Abandoning Rental Property

When is a church legally allowed to abandon a rented building?

Background. Many churches rent property. What if the property becomes uninhabitable because of defective conditions on the premises? Under what circumstances is a church legally justified in abandoning rented premises? That was the issue addressed by a Texas court in a recent case.

Facts. A church leased a facility in which it conducted religious services. When the church moved on the leased property one air conditioner was not working, and the property’s two other air conditioners needed servicing. The pastor also discovered there was no insulation in the building and that one restroom did not work properly. To make matters worse, the roof leaked every time it rained. This caused offensive odors, a stained and rotting floor, and soaked ceiling tiles. The church abandoned the premises, and was promptly sued by the property owner for breach of contract.

The court’s ruling. The court ruled that state law recognizes an “implied warranty” in any commercial lease that the premises are suitable for their intended purpose. Factors to be considered when determining whether there has been a breach of this warranty are:

(1) the nature of the defect, (2) its effect on the tenant’s use of the premises, (3) the length of time the defect persisted, (4) the age of the structure, (5) the amount of rent, (6) the area in which the premises are located, (7) whether the tenant waived the defects, and (8) whether the defect resulted from any unusual or abnormal use by the tenant.

The court concluded that there was sufficient evidence that the property was uninhabitable for its intended purpose, and that the church was justified in abandoning it. The court noted that “the evidence establishes the nature of the defects on the property, the defects’ effect on [the church’s] use of the property and the persistent nature of the defects. In addition, there is evidence to support the findings that [the church] neither waived the defects nor caused the defects through abnormal use of the premises.”

Relevance to church treasurers. This case illustrates an important legal principle—tenants are not required to honor a lease if the premises become uninhabitable. However, the court cautioned that a tenant can waive a right to abandon such premises. This can happen if a tenant does not object to conditions that exist at the time of the lease. Obviously, an inspection of any rental property is essential prior to signing a lease agreement. If there are defective conditions, the landlord’s responsibility for correcting them should be addressed in the lease. Of course, a church should not make a decision to abandon leased property without the advice of a local attorney who is familiar with real estate law. Also, note that this case will be relevant to churches that rent their own property. To illustrate, many churches own residential properties that were acquired for future expansion, and these properties often are rented. Tenants may have a legal right to abandon such leases with the church on the same grounds addressed by the Texas court. Ruiz v. Hilley, 1996 WL 580940 (Tex. App. 1996).

This article originally appeared in Church Treasurer Alert, September 1997.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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