Tenant Owes Rent Despite Illegal Lease

April 1, 2009
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If you are currently looking to lease space or renew your lease, make sure that the space you are considering is zoned in accordance with the needs of your business. If you fail to verify the zoning, you could end up paying for space that you can’t use. That’s what happened to a tenant in Maryland.

In Custer Environmental, Inc., v. 9305 Old Georgetown Rd. Partnership, a tenant signed a lease that allowed it to use the space “for office and commercial purposes.” The local authorities approached the tenant and informed it that its use was in violation of the local zoning ordinances. After learning of the violation, the tenant contacted the owner and stopped paying rent. The owner then sued to evict the tenant and collect the unpaid rent.

The lower court first ordered the tenant to pay the unpaid rent into an escrow fund with the court, and eventually ruled that the lease was illegal. The tenant sued for the return of the escrowed rent, arguing that since the lease was illegal, it was also unenforceable, thus the owner wasn’t entitled to collect.

A Maryland appeals court reversed the lower court’s ruling and held that the owner was entitled to the escrowed rent. After reviewing the lease, the court noted that the lease stated that if any part of the lease was illegal or unenforceable, the rest of the lease would remain in force. Also, relying upon state law, the court said that an illegal lease is still enforceable if there’s a way to make it legal. In this case, the lease could have been made legal if the tenant petitioned the local zoning board for a variance. Also, the tenant did not provide any proof that it could not make its use comply with the current zoning ordinance.