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When "As-Is" Stinks
by Ron Davis

Accepting a leased space “as is” has caused a lot of headaches for a Texas shopping center tenant experiencing plumbing problems. But that tenant’s ability to show that the plumbing problems were not confined to his leased premises has made all the difference.

The shopping center, located in Houston, had leased space to the tenant for the operation of a restaurant. The lease agreement contained three “as-is” provisions. One of those provisions stated, for example, that the “lessee has inspected the premises and accepts them in their existing condition, on an ‘as-is’ basis.”

The tenant signed the lease, but says he asked the property manager if she knew of any problems that needed attention. He said she responded that “everything is working perfectly.” The tenant said he doesn’t remember if he asked that question before or after signing the lease.

About two months after beginning operations at the restaurant, the tenant complained to the property manager of a “sewer gas odor.” He said the odor was so pronounced on numerous occasions that he had to close the restaurant temporarily.

After a year of dealing with the problem, he closed the restaurant permanently. He then sued the shopping center and the property manager, contending that they knew of the odor and failed to disclose that information prior to execution of the lease.

In reply to the lawsuit, the property manager said that the tenant could produce “no evidence of any ongoing sewer gas issue” prior to execution of the lease. Two other tenants, however, told of sewer odors in their leased premises. Moreover, plumbing records demonstrate a history of ongoing plumbing- and sewer-related problems at the shopping center.

The property manager noted, however, that the tenant had signed the lease and, in doing so, had accepted the restaurant space “as is.” And a Texas court agreed that by signing the lease, the tenant had sacrificed his chances for retribution. The tenant appealed that ruling, reasoning that because the sewer problem was not confined to his premises, the “as-is” provision is not enforceable.

A Texas appellate court reversed the lower-court decision, explaining, “ Because the tenant’s claims related to alleged plumbing problems and associated odors originating outside the restaurant, they are not defeated by the ‘as-is’ clauses.”

The court nevertheless rejected the tenant’s accusation that the property manager was guilty of negligence, deception, and breach of contract. (El Savor De Mi Tierra, Inc. v. Atascocita /Boone JV, 2007 WL 2417921 [Tex.App.-Hous.14 Dist.])

Decision: September 2007
Published: October 2007



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