Flood Damages and Your Property – How To Deal With Your Legal Issues

Sadly, the recent floods have affected countless rental units and tenants.  The floods’ devastation have resulted in possibly over a billion dollars in damage, and tragic loss of life.  In addition to the human and monetary costs, the floods have raised countless legal issues for the rental industry.   The most common questions we have been asked center on repairs, lease termination, and rent abatement.  Some issues are governed by previous court decisions.  However, the vast majority of flood-related issues are determined by lease language and the Colorado Warranty of Habitability Act (the “WHA”).  Regardless of what your lease says, the WHA may control some scenarios.  Overall, you’re likely to stay out of flood-related legal trouble by exercising a caring attitude to those unfortunate enough to be affected by Mother Nature’s wrath.

Landlords may want to terminate a tenant’s lease for several reasons because of the floods.  The landlord may not be able to make repairs in a timely or cost effective manner.  The rental unit may have been damaged to the extent that it is uninhabitable.  A tenant may be refusing to move because they have nowhere to go or can’t afford to move.  Can a landlord terminate a tenant’s lease because of flood related damage?  Probably, but it depends on the facts.

At common law, absent a lease or a specific law governing the situation, a lease is not terminated by damage to the premises unless repairs cannot be made within a reasonable time.  Most flood-related termination situations aren’t governed by common law because most leases address damage to the premises scenarios.  Specifically, a good lease gives the landlord the right to terminate the lease for damage to the premises.  The extent of the damage necessary for a landlord to terminate a lease is also determined by the lease.  Some leases require the premises to be untenable or uninhabitable for the landlord to terminate.  Other leases require significantly less damage for the landlord to be able to terminate.  If your lease is well drafted, you can terminate, regardless of the extent of the damage, if repairs are either dangerous or impractical if the tenant continued to occupy the premises.

Some tenants may argue that the WHA requires a landlord to repair under all circumstances.  However, the WHA specifically states that nothing “shall prevent a landlord from terminating a rental agreement as a result of a casualty or catastrophe to the dwelling unit without further liability to the landlord or tenant.”  However, landlords can only terminate based on an applicable lease provision, or based on the premises not being able to be repaired within a reasonable time.  If a landlord’s basis for termination is weak, the tenant’s WHA argument that the landlord is required to make the premises habitable under the WHA has much more merit.  If this scenario arises (premises not completely uninhabitable and no specific right to terminate), the landlord can either choose to press their right to terminate argument with accompanying legal risk if they lose, or move the tenant to another unit at landlord’s cost.  If no unit is available and the landlord doesn’t want to risk losing under the WHA, then the landlord should negotiate a resolution with the tenant.

If the tenant wants out but the landlord doesn’t want to set the tenant free, a tenant has three potential grounds to terminate a lease.  A  lease might contain specific rights to terminate if the premises were significantly damaged, and repairs are not timely made.  Tenants also have the right to terminate a lease if the covenant of quiet enjoyment is breached.  Similarly, the WHA gives tenants specific statutory rights to terminate a lease if the premises are uninhabitable and the landlord refuses to repair within a reasonable time.

The vast majority of multi-family leases require the landlord to make repairs.  If the floods damaged a tenant’s unit making the unit untenable or uninhabitable, the tenant can assert the right to terminate based on frustration of purpose.  A residential rental becomes untenable when damage results to the extent that the premises cannot be used for the purpose for which they were rented, and cannot be restored to a fit condition by ordinary repairs made without unreasonable interruption of the tenant’s use.  A tenant’s continued occupancy of a residential unit is evidence that the property is habitable.  Whether a rental unit is habitable is a question of fact to be determined by the court.

Unless expressly agreed otherwise, every lease contains an implied covenant of quiet enjoyment in Colorado.  The covenant covers repairs.  A covenant of quiet enjoyment is breached when the premises become unfit for the purposes for which they were leased, or the tenant is deprived of the beneficial enjoyment of the premises.  Anything a landlord does or doesn’t do that renders the premises unfit for occupancy, or deprives the resident of his beneficial enjoyment theoretically breaches the covenant of quiet enjoyment.  Thus, if a landlord has the responsibility to make repairs after a flood and fails to do so, the tenant may have the right to break his lease and move out without penalty.  In a well-written lease, the tenant waives the implied covenant of quiet enjoyment.

However, even if a tenant has waived the right to quiet enjoyment, the lease contains no other provisions giving the tenant the right to terminate the lease, and creates no repair responsibilities on the landlord, the tenant may still have a right under the WHA to terminate the lease under the right set of facts.  The WHA act, adopted in 2008, places the burden on landlords for making the premises habitable.  The WHA contains a lengthy list of conditions that make a rental unit uninhabitable.  However, the list is irrelevant in court because the law also provides that the premises may also be uninhabitable if any condition exists that makes the premises unfit for human habitation.  The WHA also requires the premises to be in a condition that is materially dangerous or hazardous to the tenant’s life, health, or safety.  Based on our experience in court, under the right set of facts, judges could find that substantial flood damage was dangerous to a tenant’s health or safety.

A number of clients have asked us whether the tenant still has to pay rent after the floods.  Maybe.  The answer depends on the extent of the damage to the rental and how quickly repairs are made.  If there is no applicable lease provision or statute, the tenant’s liability for rent after the flood depends on the extent of the damage to the unit.  If damage is not significant or complete, and repairs either don’t interfere with the tenant’s occupancy or can be made within a reasonable time, the tenant is still liable for rent.  If a unit is uninhabitable and cannot be repaired within a reasonable time, the tenant would have the right to terminate the lease, and rent would abate completely.

Many residential leases address rent abatement when the premises are damaged.  Frequently, leases provide that if the premises are damaged but repairable, tenant’s rent stops from the date the premises became uninhabitable to the date the tenant can reoccupy the premises.  Unless the damage or casualty event is due to tenant, then the rent does not abate.  We have seen some leases that shift the risk of loss back onto the tenant.  Specifically, these leases provide that rent does not abate upon flood damage.  Under these leases, theoretically, the tenant’s rent wouldn’t abate per the lease.  A court may enforce this provision in a commercial setting.  However, a court is unlikely to make a displaced residential tenant pay rent in most circumstances.  If the tenant’s lease required the tenant to maintain alternative living accommodations insurance coverage, the result may be different.

Even if the lease provided that the tenant’s rent does not abate because of the flood, the tenant could argue that the WHA reduces or eliminates all rent due.  Under the WHA, the landlord is responsible for making the premises habitable.  If the landlord breaches the warranty of habitability, the tenant can recover all damages arising directly from landlord’s breach of the warranty of habitability.  Tenant’s damages in a WHA action include any reduction in the fair rental value of the unit.  If the unit is completely uninhabitable, its fair market rental value is $0.  Under the WHA, the court could greatly reduce the monthly rent based on flood damages even if the tenant continued to occupy.

Even if a lease contained a non-abatement clause, a landlord might incur significant liability under the WHA for attempting to collect full rent when the rent should be completely or partially abated.  The tenant refuses to pay.  The landlord sues to collect full rent based on the non-abatement clause.  The court finds that the premises were uninhabitable, and thus the fair market rental value of the premises is $0.  Accordingly, the court awards no damages to the landlord.  Under certain circumstances, the court could award several thousands of dollars in attorneys’ fees to the tenant.  Because the WHA makes any lease void that attempts to modify or waive the warranty of habitability, a court could also find that the non-abatement clause is void as against public policy.

Overall, if damage is not severe and you can repair quickly, a tenant probably cannot terminate a lease, and rent does not abate.  However, regardless of your legal rights, you should consider the reasons not to fight and the overall optics of the floods.  The floods significantly impacted the lives of countless people.  The floods have rightfully generated great public sympathy for those affected.  Under these circumstances, an overly aggressive landlord or perhaps even a mildly aggressive one is not likely to be viewed favorably by the court.  Regardless of the law, judges are human.  Because your not going to get full rent on significantly impacted units, why fight a tenant’s desire to terminate the lease?  Even if you allow the tenant to walk away by terminating the lease, you may be opening yourself to needless liability by chasing rent the court is not going to award.  You may be in a better position to make repairs if the unit is vacant.  You should also consider that rental units aren’t staying vacant long given the current strength of the rental market in Colorado.

View Resource »