## Facts

- A landlord leased a two-story building and parking area to tenants for five years at $800 per month to operate a bar/restaurant, with renewal and purchase options.
- The lease provided the landlord would maintain the roof, plumbing, and exterior; the tenants would comply with governmental laws and regulations; the premises were accepted “as is”; and tenant-made alterations or improvements would remain with the property.
- About one year into the lease, the State Fire Marshal issued a cease-and-desist order citing fire code violations, including the lack of an automatic sprinkler system required for the wood-frame interior.
- The tenants appealed and notified the landlord, requesting that she address the required safety upgrades; at the landlord’s request, the tenants obtained bids for a sprinkler system and fire escapes and incurred about $2,200 in repairs/alterations aimed at compliance.
- At a State Fire Board hearing (with the landlord joined as owner), the Board allowed time to install a sprinkler system and ordered the second floor closed if the system was not installed by a set date.
- The sprinkler system was not installed, and the second floor was closed by government order; the tenants continued operating on the first floor and claimed business losses.
- The tenants withheld rent, asserting the landlord was responsible for the substantial structural work and had breached the covenant of quiet enjoyment.
- The landlord sued for forcible entry and unlawful detainer and sought unpaid rent; the tenants counterclaimed for code-compliance relief and damages (improvements, fixtures/equipment value, and lost income).
- The trial court dismissed the counterclaims, awarded the landlord full past-due rent and attorney’s fees, terminated the lease, and ordered restitution of the premises without removal of tenant improvements.

## Issues

1. When a lease contains a general tenant covenant to comply with laws, who bears the cost of substantial or structural alterations required by governmental safety orders absent a clear contractual shift?
2. Whether a governmental order closing part of the leased premises due to code violations, coupled with the landlord’s failure to remedy structural violations, can constitute a breach of quiet enjoyment and a partial constructive eviction.
3. If there is a partial constructive eviction and the tenant remains in possession of the unaffected portion, whether rent is entirely suspended or abated in proportion to the loss of use.
4. Whether the tenants’ counterclaims were improperly dismissed without applying the correct legal rules on structural compliance responsibility, constructive eviction, and rent abatement.

## Decision

- The New Mexico Supreme Court reversed the judgment for the landlord and remanded.
- The court held the landlord, as owner, is responsible for substantial or structural alterations required by governmental order unless the tenant clearly assumed that obligation in the lease.
- The court held the loss of use of the second floor could constitute a partial constructive eviction and breach of quiet enjoyment, supporting rent abatement.
- The court rejected total rent suspension where the tenant remains in possession after a government-ordered partial constructive eviction; the proper remedy is generally proportionate rent abatement.
- The court held dismissal of the tenants’ counterclaims and the award of full rent could not stand under the correct framework and required reconsideration on remand.

## Legal Principles

- A general tenant covenant to comply with laws does not, without clear contractual language or circumstances showing assumption, shift to the tenant the cost of substantial or structural alterations mandated by public authorities; the owner is initially responsible.
- A landlord’s failure to correct structural conditions that prevent lawful use of the premises, resulting in governmental restriction or closure, may breach the covenant of quiet enjoyment and constitute constructive eviction as to the affected portion.
- For constructive eviction:
  - If the tenant is constructively evicted from the entire premises and surrenders possession, rent may cease.
  - If the tenant remains in possession after a partial constructive eviction caused by governmental action, rent is generally reduced in proportion to the impairment, rather than fully suspended.
- The amount of rent abatement for partial constructive eviction is a factual determination tied to the diminished usable value of the premises compared to the bargain.

## Conclusion

The court allocated responsibility for major, government-mandated structural safety upgrades to the landlord absent a clear tenant assumption, recognized that government closure of part of the premises may amount to partial constructive eviction, and required remand to determine proportional rent abatement and to reconsider the tenants’ counterclaims under these rules.


Dennison v. Marlowe, 744 P.2d 906 (N.M. 1987)