Gym-N-I Playgrounds, Inc. v. Snider
220 S.W.3d 905, 50 Tex. Sup. Ct. J. 634, 2007 Tex. LEXIS 325 (2007)
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Rule of Law:
In a commercial lease, an express disclaimer of the implied warranty of suitability and a valid 'as is' clause are enforceable and will bar a tenant's claims against the landlord for damages arising from the property's condition, as the tenant has contractually assumed the risk.
Facts:
- Ron Snider founded Gym-N-I Playgrounds, Inc. and constructed a 20,075 square foot building for the business.
- Bonnie Caddell and Patrick Finn were longtime employees of Gym-N-I who were aware that the city's fire marshal had recommended, but not required, that a sprinkler system be installed in the building.
- Caddell and Finn purchased the business from Snider and subsequently leased the building from him to continue operations.
- Both parties were represented by counsel during the lease negotiations.
- Caddell and Finn declined to inspect the premises before signing the lease, believing they already knew more about the building than anyone else.
- The lease included a clause where Gym-N-I accepted the premises 'as is' and expressly disclaimed all warranties, including the implied warranty of suitability for a particular purpose.
- After the original lease term expired in 1996, Gym-N-I continued to occupy the building as a holdover tenant under a lease provision that extended the original terms to any month-to-month tenancy.
- On August 10, 2000, a fire destroyed the building.
Procedural Posture:
- Snider’s insurer, American Economy Insurance Company, filed a subrogation suit against Gym-N-I in a state trial court.
- Gym-N-I filed third-party claims against Snider, alleging negligence, breach of the implied warranty of suitability, fraud, and other causes of action.
- Snider moved for summary judgment, arguing the 'as is' clause and warranty disclaimer barred Gym-N-I's claims.
- The trial court granted summary judgment in favor of Snider on all of Gym-N-I's claims except for a breach of contract claim, which the parties settled.
- Gym-N-I, as appellant, appealed the summary judgment to the intermediate court of appeals, with Snider as appellee.
- The court of appeals affirmed the trial court's judgment.
- The Supreme Court of Texas granted Gym-N-I’s petition for review.
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Issue:
Does a commercial lease's 'as is' clause and express disclaimer of the implied warranty of suitability bar a tenant's claims against the landlord for property damage allegedly caused by latent defects?
Opinions:
Majority - Chief Justice Jefferson
Yes, a commercial lease's 'as is' clause and express warranty disclaimer bar a tenant's subsequent claims related to the property's condition. The court reasoned that the holdover provision in the original lease explicitly stated that its terms and provisions would continue to govern any month-to-month tenancy, meaning the 'as is' clause and warranty disclaimer were still in effect at the time of the fire. Citing precedent from Prudential Ins. Co. of Am. v. Jefferson Assocs., Ltd., the court held that the 'as is' clause negates the essential element of causation for claims like negligence and fraud, because by agreeing to the clause, the tenant agrees to make its own appraisal of the property and accepts the risk of any defects. Furthermore, the court held that unlike the implied warranty of habitability in residential leases, the implied warranty of suitability in commercial leases can be expressly waived, a principle supported by Texas's strong public policy favoring freedom of contract between sophisticated parties.
Analysis:
This decision solidifies the enforceability of 'as is' clauses and express warranty disclaimers in Texas commercial real estate leases. It firmly distinguishes the waivable implied warranty of suitability in the commercial context from the more protected implied warranty of habitability in residential leases, underscoring the legal presumption of equal bargaining power between commercial landlords and tenants. The ruling establishes that by signing such a lease, a commercial tenant effectively assumes the entire risk of latent defects, breaking the chain of causation required for tort claims against the landlord. This precedent makes pre-lease due diligence and property inspections critically important for prospective commercial tenants, as they cannot later rely on implied warranties if they have been expressly disclaimed.
