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Out-of-Possession; Out of Liability

August 02, 2016 BY Camile Hart

At the beginning of 2016, the Georgia Court of Appeals reversed two trial court decisions that denied summary judgment over whether an owner was an out-of-possession landlord.  Sidhi Inv. Corp. v. Thrift, No. A15A1678, 2016 WL 906328, at *2 (Ga. Ct. App. Mar. 10, 2016); Cowart v. Schevitz, No. A15A2036, 2016 WL 563114, at *3 (Ga. Ct. App. Feb. 15, 2016).  In both cases, the trial court denied summary judgment to the landlord on the basis that the terms of the lease created issues of fact as to whether the owner was an out-of-possession landlord.  The recent Georgia Court of Appeals cases and the limited duty owed by an out-of-possession landlord, should convince trial courts to allow a landlord to obtain summary judgment where there is a carefully constructed lease agreement.

The Georgia Court of Appeals case, Cowart v. Schevitz, demonstrates that a landlord who retains the right to approve changes to the physical property in a lease agreement does not risk losing its status as an out-of-possession landlord. Cowart v. Schevitz, No. A15A2036, 2016 WL 563114, at *3 (Ga. Ct. App. Feb. 15, 2016).  In Cowart, a plaintiff fell on a ramp with no railing after exiting a restaurant.  The out-of-possession landlord had a lease agreement with the tenant, the operator of a restaurant.  The plaintiff argued that an issue of fact had been created because the lease agreement contained language in which the landlord had retained the right to approve changes to the physical property.  Specifically, the lease did not give the tenant free reign to construct ramps, entrances, railings, and other structures without the approval of the landlord.  The evidence showed that the landlord had viewed the defective ramp on occasion when he entered the restaurant to pick up the rent payments.  The landlord did not inspect or observe the construction of the ramp.  In addition, prior to the plaintiff’s injury, the landlord was not aware that a building code required a rail for the ramp.  The court held that a landlord who requires the tenant to seek approval for physical changes in the property does not create an issue of fact for a jury regarding whether the landlord retained its status an out-of-possession landlord. Id.  

The second Georgia Court of Appeals opinion this year also allows for a landlord to include the right to inspect the premises without sacrificing its status as an out-of possession landlord.   Sidhi Inv. Corp. v. Thrift, No. A15A1678, 2016 WL 906328, at *2 (Ga. Ct. App. Mar. 10, 2016).  In Sidhi Investment Corp., the plaintiff sued the out-of-possession landlord, Sidhi, for injuries she sustained from a fall at a convenience store.  Before the incident, Sidhi purchased the convenience store and owned it for some time.  At the time of the incident, Sidhi leased the convenience store to a tenant.  The lease agreement reserved Sidhi’s right to enter the store for purposes of inspection, repair, or showing to a prospective buyer.  The Court held that a landlord can retain the right to inspect the premises in the lease agreement, without losing out-of-possession landlord legal status.

From these new cases, landlords have some clear guidelines for how to include the right to inspect and renovate in their lease agreements.   As a note of caution, neither case called into question a lease agreement which specifically reserved the right of a landlord to personally make repairs to the premises. A landlord who retains the right to fix defects on the property itself, may still incur liability or create a question for the jury where those specific defects may have caused the plaintiff’s injury.  The decision in Ladson Investments v. Bagent held that the evidence did not demand summary judgment on the issue of whether the landlord had forfeited possession. 151 Ga. App. 24, 24, 258 S.E.2d 718, 720 (1979).  This decision was based on the court’s finding that the lease agreement retained the landlord’s right to inspect the premises and also required the landlord to replace electrical equipment it had installed, including a switch that may have caused the plaintiff’s injury. This decision has not been overruled and landlords should be cautious with lease agreements where the landlord retains the right to make the actual repairs to the premises themselves.  A landlord whose lease only retains the right to approve the tenant’s renovations to the property will avoid this problem and will more likely obtain summary judgment.

An in-possession landlord will have the typical recognized tort duty codified under O.C.G.A. § 51-3-1 which requires ordinary care to keep the premises and approaches safe.  A defendant who can convince the judge that they are an out-of-possession landlord has a lesser duty to plaintiffs injured on its property.  This lesser duty allows defendants to obtain summary judgment more easily because a jury is not needed to determine whether the defendant used ordinary care.  An out-of-possession landlord, however, is not responsible to third parties for the negligence or illegal use of the premises by the tenant pursuant to O.C.G.A. § 44-7-14.  There are a few exceptions to this rule, but generally an out-of-possession landlord will obtain summary judgment because of its lesser duty of care. 

The exception to the general rule for out-of-possession landlords is that the landlord maintains responsibility for damages arising from defective construction or for damage arising from the failure to keep the premises in repair.  O.C.G.A. § 44-7-14.  Also, when the out-of-possession landlord did not construct the structural defect, the liability of the out-of-possession landlord applies only to structural defects that would be discovered during a pre-purchase inspection.  Gainey v. Smacky's Investments, Inc., 287 Ga. App. 529, 531, 652 S.E.2d 167, 170 (2007) (holding that the faulty construction of a pulldown staircase would not have been discovered during a pre-purchase inspection).

The Supreme Court of Georgia has not weighed in on the issue of whether retaining the right to inspect or to approve of tenant’s renovations in a lease agreement could call into question an owner’s status as an out-of-possession landlord.  In Cowart, a petition for Writ of Certiorari has been filed by the plaintiff with the Supreme Court of Georgia, and the petition is still pending at the time of this article. In Sidhi, a motion for reconsideration was filed by the plaintiff, but the motion was denied.  The time for filing a petition for writ of certiorari to the Supreme Court of Georgia has expired in the Sidhi case.   

The reversals of the lower court opinions will help discourage future trial courts from precluding an out-of-possession landlord from summary judgment on the basis that the lease agreement retained the landlord’s right to inspect the premises or to approve of a tenant’s renovations.  At this point it is unclear what other kinds of lease agreement language trial courts will turn down summary judgment over, but for now the trend is toward precluding landlords from liability.  A defendant landlord who did not construct or supervise the construction of defect, and does not claim the right to make repairs itself, will likely prevail on summary judgment.  

The Journal is a publication for the clients of Drew Eckl & Farnham, LLP. It is written in a general format and is not intended to be legal advice to any specific circumstance. Legal Opinions may vary when based upon subtle factual differences. All rights reserved. 

Editorial Board:

H. Michael Bagley