September 14, 2018
Author: David M. Kerth
Organization: Jones Walker LLP
Landlord-Tenant Law in Louisiana
I. Remedies for Tenant Defaults – Evictions, and The Suit for Breach of Lease
A. Types of Tenant Defaults
A tenant can default on a lease in numerous ways. Tenants can cease paying rent. Tenants can cease business operations in a commercial lease, even though the lease does not allow them to “go dark.” Tenants can simply fail to build out the leased premises and open for business. And, tenants can abandon the leased premises.
That list is far from exclusive, however. Sometimes the tenant breaches other provisions of the lease that are not so obvious and apparent. The tenant can fail to maintain insurance on the leased premises, use the property for a purpose other than the purpose specified in the lease, or improperly hawk customers. In residential leases, a tenant can breach the lease by having unauthorized occupants live in the leased premises.
All of these defaults can warrant an eviction action or a suit for damages based on the breach of the lease. But, because a lease is a contract, the provisions of the lease govern the relationship between the landlord and tenant. The Courts are supposed to interpret the lease to determine the common intent of the parties. See, La. Civ. Code art. 2045. When the words of the lease are clear and unambiguous and lead to no absurd consequences, no further interpretation can be made to determine the parties intent. See, La. Civ. Code art. 2046; see also Taylor v. Manuel, 2001-0653 (La.App. 3 Cir. 10/31/01), 799 So.2d 812 (applying this concept to a lease). Thus, generally the terms of the lease will dictate how soon the landlord can take action, and what type of action it can take. For instance, most leases have some type of notice provision that requires the landlord to place the tenant in default, and to give the tenant a certain amount of time to cure the default. There may be different cure periods, depending on the type of default. And, some leases limit the landlord’s right to sue until there have been multiple defaults. The lease, and particularly the default provisions, must be closely reviewed before a landlord takes action.
B. The Demand Letter and Notice To Vacate
Title XI of the Louisiana Code of Civil Procedure, La. Code Civ. Proc. arts. 4701, et seq., governs the eviction of tenants and occupants. Although some of the requirements of the Code of Civil Procedure can be waived, generally that procedure applies to all eviction proceedings.
If the tenant’s right to occupy the leased premises has ceased, and the landlord wants to obtain possession of the leased premises, then the landlord must cause a written notice to vacate the leased premises to be delivered to the tenant. La. Code Civ. Proc. art. 4701. The notice to vacate must allow the tenant at least five (5) days from the date of its delivery, not mailing, to vacate the leased premises. La. Code Civ. Proc. art. 4701. This period might be longer, depending on the language in the lease. Since the period is five days (assuming the lease does not require a longer notice period), only business days are counted—intervening weekends and holidays are not included in the five day period. La. Code Civ. Proc. art. 5059; Lichtentag v. Burns, 258 So.2d 211 (La.App. 4 Cir. 1972). If the lease does not have an established term, then the lease of the immovable property, such as space in a shopping center, an apartment, or a house, shall be from month-to-month. La. Civ. Code art. 2680. In that case, the delay associated with the notice to vacate is the same delay as for the notice of termination of the lease. La. Code Civ. Proc. art. 4701. Thus, if the lease is, by its terms, month-to-month, then the notice to vacate must be given at least ten days prior to the end of the month. La. Civ. Code art. 2728.
But, sometimes a lease becomes month-to-month because it is a reconducted lease. Reconduction occurs when, after the expiration of the lease term and without notice to vacate or terminate or other opposition by the landlord, the tenant remains in possession of the premises for one week beyond the expiration of the lease term (this provision applies to leases with a fixed term that is longer than week). La. Civ. Code. Art. 2721. Once reconducted, the lease term becomes month-to-month, but otherwise all other provisions of the lease continue to apply lease. La. Civ. Code. Arts. 2723 and 2724. Thus, if the reconducted lease contains a specific notice period, then that period will apply instead of the ten days set by Article 2728.
One notice can serve as a notice to vacate and a notice to terminate the lease. La. Code Civ. Proc. art. 4701, cmt (c); Tete v. Hardy, 283 So.2d 252 (La. 1973). Thus, if the landlord wants to evict the tenant and collect damages for past due rent, one properly worded letter can be used for both purposes.
For commercial leases, a good practice is to send a notice to vacate to the notice address required in the lease, via certified mail, return receipt requested, and by hand delivery to the store manager at the leased premises, in order to insure that the tenant receives timely notice to vacate. This is important because the Code of Civil Procedure distinguishes between a tenant and occupant. Compare La. Code Civ. Proc. arts. 4701 and 4702. If the person operating the store is considered an occupant under the Code, the hand delivery to the store ensures that a landlord has given notice to that occupant. Also, by hand delivering the notice to vacate to the store manager, a landlord is able to expedite the process, because the hand delivery starts the five day period for terminating the lease. Sometimes there is no one available to receive the notice. Typically, that occurs when the tenant has abandoned the property. In those instances, the landlord can effectively deliver the notice to vacate by tacking it to the front door of the premises. La. Code Civ. Proc. art. 4703; French Quarter Realty v. Gambel, 2005-0933 (La.App. 4 Cir. 12/28/05), 921 So.2d 1023; Fairfield Property Management Stone Vista Apartments v. Evans, 589 So.2d 83 (La.App. 2 Cir. 1991).
A tenant can waive the notice requirements of the Code of Civil Procedure by a written waiver contained in the lease. La. Code Civ. Proc. art. 4701. In that instance, upon the termination of the tenant’s right of occupancy for any reason, the landlord can immediately institute eviction proceedings against the tenant. La. Code Civ. Proc. art. 4701. Since the lease is a contract that has the force of law between the parties, such waiver and automatic default clauses are enforceable. See, Investor Inns, Inc. v. Wallace, 408 So.2d 978 (La.App. 2 Cir. 1981).
An occupant is defined, in pertinent part, as any person occupying immovable property (i.e., real property) by permission or accommodation of the owner, former owner, or another occupant of the leased premises. La. Code Civ. Proc. art. 4704. When an owner of immovable property wishes to evict an occupant from the space after the purpose of the occupancy has ceased, the owner must deliver a written notice to vacate the premises to the occupant. La. Code Civ. Proc. art. 4702. As with the notice to vacate a tenant, the notice sent to the occupant must allow five (5) days from its delivery to vacate the leased premises. Id. This five day provision cannot be waived in advance in writing, like it can by a tenant, because presumably the occupant is occupying the space without a written lease with the landlord, and, therefore, there is no written waiver.
The action of eviction is based on the required notice to vacate. Lichtentag v. Burns, 258 So.2d 211 (La.App. 4 Cir. 1972). If the basis for eviction is non-payment of rent, and the landlord accepts even a partial payment of rent after sending the notice to vacate and before the judgment of eviction, then the notice to vacate is voided and the landlord is prevented from obtaining a judgment of eviction. A&J, Inc. v. Ackel Real Estate, L.L.C., 02-259 (La.App. 5 Cir. 10/16/02), 831 So.2d 311; Kingfish Development, L.L.C. v. Press It #1 New Orleans, LLC, 2013-1113 (La.App. 4 Cir. 3/26/14), 135 So.3d 1232, 1235.
C. Eviction vs. Acceleration of Rent
A landlord may also want to accelerate the rent due over the remainder of the lease and sue for that amount, too. But, Louisiana law requires landlords to pick their poison. Landlords cannot accelerate the rent due through the remainder of the lease term and sue to evict at the same time. See, Executive House Bldg. Inc. v. Optimum Systems Inc., 311 So.2d 604 (La.App. 4 Cir. 1975). Landlords can either accelerate the rent due through the remainder of the lease term if the lease has an acceleration clause, or sue to evict. Southpark Comm. Hospital, LLC v. Southpark Acquisition Company, LLC, 2013- 59 (La.App. 3 Cir. 10/30/13), 126 So.3d 805; 1001 Harimaw Court East, L.L.C. v. BLO, Inc., 10-860 (La.App. 5 Cir. 5/24/11), 66 So.3d 1131; Ken Lawler Builders, Inc. v. Delaney, 36,263 (La.App. 2 Cir. 8/14/02), 837 So.2d 1; Richard v. Broussard, 495 So.2d 1291 (La. 1986). These options are mutually exclusive. If a landlord accelerates rent, then the landlord will lose its right to cancel the lease and reenter the leased premises during the unexpired lease term. Id. Any provisions in a lease that allows the landlord to disturb the tenant’s possession and assert a claim for future rent is unenforceable because it is an improper attempt to circumvent established law. Southpark Comm. Hosp., 126 So.3d at 815-816; 1001 Harimaw Court, 66 So.3d at 1133. Thus, the landlord must weigh the options of suing for the accelerated rent and losing the right to access the leased premises for the remainder of the lease term.
If the landlord chooses to evict rather than accelerate the rent, then the landlord should be able to recover all past due rent through the date of eviction. Gibbs v. Harris, 35,239 (La.App. 2 Cir. 10/31/01), 799 So.2d 665. At that point, the landlord will have full possession of the leased premises, and the tenant will have no right to it, so future rent will not be owed.
The law is not as clear on whether a landlord can collect future rents if the tenant vacates after receiving a notice to vacate, but before the eviction trial. An argument can be made that the tenant has abandoned the leased premises, and, therefore, the rent continues to accrue. In Bill Kassel Farms, Inc. v. Paul, 96-462 (La.App. 3 Cir. 12/11/96), 690 So.2d 807, 811, the court stated that the notice to vacate is on the initial step in an eviction, and is not tantamount to a formal eviction. The court found that once the tenant “picked up and left” after receiving the notice to vacate, he abandoned the leased premises. Id. at 810. Similarly, in Bunel of New Orleans v. Cigali, 348 So.2d 993, 996 (La.App. 4 Cir. 1977), the court concluded that when the tenant voluntarily vacated the leased premises after receiving a notice to vacate, there was in fact an abandonment of the leased premises. But, the abandonment is at the request or insistence of the landlord.
Thus, a counterargument can be made that once the landlord sends the notice to vacate, it has asserted its right to possession of the leased premises, and cannot demand payment of rent for the unexpired term of the lease and at the same time. See, 327 Bourbon St. Inc. v. Pepe, Inc., 243 So.2d 262 (La. 1971); McGrew v. Milford, 255 So.2d 619 (La.App. 4 Cir. 1971).
D. Choosing the Correct Court
There are two basic types of actions between a landlord and tenant – eviction and suit for past due rent. The two types of actions should not be combined since the rule to evict is a summary proceeding and the suit for past due rent is an ordinary proceeding. Kingfish Development, L.L.C. v. Press It #1 New Orleans, LLC, 2013-1113 (La.App. 4 Cir. 3/26/14), 135 So.3d 1232, 1234. But see, McLellan v. Pearson, 546 So.2d 817 (La.App. 5 Cir. 1989) (denying tenant’s exceptions of improper cumulation of actions where “[t]he trial court held a summary proceeding for the eviction rule and then the matter was set for trial on the merits for the alleged past due rentals”).
The same basic issues apply to choosing the correct court, regardless of whether it is a suit for past due rent or a rule to evict. Specifically, a landlord has to make sure that it is suing in a court of competent jurisdiction, and in a proper venue. A landlord also has to make sure that it is suing the correct defendant.
A landlord has multiple options to consider for filing a rule to evict. When evicting a tenant, it is important for the landlord to consider whether suit should be filed in the state district court, city court, Federal Court, or in a justice of the peace court. The state district court is a court of general jurisdiction. The state district court is always a viable option for eviction proceedings. The city court, Federal Court, and justice of the peace court, on the other hand, are all courts of limited jurisdiction. Therefore, those courts may not be a viable option, depending on the facts and circumstances of each case. Eviction proceedings, particularly on residential leases, are often handled in a city court. But, city courts are courts of limited jurisdiction.
First and foremost, city courts typically have geographic jurisdictional limitations that may prevent the landlord from filing suit in city court, because the jurisdiction of the city courts extends only to the city limits. See, La. Rev. Stat. ann. §13:1952. For example, certain large retail developments, like Siegen Marketplace, Perkins Rowe, and the shopping centers along Siegen Lane, are not located within the city limits of Baton Rouge. Thus, regardless of the amount in dispute, eviction proceedings for those prominent retail developments in Baton Rouge must be filed in state district court, as opposed to Baton Rouge City Court.
Additionally, city courts have jurisdictional limits based on the amount in controversy. La. Code Civ. Proc. art. 4844. Generally, in eviction proceedings city courts have jurisdiction concurrent with the state district courts as follows:
(1) when the lease is by the day, and the daily rent is $150.00 or less;
(2) when the lease is by the week, and the weekly rental is $500.00 or less;
(3) when the lease is by the month, and the monthly rent is $3,000.00 or less; and
(4) when the lease is by the year, and the annual rent is $36,000.00 or less.
Id. If suit is filed to evict an occupant rather than a tenant, then the City court will have jurisdiction if the annual value of the right of occupancy is $36,000.00 or less. Id. If a landlord has the ability to sue in either city court or state district court, then certain practical issues must also be considered. First, because residential evictions are routine at city courts, those courts usually are skilled at handling the cases efficiently. The Code of Civil Procedure requires at least two days pass after the rule to evict is served on the tenant before the eviction trial can take place. La. Code Civ. Proc. art. 4732(A). Typically, city courts do a much better job of setting rules to evict soon after the required delays have run. When filing suit in state district court, as opposed to city court, several weeks, and possibly up to two months, can lapse before the rule to evict is set for hearing. A definite time frame cannot be established because the trial settings vary from one judge to another, depending up on a particular judge’s docket.
Federal Court is also an option, but those courts have limited jurisdiction. Since an eviction proceeding does not involve any federal question, a landlord can only proceed in Federal Court if there is diversity of citizenship. Diversity of citizenship requires that both parties be citizens of different states, and that the amount in controversy exceed $75,000.00, exclusive of interest and costs. 28 U.S.C. §1332. Federal Court may be an option in commercial leases, depending on the amount in controversy.
Additionally, the Louisiana Code of Civil Procedure does not govern matters pending in Federal Court. Therefore, the Federal Court does not have the same set procedure for handling eviction proceedings. The case would be treated as an ordinary proceeding with ordinary delays, rather than the expedited delays set forth in La. Code Civ. Proc. art. 4732 and the limited appeal rights discussed below. Thus, Federal Court may not be a desirable option even if the court would otherwise have subject matter jurisdiction.
Moreover, even if the past due rent that is the basis for the eviction proceeding exceeds $75,000.00, the Federal court may still determine that it does not have subject matter jurisdiction. For example, in Harvard Real Estate-Allston v. KMART Corp., 407 F.Supp.2d 317 (D.Mass. 2005), the court remanded an eviction initially filed in Massachusetts under that state’s summary process proceeding, finding that the amount in controversy requirement was not satisfied because “the plaintiff landlord [did] not seek to – and therefore, to a legal certainty, could not – recover in the action some form of compensation that may be valued in excess of $75,000.” Id. at 321. The court rejected the tenant’s attempt to quantify the value of the lease dispute, explaining that “merely because there is ultimately an issue involving a great deal of money lurking somewhere in the relationship does not transform this state statutory mechanism into a matter involving federal court diversity.” Id. See also, A. Levet Properties Partnership v. BankOne, N.A., 2003 WL 21715010 (E.D.La. 2003) (remanding eviction proceeding because the amount in controversy requirement was not met.)
The justice of the peace courts can also be an option, particularly for residential evictions. These courts also have jurisdictional limits. First, the leased property must be located within the territorial limits of the justice of peace. La. Code Civ. Proc. art. 4912(A)(1). Second, the property from which the tenant or occupant is being evicted must be residential property. Id. If these conditions are met, then the justice of the peace court has jurisdiction over the eviction matter “regardless of the amount of the monthly or yearly rent or the rent for the unexpired term of the lease.” Id. Justice of the peace courts can also handle evictions from commercial properties. If the amount of the monthly rental does not exceed $5,000.00 per month, then the justice of the peace court can handle the eviction of a tenant or occupant from a commercial property. La. Code Civ. Proc. art. 4912(B). This is true regardless of the amount of the past due rent due, or the amount of rent that would be due under the unexpired term of the lease. Id. But, as with residential evictions, the property must be located within the territorial limits of the justice of the peace court. See, La. Rev. Stat. ann. §13:2586(c)(5). It is common for apartment complex managers handling evictions themselves, without the aid of a lawyer, to use justice of the peace courts. The advantages of these courts are that the proceedings tend to be less formal, and the eviction trial is typically set on a quick schedule.
Next, the landlord must choose the proper venue, which relates to the parish in which suit is filed. It is a necessary consideration in any legal proceeding, including a rule to evict. The general venue provisions are in La. Code Civ. Proc. arts. 41, et seq. Article 80 specifies that the venue for an action for breach of a lease, which includes and eviction proceeding, is the parish where the immovable (i.e. real) property is located. La. Code Civ. Proc. arts. 80. If the immovable property is in more than one parish, then the action can be brought in either parish in which the property is located. Id. But, Article 80 also specifies that the venue authorized by it is not exclusive, and instead is in addition to any other venue authorized by law. Id. Other possible venues for an eviction proceeding include the parish of an individual’s domicile or residence in Louisiana (see, La. Code Civ. Proc. art. 42(1), general rules), the parish where a domestic corporation or LLC’s registered office is located (see, La. Code Civ. Proc. art. 42(2), general rules), the parish where domestic partnerships registered office is located (see, La. Code Civ. Proc. art. 42(3), general rules), or the parish where the lease was executed (see, La. Code Civ. Proc. art. 76.1, action on contract). Although the Code of Civil Procedure has these other options, generally speaking landlord’s rely on Article 80, the parish where the property is located, to establish venue because that is the most obvious location, and the easiest to establish. Finally, if a landlord files an eviction proceeding in the Federal Court, then the district that encompasses the parish where the leased premises are located. That can be determined by reviewing 28 U.S.C. §98, which describes the parishes included in each federal district in Louisiana.
E. The Eviction Proceeding and Appeal Process
If the tenant or occupant fails to comply with the notice to vacate, or if the tenant has waived its right to a notice to vacate by written waiver contained in the lease, then the landlord can file a rule to evict the tenant in which it asks the court to order the tenant to deliver possession of the leased premises to the landowner. The eviction proceeding is a summary proceeding, and the sole issue is whether the owner is entitled to possession of the leased premises. See, Citizens Bank & Trust v. Carr, 583 So.2d 864 (La.App. 1 Cir. 1991); Williams v. Reynolds, 448 So.2d 845 (La.App. 2 Cir, 1984).
1. The Eviction Process
The rule to evict must state the grounds upon which the eviction is sought. La. Code Civ. Proc. art. 4731. Typically the rule to evict will allege the existence of the lease, the breach that is the reason for the eviction proceeding, that a notice to vacate was sent to the tenant or delivered to the occupant, that the tenant or occupant failed to vacate the leased premises, and that the landlord wants to retake possession of the leased premises. Oftentimes the lease and notice to vacate are attached as exhibits to the rule to evict so that the judge can review all of the relevant documents before the eviction trial. If a landlord is forced to file a rule to evict, the court must allow at least two days after the tenant is served with the rule to evict before it can set the trial. La. Code Civ. Proc. art. 4732. If the court finds that the landlord is entitled to the eviction, or if the tenant or occupant fails to answer or appear at the trial, then the court must render immediately a judgment of eviction in which it orders the tenant or occupant to deliver the leased premises to the landlord. Id.
One issue to consider is who should be named as a defendant. Typically, whoever signs the lease is the proper defendant. Thus, if the tenant on the lease is a corporation or LLC, then that corporation or LLC is the proper defendant. See, La. Code Civ. Proc. art. 739. If the tenant is an individual doing business under a trade name, then that individual is a proper defendant. La. Code Civ. Proc. art. 736. If the tenant is a partnership, then the partnership, not the partners themselves, is the proper defendant. La. Code Civ. Proc. art. 737.
Because the eviction proceeding is governed by the Code of Civil Procedure, the discovery devices are available. Those discovery devices include interrogatories (see, La. Code Civ. Proc. art. 1457), requests for production of documents (see, La. Code Civ. Proc. art. 1461), requests for admissions (see, La. Code Civ. Proc. art. 1466), and depositions (see, La. Code Civ. Proc. art. 1437). While all of these discovery devices are available, they are not typically used in an eviction trial. Instead, the parties typically enter an eviction trial having some idea of what issues the opponent might raise, but not the same level of certainty they would have after engaging in written discovery and depositions.
In order to obtain a judgment of eviction, the landlord must make a record. Kenneth and Allicen Caluda Realty Trust v. Fifth Business L.L.C., 06/608 (La.App. 5 Cir.12/27/06), 948 So.2d 1137. Because the rules of evidence apply, the record and basis for eviction is typically made with sworn testimony in open court. Generally speaking the witness testifies to his relationship to the landlord, and his access to the lease and documents that demonstrate the breach of the lease. The witness then identifies the lease, confirms that the tenant is in breach of the lease, describes the nature of the breach, identifies the notice to vacate, and confirms that the landlord wants to retake possession of the leased premises. The exhibits typically are the lease, the notice to vacate, and any documents maintained by the landlord that demonstrate the breach. The last categories of documents might include financial records, such as aged receivables reports showing that the tenant’s rent balance is growing.
Generally speaking, the tenant has limited defenses. The defenses will typically be determined by the lease, which is the law between the parties. The defenses are discussed in more detail below.
2. Execution of the Judgment of Eviction
Once the court grants the judgment of eviction, the tenant or occupant has 24 hours from the time the judgment is rendered to comply with the judgment of eviction and vacate the leased premises. La. Code Civ. Proc. art. 4733. Because of the 24 hour limitation, it is important to include a date and time in which the judgment is signed in the judgment of eviction.
If the tenant or occupant does not comply with the judgment of eviction within that time period, then the court will immediately issue a warrant commanding the sheriff or constable to deliver possession of the leased premises to the landlord. Id. From a practical standpoint, the court does not automatically issue the warrant. Instead, the landlord first must ask the court to issue the warrant to the sheriff or constable. When the sheriff or constable executes the warrant to deliver possession of the leased premises to the landlord, the sheriff must, in the presence of two witnesses, clear the leased premises of any property in order to put the landlord in possession of the leased premises. La. Code Civ. Proc. art. 4734. If the sheriff or constable finds the windows or doors of the leased premises locked or barred, the sheriff can break open the doors or windows to enter the leased premises. Id. Practically speaking, the sheriff simply removes all items from the leased remises and moves them to the curb.
3. The Appeal
A tenant has the right to appeal a judgment of eviction and suspend the execution of that judgment, but it must satisfy several prerequisites. Specifically, the tenant must:
(1) answer the rule to evict under oath;
(2) plead an affirmative defense that entitles the tenant to retain possession of the leased premises; and
(3) apply for the appeal and post the appeal bond within twenty four hours after the court issues the judgment of eviction.
La. Code Civ. Proc. art. 4735. The amount of the suspensive appeal bond is determined by the court, and must be in an amount sufficient to protect the landlord against all damage that it may sustain as a result of the appeal. Id. If the tenant does not satisfy all three requirements, then he has no right to appeal. Ward-Steinman v. Karst, 446 So.2d 999 (La.App. 3 Cir. 1984); Landry v. Barras, 434 So.2d 685 (La.App. 3 Cir. 1983).
F. The Suit for Breach of Lease
1. General Procedural Issues
Once the tenant has been removed from the leased premises, the landlord may choose to file suit for the past due rent. The same venue and jurisdiction issues discussed above will apply to the suit for breach of the lease. As discussed above, the suit for breach of lease should not be combined with the rule to evict, and instead must proceed as a separate suit, since the eviction is a summary proceeding and the suit for past due rent is an ordinary proceeding.
One issue to consider in filing suit for breach of lease is who should be named as a defendant. Just as with an eviction, typically whoever signs the lease is the proper defendant. Thus, if the tenant on the lease is a corporation or LLC, then that corporation or LLC is the proper defendant. See, La. Code Civ. Proc. art. 739. If the tenant is an individual doing business under a trade name, then that individual is a proper defendant. La. Code Civ. Proc. art. 736. If the tenant is a partnership, then the partnership is the proper defendant, not the partners themselves. La. Code Civ. Proc. art. 737. Additionally, the lease may have guarantors. This is especially true if the tenant is a business entity, and the landlord wants extra protection to ensure that rent is paid. The guarantors can be sued individually for the breach of contract, without first suing the tenant. La. Civ. Code art. 3045, cmt. (c).
In order to sue the tenant or guarantor, the landlord has to be able to serve them with the lawsuit. If a tenant has a registered agent for service of process, then service on that agent is proper. La. Code Civ. Proc. art. 1235. The lease typically contains a notice address or contact information, but not the contact information for tenant’s registered agent. The Louisiana Secretary of State’s website provides registered agent information for any corporation or LLC registered to do business in the state. Thus, service on those entities is relatively uneventful, as long as the information in the lease or on file with the secretary of state is current and accurate.
Sometimes a tenant is an out-of-state entity that is not registered to do business in Louisiana. In those cases, a landlord typically wants to serve the tenant at the notice address in the lease. But, that service may not satisfy the Code of Civil Procedure’s requirements for service of process. The landlord may have to effect service of process through the Louisiana Long Arm Statute, La. Rev. Stat. ann. §13:3201, et seq. The Louisiana Long Arm Statute specifies that a court in this state may exercise personal jurisdiction over a non-resident on any basis that is consistent with the Constitution of the United States. La. Rev. Stat. ann. §13:3201 (B); see also, Crompton Corp. v. Clariant Corp., 221 F.Supp.2d 683, 686 (M.D.La. 2002). Under the Long Arm Statute, service is made by mailing the citation and certified copies of the pleadings by certified or registered mail, or by actual delivery of the citation and certified copies of the pleadings by a commercial courier (e.g., FedEx), to the out of state defendant. La. Rev. Stat. ann. §13:3204. Once the defendant is served, it has to file its responsive pleading within 30 days of the filing in the record of an affidavit attesting to the service pursuant to Revised Statute 13:3204. La. Rev. Stat. ann. §13:3205. This is a change from the 15 day period for a defendant served in Louisiana to file responsive pleadings. See, La. Code Civ. Proc. art. 1001.
If the tenant is an in-state individual or sole proprietorship, then the tenant must be served personally, or at his domicile. La. Code Civ. Proc. art. 1231. If service is domiciliary, then service is proper only if left at the defendant’s “dwelling house or usual place or abode,” and left “with a person of suitable age and discretion” who resides at the residence. La. Code Civ. Proc. art. 1234. If the individual tenant resides out of state, then he can be served via the Louisiana Long Arm Statute using the same process discussed above, and with the same delays.
If the tenant is an entity, then domiciliary service will not be enough. A registered agent of an entity cannot be served through domiciliary service. In other words, when serving an entity either through an agent or an officer, the agent or officer must be served directly, instead of through a spouse. See, La. Code Civ. Proc. arts. 1261 through 1267; Rue v. Messmer, 332 So.2d 591 (La.App. 4 Cir. 1976) (“domiciliary service cannot be made on a corporation”).
Service can be difficult if the whereabouts of the defendant, either a tenant or individual, are not readily known. Therefore, it is important to have up to date information on the tenant’s address. Additionally, if the tenant is an out of state entity and you know its state of incorporation or domicile, then you can use certain websites to locate the registered agent for service of process for the entity. See, http://www.residentagentinfo.com/.
The amounts that landlords seek to recover in a suit for breach of the lease generally consist of all past due rent, and any rent payments that continue to accrue during the life of the case, or until the landlord succeeds in mitigating its damages by locating a new tenant, whichever occurs first.
2. Default Judgment
If the tenant does not an answer or otherwise respond before its deadline, then the landlord can move for the entry of a preliminary default judgment against the tenant. La. Code Civ. Proc. art. 1701(A). After two full business days have passed from the entry of the preliminary default, the landlord can move to confirm the default judgment. La. Code Civ. Proc. art. 1702(A).
Because the lease is a written contract, it qualifies as a conventional obligation under Louisiana law. La. Civ. Code arts. 1906 and 2668; Smith v. Shirley, 2001-1249 (La.App. 3 Cir. 2/6/02), 815 So.2d 980, 984. Therefore, the landlord is allowed to confirm the default judgment by using affidavits rather than presenting live testimony in open court. La. Code Civ. Proc. art. 1702.1; see also, McCann v. Anderson, 2007-1378 (La.App. 1 Cir. 6/6/08), 991 So.2d 1086.
A default judgment cannot be different in kind from that demanded in the petition. La. Code Civ. Proc. art. 1703. The landlord will not be able to recover any amounts in the default judgment beyond those amounts that it seeks to recover in the petition itself. Id.; see also, Mount v. Hand Innovations, LLC, 12-326 (La.App. 5 Cir. 11/27/12), 105 So.3d 940; Mooring Financial Corp. 401(k) Profit Sharing Plan v. Mitchell, 2008-1250 (La.App. 4 Cir. 6/10/09), 15 So.3d 311.
3. Summary Judgment
If the tenant answers the petition, then there can be additional delay in obtaining a judgment. Typically, if there are no genuine factual issues, then the landlord can file a motion for summary judgment as soon as the tenant files an answer. The rules of civil procedure require that the answer be filed first. La. Code Civ. Proc. art. 966(A)(1); Hill v. Lopez, 2005-0182 (La.App. 1 Cir. 2/22/06), 929 So.2d 80.
The summary judgment process allows the landlord to obtain a judgment without going through a full blown trial. As with default judgments, summary judgment motions are oftentimes supported by affidavits from the landlord. La. Code Civ. Proc. art. 966(B)(2).
If discovery is conducted, then deposition testimony and responses to requests for admissions can also be used to support the summary judgment motion. Id. If a landlord files a motion for summary judgment and the tenant claims it needs to conduct additional discovery, courts will typically hold the motion for summary judgment in abeyance while the tenant conducts his discovery.
The delay from the time suit is filed to the rendition of summary judgment will vary, depending on the amount of discovery taken, and the trial court’s docket.
G. Late Fees, Interest, Attorney Fees and Other Damages
The core claim in a suit for beach of lease is for past due rent. Additionally, the suit for breach of lease will typically seek to recover any late fees that are contractually agreed upon in the lease, plus legal interest and court costs. See, La. Civ. Code arts. 2000 and 2005.
An important issue for most litigants is whether they can recover attorneys’ fees. Louisiana does not allow parties to recover attorneys’ fees unless it is specifically provided for by statute, or included in the contract that is the subject matter for the legal action. Montz v. Theard, 2001-0768 (La.App. 1 Cir. 2002), 818 So.2d 181.
Louisiana has a statute that provides that relief for residential leases. See, La. Rev. Stat. Ann. §9:3259. The lease has to be for some sort of residence, specifically an “apartment building, house, motel, hotel, or other such dwelling.” The landlord has to send a written demand that correctly sets forth the amount of the rent that is due. If the tenant fails to pay the rent within 20 days after delivery of the written demand, then the tenant is liable for reasonable attorneys’ fees, if the landlord obtains a judgment in its favor. Id. Thus, as long as those certain prerequisites are met, the residential landlord can collect attorneys’ fees regardless of whether the lease has an attorneys’ fees provision.
There are no statutes in Louisiana that automatically entitle a commercial landlord to collect attorneys’ fees for breach of lease. But, leases typically include provisions that allow the landlord to collect attorneys’ fees if it prevails. Therefore, frequently landlords will seek to recover attorneys’ fees in the suits for breach of the lease, and they should be recoverable if specified in the lease. La. Civ. Code art. 2000 (“If the parties, by written contract, have expressly agreed that the obligor shall also be liable for the obligee’s attorney fees in a fixed or determinable amount, the obligee is entitled to that amount as well.”) See Fidelity Nat. Bank of Baton Rouge v. Brandon’s Restaurant, 543 So.2d 80 (La. App. 1 Cir. 1989); Industrial Equip. Sales & Serv. Co. v. Security Plumbing, 95-572 (La.App. 5 Cir. 12/13/95), 666 So.2d 1165, 1167 (finding no error in the trial court awarding attorneys’ fees of 25% of the total amount owed under a guaranty under La. Civ. Code art. 2000).
Some attorneys’ fees provisions are actually based on a percentage of the amount recovered. Some provisions limit attorneys’ fees to a set amount. Other provisions simply say that the prevailing party can collect attorneys’ fees. If there is no stated percentage or amount, then the award of attorneys’ fees is left to the discretion of the trial court. 1001 Harimaw Court East, L.L.C. v. BLO, Inc., 10-860 (La.App. 5 Cir. 5/24/11), 66 So.3d 1131.
But, even if the lease has an attorneys’ fees provision, the landlord may not be able to recover those fees. Specifically, if the party seeking attorneys’ fees is also found to have breached the lease, then attorneys’ fees are not recoverable. Pylate v. Inabnet, 458 So.2d 1378, 1388 (La.App. 2 Cir. 1984).
While attorneys’ fees are routinely sought in a suit for past due rent, Louisiana law is not clear on whether attorneys’ fees can be recovered in a rule to evict. An eviction action is typically a summary proceeding, not an ordinary proceeding, because it is handled on an expedited basis and has an abbreviated appeal process. In Ruffo v. Marcotte, App.1924, Orleans No. 9494, the court held that the landlord could not recover his attorneys’ fees as damages. But, in Shepard Through Shepard v. Mayer, 93-CA-1899 (La.App. 4 Cir. 3/15/94), 635 So.2d 286, the court affirmed the award of attorneys’ fees and costs to the landlord in an eviction suit, relying on La. Code Civ. Proc. art. 2592, which states that “Summary proceedings may be used for trial or disposition of the following matters only: (1) An incidental question arising in the course of judicial proceedings, including the award of and the determination of reasonableness of attorney
Contractual late fees should also be recoverable. “Parties may stipulate the damages to be recovered in case of … delay in performance of an obligation.” La. Civ. Code art. 2005. Moreover, liquidated damages clauses in leases are enforceable because “there is no law prohibiting such a stipulated penalty or damage provision in a lease.” Claitor v. Delahoussaye, 2002-1632 (La.App. 1 Cir. 5/28/03), 858 So.2d 469, 479, citing Lama v. Manale, 50 So.2d 15, 17 (La. 1950).
H. Guarantor Liability
Oftentimes the tenant on a commercial lease is an entity that was created solely for the purpose of operating a business in the leased premises. In those situations, there is a legitimate concern that the entity is a shell, with no significant assets. Similarly, in a college town like Baton Rouge, the tenant in a residential lease may be a student with little or no income. In either situation, the landlord may want a personal guaranty from an individual guarantor.
“Contracts have the effect of law for the parties.” La. Civ. Code art. 1983. “When a contract is not ambiguous or does not lead to absurd consequences, it will be enforced as written and its interpretation is a question of law for a court to decide.” American Deposit Ins. Co. v. Myles, 2000-2457 (La. 4/25/01), 783 So.2d 1282, 1286. This reasoning is equally applicable to leases. “A lease contract forms the law between the parties,” and “[t]he parties are bound by the agreement regardless of any harsh consequences contained in those agreements.” New Orleans Hat Attack v. New York Line Ins. Co., 95-0055 (La.App. 4 Cir. 11/30/95), 665 So.2d 1187, 1189; CA One/Pampy’s v. Brown, 2007-1377 (La.App. 4 Cir. 4/2/08), 982 So.2d 909, 915.
The Court took the analysis even further in Woolf & MaGee v. Hughes, 95-863 (La.App. 3 Cir. 12/6/95), 666 So.2d 1128. The court explained that when the words of the contract are clear, explicit, and do not lead to absurd consequences, “no further interpretation may be made in search of the parties’ intent.” Id. at 1131. The court further explained that the rules of strict construction do not authorize “the exercise of inventive powers” to create ambiguity where none exists. Likewise, the Court noted that the rules of strict construction do not “refine away terms of a contract expressed with sufficient clearness to convey the plain meaning of the parties.” Id.
Similarly, in Tassin v. Slidell Mini-Storage, Inc., 396 So.2d 1261 (La. 1981), the court explained that:
the codal articles and statutes defining the rights and obligations of lessors
and lessees are not prohibitory laws which are unalterable by contractual
agreement, but are simply intended to regulate the relationship between
lessor and lessee when there is no contractual stipulation imposed in the
lease. All things that are not forbidden by law may become the subject of
or the motive for contracts and, when legally entered into, the contracts
have the effect of law between the parties who have made them. Our
jurisprudence is that the usual warranties and obligations imposed under
the codal articles and statutes dealing with lease may be waived or
otherwise provided for by contractual agreement of the parties as long as
such waiver or renunciation does not affect the rights of others and is not
contrary to the public good.
See also, Peter S. Title, 2 La. Prac. Real Est. §18:1 (2d ed.) (“Where there is a conflict between the general law of lease contained in the Civil Code and the terms of the specific contract, the contract prevails unless the terms of the contract are contrary to public policy; the articles in the Civil Code regulate the relationship between lessor and lessee when the lease is silent.”)
This reasoning applies to lease guaranty agreements, too. In Commercial National Bank v. Rowe, 27,800 (La.App. 2 Cir. 1/24/96), 666 So.2d 1312, 1318, the court, in concluding that a guarantor is liable on a guaranty agreement, explained that “the contract is the law between the parties.”
A guarantor, or each guarantor if there is more than one, is liable for the full performance of the obligation without the benefit of division or discussion. La. Civ. Code art. 3045. Thus, by law the guarantor does not have the right to force the landlord to pursue the tenant or other guarantors.
There are some practical things to be wary of in a personal guaranty. First, a guaranty agreement can limit the guarantors liability to less than that of the tenant. La. Civ. Code art. 3045, cmt. b. For instance, some guaranty agreements limit the guarantor’s liability to an amount that is less than that owed by the tenant, such as an obligation only to pay base minimum rent, and not the other monthly charges that are routinely charged to a tenant. See, Stonecipher v. Mitchell, 26,575 (La.App. 2 Cir. 5/10/95), 655 So.2d 1381 (finding guarantor failed to limit the guaranty agreement). The guaranty agreement may also have a time limit, so that the guarantor is only guaranteeing the first three lease years of a longer term lease. See, National Tea Co. v. Plymouth Rubber Co., 95-254 (La.App. 5 Cir. 10/18/95), 663 So.2d 801 (guarantor limited the time of the guaranty agreement to two years). Both of these limitations would be valid and enforceable. Those limitations reduce the protection that the landlord has if a tenant defaults.
Sometimes sloppy documentation by the leasing agent can undermine the benefit of a guaranty. For instance, the guaranty is simply signed by the same entity that is the tenant on the lease, and not an individual. In those cases, the guaranty provides no additional protection, because the tenant and guarantor are one and the same.
I. Tenant Defenses and Counterclaims
1. Peaceful Possession
Louisiana Civil Code article 2682 specifies the landlord’s principal obligations. one of those obligations is to protect the tenant’s peaceful possession of the leased premises. The tenant’s right to peaceful possession is “a matter of public policy that cannot be waived.” Entergy Louisiana, Inc. v. Kennedy, 2003-0166 (La.App. 1 Cir. 7/2/03), 859 So.2d 74, 80. Therefore, if the landlord fails to provide the tenant with peaceful possession, the tenant’s obligation to pay rent ceases, regardless of any contrary provision in the lease. Id. at 80-81. Thus, a common defense for a tenant is that the landlord interfered with the tenant’s peaceful possession.
A landlord who interferes with a tenant’s peaceful possession is liable for the tenant’s resulting damages. Horacek v. Watson, 2011-1345 (La.App. 3 Cir. 3/7/12), 86 So.3d 766, 771. There, the tenant moved in with her boyfriend after her apartment was burglarized. The landlord then changed the locks and removed virtually all of the tenant’s belongings because she had been unable to contact the tenant. The court found that the landlord improperly exercised self-help, and interfered with the tenant’s peaceful possession. The court also found that the landlord did not believe the tenant had abandoned the leased premises when she exercised that self-help. Id.
Moreover, a landlord can interfere with a tenant’s peaceful possession even if the tenant is in the process of vacating the leased premises. That is exactly what happened in Mansur v. Cox, 2004-0140 (La.App. 1 Cir. 12/30/04), 898 So.2d 446. There, the landlord confronted the tenant as she was in the process of removing the last of her items form the leased premises. Before the tenant could finish vacating, an argument occurred that led to the landlord firing a weapon at the tenant’s vehicle. The court noted that the question of whether a tenant abandoned the leased premises is a factual issue, and that it requires both an act of abandonment and a specific intent to abandon. Even though the tenant admitted that she intended to abandon the leased premises, the landlord intervening actions occurred before the tenant completely abandoned the space, so the landlord interfered with her peaceful possession. Id. at 448.
2. Payment of Rent
One significant defense is payment of the past due rent. Even a partial payment can derail the eviction process, if that process starts before the payment is tendered. The action of eviction is based on the required notice to vacate. Lichtentag v. Burns, 258 So.2d 211 (La.App. 4 Cir. 1972). If the basis for eviction is non-payment of rent, and the landlord accepts any payment of rent after sending the notice to vacate and before the judgment of eviction, then the notice to vacate is voided and the landlord is prevented from obtaining a judgment of eviction. A&J, Inc. v. Ackel Real Estate, L.L.C., 02-259 (La.App. 5 Cir. 10/16/02), 831 So.2d 311. This rule applies whether the payment is the rent itself, or some other payment due under the lease, such as for utilities. Kingfish Development, L.L.C. v. Press It #1 New Orleans, LLC, 2013-1113 (La.App. 4 Cir. 3/26/14), 135 So.3d 1232, 1235. Retaining the partial payment and proceeding with eviction are inconsistent under Louisiana law, and the landlord has to choose between one or the other.
3. Landlord’s Failure to Repair the Leased Premises
Particularly in residential eviction proceedings, tenants commonly argue that they refused to pay rent because the landlord failed to repair items in the leased premises. But, a landlord’s failure to repair the leased premises is not, standing alone, a defense. During the term of the lease the landlord must make all repairs that are needed to keep the property in the condition suitable for the purpose for which the property was leased. La. Civ. Code art. 2691. If the landlord fails to do so, then La. Civ. Code art. 2694 gives the tenant the right to make repairs to the leased premises, and either seek reimbursement or apply the amount paid for the repairs against the rent.
The repairs must be “necessary,” the tenant must make a demand on the landlord to make the repairs before undertaking them, and the tenant must give the landlord a reasonable amount of time to make the repairs. La. Civ. Code art. 2694; see also, Peter S. Title, 2 La. Prac. Real Est. §18:22 (2d ed.) (citing Davilla v. Jones, 436 So.2d 507, 509-510 (La. 1983); Lee v. Badon, 487 So.2d 118 (La.App. 4 Cir. 1986)). Furthermore, “a lessee may not anticipate refusal or neglect to make the repairs or withhold rent to apply economic pressure on a lessor.” Davilla, 436 So.2d at 510. In order to get the full benefit of this defense, the tenant must meet several prerequisites. First, the tenant must make a demand on the landlord to make the necessary repairs. The landlord then must make the repairs within a reasonable time. La. Civ. Code art. 2694. If the landlord fails to do so, then the tenant can make the repairs. Id. Once the tenant causes the repairs to be made, he is entitled to either immediate reimbursement of the amount spent, or to reduce the rent he pays by the amount spent to make the repairs. Id. But, the repairs must be necessary and the amount spent must be reasonable. Id. A tenant cannot refuse to pay rent simply because the landlord does not make repairs. Rather, the tenant must satisfy each of the requirements of Article 2694 before it can withhold payment of rent equal to the cost of repairs.
4. Mitigation of Damages
Article 2002 of the Louisiana Civil Code provides that an obligee must make reasonable efforts to mitigate the damage caused by the obligor’s failure to perform. Comment C to Article 2002 further explains that “‘Reasonable efforts’ are such efforts as do not place an excessive burden on the obligee.” Thus, in order to mitigate its damages, a landlord simply has to make reasonable efforts to re-let the leased premises after a tenant breaches the lease and vacates the space.
Several cases help explain what constitutes reasonable efforts to mitigate damages when there has been a breach of a lease. In Connecticut General Life Insurance Company v. Melville Realty Company, 591 So.2d 1376 (La.App. 4 Cir. 1991), the lessee opposed a motion for summary judgment on the ground that the lessor failed to mitigate its damages for future rent by refusing to re-let the premises to another tenant. There, the lessor found a prospective tenant with an offer to sub-lease the leased premises, but the lessee objected to the acceptability of the rental terms outlined in the proposed lease. Consequently, the lessor chose not to lease the property to the prospective tenant. Id. At 1377. The Court held that the lessor’s efforts to re-let the premises were reasonable, and that the lessor was reasonable in refusing to re-let the premises in light of the lessee’s reservation of the right to object to the proposed rental terms. Id. at 1378. Consequently, the Court held that the lessor mitigated its damages, and that there was no genuine issue of material fact. Id. at 1379.
Similarly, in Myers v. Foster, 610 So.2d 192 (La.App. 3 Cir. 1992), the Court held that placing signs in the windows of a building vacated by a lessee, contacting realtors for advice in leasing, and offering the property to one potential tenant was sufficient to satisfy Article 2002’s obligation to mitigate damages. Consequently, the Court affirmed the trial court’s judgment in favor of the lessor. Id. at 195.
5. Accord & Satisfaction
Louisiana Civil Code article 3079 provides that “[a] compromise is … made when the claimant of a disputed or unliquidated claim, regardless of the extent of his claim, accepts a payment that the other party tenders with the clearly expressed written condition that acceptance of the payment will extinguish the obligation.” The comments explain that the article “gives recognition to the validation by the Louisiana jurisprudence of the dispute-settling mechanism known at common law as accord and satisfaction.” La. Civ. Code art. 3079, cmt. (a).
Consistent with the text of Article 3079, the Louisiana Supreme Court has long recognized that, in order to invoke the doctrine of accord and satisfaction, (1) an unsettled or unliquidated claim must exist, (2) the debtor must tender payment in a sum less than that claimed by the creditor, and (3) the creditor must accept that payment.
Pontchartrain Park Homes, Inc. v. Sewerage and Water Bd. of New Orleans, 168 So.2d 595 (La. 1964). More recently, in Ryan v. State Farm Mutual Auto Ins. Co., 2010-0961, 2010-0962 (La.App. 1 Cir. 12/22/10), 68 So.3d 563, the court repeated the same elements required for accord and satisfaction of a debt or claim—a disputed claim, a tender of payment for less than the amount claimed, and the creditor’s acceptance or negotiation of the tender.
In River Bend Capital, LLC v. Lloyd’s of London, 2010-1317 (La.App. 4 Cir. 4/13/11), 63 So.3d 1092, the court explained that “[the] only factual issues relevant to the defense of accord and satisfaction are whether there was (1) an unliquidated or disputed claim; (2) tender of a check made by the debtor in full and final settlement; and (3) acceptance of the check by the creditor through negotiation of the check.” (citing Hawthorne v. Barbier, 02-1903 (La.App. 4 Cir. 2/19/03), 841 So.2d 28); see also, Eppling v. Jon-T Chemicals, Inc., 363 So.2d 1263, 1265 (La.App. 4 Cir. 1978); Precision Drywall & Painting, Inc. v. Woodrow Wilson Const. Co., Inc., 03-0015 (La.App. 3 Cir. 4/30/03), 843 So.2d 1286, 1288.
In order to avoid the defense of accord and satisfaction, a creditor must not accept the check tendered by cashing or depositing it. Ahner v. Hatfield, 2003-0632 (La.App. 4 Cir. 12/30/03), 865 So.2d 205. Rather the creditor must reject the check to preserve his or her rights. Id.
A landlord is most likely to face this defense in a suit for breach of lease. If a tenant owes past due rent and tenders a check for less than the balance owed with “paid in full” or a similar notation, and if the landlord deposits that check, then accord and satisfaction can defeat the landlord’s claim for the remaining balance.
6. Unfair Trade Practices
The Louisiana Unfair Trade Practices Act (a/k/a Louisiana Unfair Trade Practices and Consumer Protection Law), La. Rev. Stat. ann. §51:1401, et seq., declares as unlawful “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” This is a very fluid act that punishes unethical, unscrupulous, oppressive, or substantially injurious actions. See, Belle Pass Terminal, Inc. v. Jolin, Inc., 618 So.2d 1076 (La.App. 1 Cir. 1993). A plaintiff who successfully pursues a claim under this act can recover attorneys’ fees, and treble damages if certain prerequisites are met. La. Rev. Stat. ann. §51:1409. Because of the nebulous description of prohibited activity that can be punished under the act, and the right to recover attorneys’ fees, plaintiffs often allege that a defendant’s actions violate the Unfair Trade Practices Act.
The courts are split on applying the Unfair Trade Practices Act to lease disputes. In Webb v. Theriot, 97-624 (La.App. 3 Cir. 10/29/97), 704 So.2d 1211, the court found that the lease and sublease of hunting property and camp was not “trade” or “commerce” under the act. Likewise, in Plater v. Ironwood Land Co., L.L.C., 39,085 (La.App. 2 Cir. 12/8/04), 889 So.2d 475, the court found that the Act did not apply to a tenant’s action against a landlord after the premises, which were leased on a month-to-month basis, were sold at sheriff’s sale and the tenant received notice to vacate premises, even though the court found that the landlord’s business practices were disorganized and slipshod. Similarly, in 831 Bartholomew Investments-A, L.L.C. v. Margulis, 2008-0559 (La.App. 4 Cir. 9/2/09), 20 So.3d 532, the court found that the allegations regarding numerous attempts by the property managers to buy the property, and their aggressive and persistent efforts, were not unfair trade practices that interfered with the tenant’s option to purchase the property at the end of the lease term.
By contrast, in Doland v. ACM Gaming Co., 2005-427 (La.App. 3 Cir. 12/30/05), 921 So.2d 196, the court found that a tenant that operated video poker machines violated the Unfair Trade Practices Act when it refused to remove the disabled video poker machines from the premises after the restaurant owner terminated the month-to-month lease. The court explained that leaving the machines in the premises was an unethical and unconscionable tactic that effectively barred anyone else from operating machines at that site.
As you can see, whether an activity violates the Unfair Trade Practices Act depends on the facts of each particular case. The issue will hinge on the actions of the parties, and not necessarily the lease itself.
7. The Right to “Go Dark”
A tenant can “go dark” when it ceases all business operations in the leased premises, but continues to pay rent. In those circumstances the landlord may be tempted to take action against the tenant for breach of lease, particularly of the lease includes percentage rent, because a closed business will never hit the sales threshold required for paying percentage rent. But, depending on how the lease is written, the tenant may have a defense because the tenant may not have a duty of continuous operation. In other words, the tenant may not be prohibited from going dark.
A tenant’s duty of continuous operation may arise from express provisions in a lease, or may be implied in percentage rent leases given the particular lessor-lessee relationship. An implied obligation of continuous operation derives from Article 2710 of the Louisiana Civil Code, which provides two requirements for lessees in the absence of obligations specifically stated in the contract: (1) to enjoy the thing leased as a good administrator, according to the use for which it was intended by the lease; and (2) to pay the rent at the agreed upon terms.
The existence of a percentage rent provision in a lease does not necessarily lead to a finding by the courts of an implied duty to continuously operate. Rather, the issue often turns on the individual facts in each case. The courts first look for any express provisions in the subject lease requiring a tenant to continuously operate its business from the leased premises. If such provision is absent, then the courts will then look to circumstantial evidence weighing in favor of, or against finding an implied duty. Some of the issues that courts applying Louisiana law have considered in determining whether an implied duty exists include the motives of the tenant in relocating, the unprofitability of the store, and the lessee's right to sublease and/or assign the leased premises.
Recent cases applying Louisiana law have consistently held that an express or implied right to sublease and/or assign can negate a lessee's implied duty to continuously operate its business under a percentage rent lease. In Riverside Realty Company, Inc. v. National Food Stores of Louisiana, Inc., 174 So.2d 229 (La.App. 4 Cir. 1965), the Court had to determine whether, because the lease included a percentage rent provision, the lessee was obligated to operate its supermarket during the full term of the lease. The Court reasoned that there is no implied duty to continuously operate where a lessee has the right to sublet the premises without the lessor’s consent. Id. at 231.
Riverside was positively cited by the United States Fifth Circuit Court of Appeal in the case of Cascade Drive Limited Partnership v. Wal-Mart Stores, Inc., 934 F.2d 61 (5th Cir. 1991). There, a landlord sought to force Wal-Mart to resume business operations after if relocated a store to a different location, and secured a less desirable sub-tenant to occupy the space. In considering the landlord’s claims, the Court found that the express broad sublet provision in the lease was inconsistent with an implied obligation of continuous operation by Wal-Mart.
Riverside was again confirmed by the Fifth Circuit in Grisaffi v. Dillard Department Stores, Inc., 43 F.3d 982 (5th Cir. 1995), where the landlord argued that Louisiana law implies a duty of continuous operation in percentage rent leases when there is no lease term authorizing subletting. The Court rejected that argument, noting that under Article 2725 of the Louisiana Civil Code, if a lease is silent about subletting, then the tenant has the right to sublease, specifically stating that “there is no relevant reason to distinguish between an express right to sublease and an implied one--each is equally inconsistent with a duty of continuous operation. Where a contract is silent, courts must assume that the parties intended to bind themselves to any terms implied by law. LA CC art. 2054.” Id. at 985. The Court agreed with the tenant that a right to sublet is inconsistent with an implied duty of continuous operation, because the duty of continuous operation is a personal one. Id. at 984.
Additionally, no business is required to operate at a loss in order to comply with an implied covenant to operate. Selber Bros. v. Newstadt’s Shoe Stores, 14 So.2d 10 (La. 1943). Once the operation of a commercial enterprise in the leased premises reaches the point of unprofitability, any implied duty to operate is generally nullified. In Riverside Realty Company, the Court also had to consider whether the tenant could vacate the leased premises because its business was not profitable. The Court reasoned that a tenant is under no duty to continue to operate a business at a loss. The Court further noted that even if the tenant had been obligated to continuously operate, the landlord suffered no damages, because there would have been no percentage rentals due to the unprofitability of the business. Riverside Realty Company, 174 So.2d at 232.
8. No Right to Injunctive Relief
If a tenant stops operating in the leased premises, the landlord might also be tempted to seek injunctive relief that orders the tenant to resume business operations. But, that request should be unsuccessful because injunctive relief should not be an available remedy for the landlord.
In Sizeler Property Investors, Inc. v. Gordon Jewelry Corporation, 544 So.2d 53 (La.App. 4 Cir. 1989), the landlord of commercial property relied on a continuing operations provision in a lease to seek an injunction requiring its tenant to reopen the store. In considering whether the trial court properly issued the injunction, the Court stated that the moving party must show irreparable injury, loss or damage—i.e., a loss that cannot be measured by a pecuniary standard. Id. at 54. In reversing the trial court and holding that injunctive relief was improper, the Court explained that the landlord failed to show irreparable injury, and failed to make a prima facie showing that it would prevail on the merits. Additionally, the Court, citing Article 1986 of the Civil Code, the Court explained that specific performance under the lease would be impracticable because “implementing specific performance clearly requires not only the reorganization of a no longer existing business, but supervision by the court of the reopening and running of the business as well.” Id. at 55.
The Court reached a similar result in SREF Bon Marche Co. v. D.H. Holmes Co., Ltd., 572 So.2d 284 (La.App. 1 Cir. 1991). There, the lessee of a department store vacated the second floor of the two-story leased premises, and only operated its business from the first floor. The lessor filed suit seeking a preliminary injunction, specific performance and a permanent injunction requiring the lessee to occupy the second floor, alleging that the lessee “breached its lease by failing to maximize sales and percentage rents by closing the second floor…” Id. at 286. The Court held that a preliminary injunction was not available to the lessor because the lessor could not prove an irreparable injury. Specifically, the Court noted that the damages alleged by the lessor were purely economic because the loss of rental income is measurable in money and does not fit the definition of irreparable injury. Id. at 287. The Court acknowledged that the remedy of specific performance may, under some circumstances, be enforced by an injunction. But, the Court noted that to be entitled to such relief the plaintiff “must have a substantive right to specifically enforce an obligation in order for an injunction to be used as a procedural remedy to enforce the obligation.” Moreover, the Court cited Sizeler in reasoning that specific performance is an impractical remedy when a court must continuously supervise a business operation. Id. at 288.
J. Enforcing a Judgment
Once the landlord obtains a judgment awarding it the past due rent, the landlord has to collect that judgment. There are numerous ways to executing a judgment in Louisiana. Some of those options can be relatively passive, while others can be very aggressive. There are time constraints on when the various methods can be used. Most steps to enforce the judgment can only be used after the new trial delays (see, La. Code Civ. Proc. art. 1974), and the suspensive appeal delays (see, La. Code Civ. Proc. art. 2123) have lapsed. Thus, generally speaking there is a delay of approximately 40 days between the time the judgment is rendered and the date the judgment creditor can take most steps to enforce the judgment. A judgment creditor is not prohibited from enforcing the judgment during a devolutive appeal. Ken Lawler Builders, Inc. v. Delaney, 39,298 (La.App. 2 Cir. 1/28/05), 892 So.2d 778, 780
1. Lessor’s Privilege
The lessor’s privilege in Louisiana is a security device that secures the payment of rent. La. Civ. Code art. 2707. It applies to rent only, and cannot be used to secure other damages (e.g. liquidated damages, etc.). The privilege applies to the lessee’s movables found in and upon the leased premises. Id.
As in other areas of Louisiana law, self-help is not permitted. A landlord wishing to assert its privilege over the movables of its tenant must apply for a writ of sequestration. A landlord may seize the movables on which he has a privilege “while they are in or upon the leased property, and for fifteen days after they have been removed if they remain the property of the lessee and can be identified.” La. Civ. Code art. 2710. The lessor’s privilege also extends to the movables of the sublessee, but only “to the extent that the sublessee is indebted to his sublessor at the time the lessor exercises his right.” La. Civ. Code art. 2708. The landlord may also seize the property of a third person found on the premises, but only if the landlord does not have knowledge that it belongs to a third person. La. Civ. Code art. 2709. The third person may recover the property by judicially establishing his ownership, but if he fails to do so, then the landlord may sell the property as if it were his own. Id.
In order to enforce the lessor’s privilege, the landlord includes with its petition a request for a writ of sequestration. La. Code Civ. Proc. art. 3571. A prerequisite is that it must be within the tenant’s “power to conceal, dispose of, or waste the property or the revenues therefrom, or remove the property from the parish, during the pendency of the action.” Id. The writ of sequestration for the lessor’s privilege issues without security. La. Code Civ. Proc. art. 3575. The sheriff then seizes and holds the property until a final judgment, at which time the property is sold and the sales proceeds are used to satisfy the judgment.
Moreover, a landlord can sequester property pursuant to the lessor’s privilege before the rent is due if the landlord has good reason to believe that the tenant will remove the property subject to the privilege. La. Code Civ. Proc. art. 3572. Thus, unlike other tools for enforcing a judgment, a landlord can start the process for enforcing the lessor’s privilege before the landlord has a judgment. If the tenant pays the rent when due, then the landlord is responsible for the costs. Id.
Finally, as discussed in more detail below, certain items are exempt from seizure. Those exemptions are equally applicable to items seized pursuant to the lessor’s privilege.
2. The Judicial Mortgage
A judicial mortgage is created by filing a judgment with the recorder of mortgages. La. Civ. Code art. 3300. The judicial mortgage burdens property owned by the judgment debtor, or that he subsequently acquires, in the parish in which the mortgage is recorded. La. Civ. Code arts. 3302, 3303. The property burdened by the judicial mortgage includes (1) corporeal immovables (i.e., real property) and their component parts, (2) a usufruct of a corporeal immovable, (3) a servitude of right of use with the rights that the holder of the servitude has in the building or other constructions on the land, and (4) a lessee’s rights in a lease of immovable property with his rights in the building or other constructions on the immovable (2, 3, and 4 are different types of legal rights to use real property). La Civ. Code arts. 3286, 3302. The effect of the judicial mortgage “ceases ten years after the date of the judgment.” La. Civ. Code art. 3359. The judicial mortgage can be reinscribed within the initial ten year period, in which case it will remain effective for ten years from the date of reinscription. La. Civ. Code arts. 3362 through 3364.
But, there are limitations of creating judicial mortgages with judgments of other jurisdictions. Specifically, the filing of an authenticated copy of a judgment of court of a foreign jurisdiction, including a Federal Court, creates a judicial mortgage only when provided by special legislation, or when accompanied by a certified copy of a judgment of a Louisiana court recognizing the foreign judgment and making that judgment executory in Louisiana. La. Civ. Code art. 3305. There is special legislation allowing the filing of a judgment rendered by a Federal Court in Louisiana. La. Rev. Stat. ann. §13:4204 provides, in pertinent part, that “all judgments rendered by United States courts of original jurisdiction in Louisiana ... when recorded in the mortgage records of any parish shall rank as judicial mortgages against all of the immovable property of the judgment debtor situated in the parish to the same extent and effect given by Louisiana law to the recorded judgments of the courts of this state.”
Generally, a judgment cannot be enforced until after the suspensive appeal delays have lapsed. La. Code Civ. Proc. art. 2252. But, a judgment creditor can record a judgment in the mortgage records to create a judicial mortgage during the suspensive appeal delays. Id.; Matherne v. Guilliot, 544 So.2d 723 (La.App. 3 Cir. 1989). If the judgment debtor timely perfects a suspensive appeal, then the debtor can cancel the previously recorded judicial mortgage. delaVergne v. Galan, 514 So.2d 284 (La.App. 5 Cir. 1987).
3. Seizure and Sale at Sheriff’s Auction
Once the judgment creditor has identified assets that it wants to seize to enforce the judgment, it can obtain a writ of fieri facias (i.e., writ of fifa) that directs the sheriff to seize and sell the judgment debtor’s property at an auction. La. Code Civ. Proc. art. 2291. The judgment creditor must specify the property that the sheriff should seize. Id. The sheriff is responsible for many of the duties of the seizure and sale. The sheriff serves written notice on the judgment debtor, files a notice of seizure in the mortgage records, sends notice to other interested parties, and files an affidavit stating who received notice. La. Code Civ. Proc. art. 2293. The sheriff is also responsible for obtaining an appraisal, though the judgment debtor and the judgment creditor each name one appraiser. La. Code Civ. Proc. art. 2332 and La. Rev. Stat. ann. §13:4363. The sheriff advertises the sale once for movable property and twice for immovable property, but he must wait until three days, exclusive of legal holidays, after service of the notice of seizure before he can advertise. La. Code Civ. Proc. art. 2331. The sheriff also conducts the auction, designates the order in which things are sold, passes an act of sale after the auction, and executes a return after the sale.
The property will only be sold at the first sheriff’s sale if the value offered at auction is enough to pay the sheriff’s fees and to pay anyone else who may have a superior lien. La. Code Civ. Proc. art. 2337. Moreover, the property has to be sold for at least two-thirds of the appraised value. La. Code Civ. Proc. art. 2336. If not, then the property will be re-advertised, and a second auction will be held. Id. At the second auction, the property can sell at any price, provided that it is enough to discharge the costs of the sale and security interests or mortgages superior to that of the judgment creditor. La. Code Civ. Proc. arts. 2336 through 2337. At the second sale, the judgment will be reduced either by the greater of one-half of the appraised value, minus superior security interests, or by the amount by which the price exceeds superior security interests. La. Code Civ. Proc. art. 2336. If either a representative of the judgment creditor, of the judgment creditor himself, is not present at the sale, then the sheriff cannot sell the property for less than the amount of the writ of fifa. La. Code Civ. Proc. art. 2238. Assuming the judgment debtor has no other creditors with interests superior to the judgment creditor, then the judgment creditor will receive all proceeds of the sale after the sheriff deducts his fees and takes a commission. La. Code Civ. Proc. art. 2373. If the judgment debtor has creditors with superior interests in the seized property, then those other creditors will be paid before the judgment creditor. La. Code Civ. Proc. art. 2374. The judgment debtor has a few options to prevent the seizure and sale under the writ of fifa. First, it can get back any property the sheriff seizes by posting security equal to one-half the estimated value. La. Rev. Stat. ann. §13:4285. A condition of the security is the faithful delivery of the property at the time of the sale. Id. Second, it can prevent the sale at any time by paying the sheriff the judgment it owes, including interest and costs. La. Code of Civ. Proc. art. 2340. Third, if the judgment debtor believes that the seizure was wrongful, it can try to obtain an injunction to stop the auction. La. Code Civ. Proc. art. 2298. But, the judgment debtor can only get an injunction under certain conditions, including if the judgment debtor paid the judgment. Id. Executing through a writ of fifa has a number of advantages. First, by seizing the debtor’s property, the judgment creditor acquires a privilege over other creditors. La. Code Civ. Proc. art. 2292. Second, with a writ of fifa, the sheriff is responsible for much of the responsibilities. The judgment creditor is still responsible for drafting the writ, naming an appraiser at the appropriate time, and attending the auction.
But there are some downsides to a sheriff’s sale, primarily because of the delay. Under the Code of Civil Procedure, if the sheriff seizes movable property, then notice has to be given at least 10 days before the sale. La. Rev. Stat. ann. §43:203. If the sheriff seizes the judgment debtor’s immovable property, then the sheriff has to give notice 30 days before the sale and then again 7 days before the sale. Id. Aside from the statutory delays, there is also subject to the unpredictable delays of having the sheriff handle most of the transaction. Even though the sheriff is generally well versed in handling these sales, the sheer number of sales handled by the sheriff’s office result in some inherent delays. Moreover, because the judgment creditor must specify what items should be seized, it still needs to conduct a judgment debtor exam before proceeding with the writ of fifa, which can cause further delay.
Additionally, it is important to note that there are limits on what can be seized to satisfy a judgment. Louisiana law exempts many types of property from seizure. Under the homestead exemption, a creditor cannot seize the first $35,000.00 in value of the residence occupied by the owner. La. Rev. Stat. ann. §20:1. Other valuable items exempt from seizure include 75% of the judgment debtor’s disposable earnings, $7,500.00 in equity in one car, and any wedding or engagement ring up to $5,000.00 in value. La. Rev. Stat. ann. §13:3881. Louisiana also exempts a variety of personal property, such as tools necessary for one’s trade, calling, or profession (e.g. tools, instruments, books, a utility trailer, and a firearm); household items (clothing, bedding, linen, china, nonsterling silverware, glassware, living room furniture, bedroom furniture, and dining room furniture, cooking stove, heating and cooling equipment, one noncommercial sewing machine, equipment for required therapy, kitchen utensils, pressing irons, washers, dryers, refrigerators, and deep freezers used by him or a member of his family); family portraits; military accoutrements; musical instruments; household pets; certain farm animals; and the federal earned income tax credit. Id. Finally, Louisiana exempts pensions, tax-deferred arrangements (e.g. Roth IRAs and Keogh plans), annuity contracts, and the proceeds and payments from tax-deferred arrangements. Id.
These exemptions apply to both an ordinary seizure under a writ of fifa, and enforcement of the lessors privilege. The tools of the trade exemption can be particularly important to a commercial landlord seeking to enforce the lessors privilege, since presumably the lease relates to the tenant’s business. In Ladnier v. Villafranco, 525 So.2d 1191 (La.App. 5 Cir. 1988), one of the issues was whether printing equipment housed in the leased premises was exempt from seizure as tools of the trade. In finding that the printing equipment was exempt, the court explained that the test for determining whether an item is an exempt tool of the trade is “whether or the debtor will be prevented from exercising his trade or profession if he is deprived of the tool or instrument.” The court noted that this is a question of fact that depends on the particular facts and circumstances of each case. Id. at 1193.
In Girgis v. Macaluso Realty Company, Inc., 2000-0753 (La.App. 4 Cir. 1/31/01), 778 So.2d 1210, the court, relying on Ladnier, held that medical and office equipment and supplies left in the leased premises were exempt from seizure as tools of the trade. The landlord argued that since the doctor was working for another clinic at the time the equipment was seized, the property did not fall under the tools of the trade exemption. The court rejected that argument, and explained that the temporary non-use of equipment and supplies does not deprive the owner of the tools of the trade exemption. Id. at 1216. A seizing creditor can incur penalties for a wrongful seizure. La. Code Civ. Proc. art. 2298. Moreover, if a court determines that the seizing creditor acted in bad faith by seizing too much property, then the judgment debtors can obtain damages. La. Rev. Stat. ann. §13:4290.
Finally, a party cannot proceed with the writ of fifa until after the new trial and suspensive appeal delays have lapsed. See, La. Code Civ. Proc. art. 2252; Nassau Realty Co., Inc. v. Brown, 332 So.2d 206 (La. 1976).
A judgment creditor can seize any property the judgment debtor has in the hands of third parties (i.e., money in bank accounts) through garnishment. First, the judgment creditor requests a writ of fifa in the parish where the garnishee (i.e., the third party, such as a bank, holding the judgment debtor’s property) may be sued. La. Code Civ. Proc. art. 2411. Then, the judgment creditor must file a petition for garnishment and garnishment interrogatories. The citation, petition, garnishment interrogatories, and notice of seizure is then served on the garnishee, who has 15 days to respond. La. Code Civ. Proc. art. 2412(D). Garnishment is not continuing (other than a garnishment of wages), so the judgment creditor is only entitled to the property in the garnishee’s hands at the time the garnishment interrogatories are served on it. La. Code Civ. Proc. art. 2411(C). The judgment creditor must give the judgment debtor notice of the garnishment petition “by mail or electronic means,” but the notice shall have no effect on the validity of the act of garnishment. La. Code Civ. Proc. art. 2412(A)(2).
There are three different possible outcomes of garnishment. First, the garnishee may admit to having the judgment debtor’s property. If so, then the notice of seizure is effective as of the service of the petition for garnishment and garnishment interrogatories. La. Code Civ. Proc. art. 2412(A)(1). Second, the garnishee simply may not respond. If so, then that is deemed to be proof that the garnishee has the judgment debtor’s property. La. Code Civ. Proc. art. 2413. The judgment creditor can then file a motion seeking payment from the garnishee of the amount of the judgment, with interests and costs, and the garnishee has to prove that he has none of the judgment debtor’s property. Id. Regardless of the outcome of this motion, the judgment creditor would be entitled to attorneys’ fees and costs for filing the motion. Id. Third, the garnishee might answer and deny having any property belong to the judgment debtor. If so, then the judgment
creditor has 15 days to traverse (i.e., object to) the answers. La. Code Civ. Proc. art.
Garnishment has advantages. First, the judgment creditor effectively removes the judgment debtor from the process. Second, the debt owed to the judgment creditor will not be reduced if the price is insufficient at a second auction.
But garnishment has its own delays. First, the judgment creditor will still have to serve some sort of written discovery, and possibly conduct a judgment debtor exam, to identify third parties that have any of the judgment debtor’s property. Second, since the judgment creditor must file and serve a new petition and interrogatories, there is some added delay to the process.
Finally, a party cannot proceed with garnishment until after the new trial and suspensive appeal delays have lapsed. See, La. Code Civ. Proc. art. 2252; Ponder v. Relan Produce Farms, Inc., 439 So.2d 498 (La.App. 1 Cir. 1983).