Relating to Real Estate

In Donegal Associates, LLC v. Christie-Scott, LLC, 248 Md. App. 448 (2020), the Court of Special Appeals (CSA) held that a commercial landlord could exercise self-help by reentering the leasehold premises, evicting the tenant, and taking possession of the tenant’s personal property. The CSA permitted this because the lease authorized these remedies and the landlord effected the actions without breaching the peace. In so doing, the CSA reversed the judgment of the Circuit Court for Howard County that had held the landlord liable for conversion and awarded the tenant compensatory damages in the net amount of $96,633.96 plus punitive damages of $1 million.

Christie-Scott, LLC (Tenant) operated a hair salon in Columbia under a lease with Donegal Associates, LLC (Landlord). After the lease expired in October 2016, Tenant remained in possession while the parties negotiated a new lease. Each month, Landlord billed Tenant for, and Tenant continued to pay, the same basic rent the lease specified. Tenant did not pay its share of real estate taxes or contribute to the common area expenses during that time.

In June 2017, Tenant advised Landlord that it would not renew the lease because it would move. Landlord then demanded double rent, retroactively, and in September filed a complaint for possession of the property in the District Court for Howard County. A hearing was postponed twice before being rescheduled for November 9, 2017. Landlord apparently could not wait that long. Three days before the hearing date, on a Monday when the salon was closed and without notice to Tenant, Landlord’s principal, its lawyer, a locksmith and a security guard went to the salon, changed the locks and alarm codes, and told the sole employee of Tenant who was there at the time to leave. Landlord kept control of the premises and the personal property in it, except the employees were permitted to take their own property.

Tenant filed suit in the circuit court the next day, November 7, 2017, alleging, among other things, Landlord was guilty of conversion of its personal property located in the premises. After a four-day trial in April 2019, the circuit court held that Landlord was liable for conversion and awarded compensatory damages, giving Landlord credit for unpaid rent, taxes and common area expenses. The court also found “by clear and convincing evidence that [Landlord] acted with intent to injure” Tenant, and it awarded $1 million in punitive damages.

Landlord appealed to the CSA, which reversed, finding that there had been no conversion. There are two types of conversion. “Direct conversion” may exist if a party takes possession of property to which it is not entitled. Although the circuit court found that there was direct conversion, the CSA disagreed. It stated that self-help is a permitted remedy if (i) a tenant is in default, (ii) the lease authorizes self-help, and (iii) it is carried out peacefully. The CSA found that these conditions were satisfied in this case.

The second type of conversion is “constructive conversion,” which may exist if a party initially has the right to possession of personal property but continues that possession after it is unlawful to do so. A condition of constructive conversion is that the wronged party must make demand for return of the property before litigation commences, but that did not occur in the subject case.

The circuit court’s award of compensatory damages to Tenant included $139,938.87 against Landlord for conversion and an offset of $43,304.91 for rent owed by Tenant. In light of the dismissal of the claim for conversion, the CSA directed the circuit court to enter a judgment against Tenant for $43,304.91 in unpaid rent. The CSA also overturned the Tenant’s verdict for $1 million in punitive damages.

Points of Interest

1. The affirmation by the CSA that self-help is a viable remedy for landlords under commercial leases is significant. The Court of Appeals has recognized that a commercial landlord is permitted to resort to self-help to repossess leased premises and property within the premises when the three conditions stated in Donegal are met. But the Court of Appeals noted, “[W]e do not encourage resort to self-help and … the Bar usually counsels against it.” K & K Management, Inc. v. Lee, 316 Md. 137 (1989).

2. Did Landlord have the right to evict Tenant without providing notice? The parties continued a relationship for the better part of a year after their lease expired, with Tenant paying rent and Landlord accepting it each month. Wouldn’t consideration of the parties’ course of conduct provide Tenant with some measure of security? Further, Real Property Article (RP) §8-402(c) states that when a landlord consents to a holdover tenant’s remaining on the premises, there becomes a periodic tenancy. In Donegal, this would give Tenant the right to a month’s notice before it could be evicted. The CSA’s dismissal of Tenant’s claim of a right to notice in footnote 14 is not convincing. The Donegal court relied on RP §8‑402(a)(4), which provides that the summary remedies of that section do not limit any other remedies which a landlord may have against a holdover tenant under the lease, but it omitted reference to RP §8-402(c).

3. The precondition for constructive conversion — that the owner of the personal property taken must demand return of the property before filing suit — seems unfair and unnecessary. If Party A wrongly took Party B’s property, then Party A committed a tort, regardless of whether Party B demands return of the property before filing a lawsuit.

4. In 2012, the Court of Appeals held in Nickens v. Mount Vernon Realty Group, LLC that landlords may exercise self-help under residential leases if they do not disturb the peace, but the Maryland General Assembly overturned this ruling by enacting RP §7‑113. The Donegal opinion implicitly holds that this statute does not apply in a commercial context.

For questions, please contact Edward J. Levin.

Ed Levin
410-576-1900 • elevin@gfrlaw.com

A version of this article was published in The Daily Record on December 9, 2020.