Out of home leases have an implied duty of good faith and fair dealing. That’s the lesson of Stephan Business Enterprises vs Lamar.  Here are the facts.

• Foster and Kleiser entered into a lease to put a billboard on property in Cincinnati, Ohio owned by Howard Schwartz.
• The lease contained the following payment language: “In lieu of rent Foster and Kleiser will provide two 400 watt metal halide light fixtures per panel.  Lessee will place the light fixtures at 6406 Madison Rd according to Lessor directions.  The light fixtures will be connected to Lessee’s electric meters and completed and maintained at Lessee’s expense.  Said lights will be kept on as to the needs of Lessor.”
• Foster and Kleiser assigned the lease to Lamar.
• Lamar maintained the billboard and lights for 20 years without complaint from Schwartz.  At Schwartz’s direction, one light shined on the billboard and one light shined toward the ground.  Schwartz would notify Lamar if a light was not working, and Lamar would fix it.
• Schwartz sold the property to Stephan Business Enterprises (“Stephan”).  Three days after acquiring the property, Stephen sent Lamar a letter saying it had not complied with the lease.   The parties unsuccessfully attempted to negotiate a new lease.
• Stephan sent Lamar an eviction notice stating Lamar: “failed to keep lit two 400 W metal halide light fixtures per panel” as the lease required.  Stephan also said that one light had been out at the property for two months without being fixed.
• A trial court and the Ohio First District Court of Appeals ruled in favor of Lamar.  The courts found (1) That the lighting arrangement (one light at the billboard, one light at the ground) had been at the direction of the previous property owner.  (2) That Stephan did not notify Lamar that lights were out as good faith required: “Stephan should not have been able to do nothing and claim that Lamar had breached the contract when it did not know or have reason to know that the light was not working…Stephen’s own letter to Lamar showed that it did not act in good faith. The provision of light was not its paramount concern . Instead, it sought to negotiate a new lease.”

Billboard Insider’s Take:  You have a duty to you landlords to act honestly and fairly and your landlords have a duty to act honestly and fairly to you.  Courts take past actions into account in computing good faith.

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