Carter v. Adler, 138 Cal.App.2d 63 (1955).

Too many times during my career, I have had to remind landlords that they could not drive tenants out of business, and to my surprise, many landlords have responded that business was based on the survival of the fittest and that landlords could do what they wanted. For whatever reason, such landlords lacked any basic business ethics.

In one instance, I had a landlord that was also a bank take control of the shopping center parking lot for several days during the month to park vans and to use such vans as mobile banks to cash welfare checks. As you might suspect, many of the tenants in the shopping center encountered problems with their customers having no place to park. For whatever reason, the landlord felt that its conduct was justified.

The good news is that this implied covenant of good faith and fair dealing exists in every lease, and both landlords and tenants need to stop and consider if their proposed actions will harm the other party. At a minimum, this is a nice way to keep everybody honest.

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