Business Transaction Newsletter – September 2018

IN TENNESSEE “AS-IS” WHERE-IS” MEANS WHAT IT SAYS

In the case of Briggs & Stratton Power Products Group, LLC vs. Osram Sylvania, Inc., Et Al, the Court dealt with the interpretation of a commercial lease which described the condition of the leased premises as being in an “AS-IS, WHERE-IS” condition, with all faults whether known, unknown, patent or latent.

In the Briggs & Stratton case, Tower Dyersburg, LLC and DM Dyersburg, LLC (collectively “Tower”) purchased the warehouse property where the leased premises were located in 2007, a few months after the lease was entered into.  Tower entered into a Management Agreement with Quadrelle to provide management services for the entire property in which the leased premises were located.  On December 1, 2008, fire consumed the leased premises and destroyed all of Briggs & Stratton’s inventory.  Briggs & Stratton filed suit against Sylvania alleging that metal halid lamps manufactured by Sylvania exploded and caused the fire.  In addition to filing suit against Sylvania, Briggs & Stratton also sued Tower and Quadrelle in a cause of action for negligence, alleging that Tower and Quadrelle had a duty to inspect, maintain, operate, and keep the warehouse and component parts thereof in a reasonably safe manner.

The Court of Appeals upheld the Trial Court’s granting of summary judgment in favor of Quadrelle finding that under the language in the lease, Quadrelle owed no duty to Briggs & Stratton.  The Court wrote that Quadrelle’s duties to Briggs & Stratton were governed by its Management Agreement with Tower which incorporated the lease language of “AS-IS, WHERE-IS.”  The Court in the Briggs & Stratton case wrote that Tennessee Courts have enforced “AS-IS, WHERE-IS” language in commercial leases by ruling that essentially an “AS-IS, WHERE-IS” clause means that the buyer or lessee is purchasing or leasing the goods or property as it is in its present state of condition.  This phrase generally implies that the property is taken with whatever faults it may possess and implies that the seller or lessor is released of any obligation to reimburse the purchaser or lessee for loss or damage that results from the condition of the goods or property.

MY RECOMMENDATION:   Leases, real estate transactions, and asset transactions all have an issue to be considered by the parties as to the condition of the property being sold or leased.  Buyers/Lessees typically will want as strong as possible of a representation and warranty about the condition of the property or the products.  Alternatively, Sellers/Lessors want as mild as possible of a representation and warranty about the condition of the property or the products, even to the point of providing that the sale or the lease is “AS-IS, WHERE-IS” (as was the case in the Briggs & Stratton case).  Oftentimes such provisions are not given careful consideration by Buyers/Lessees and Sellers/Lessors.  The Briggs & Stratton case points out a good example of why considering the condition of the subject matter of the transaction on the front end is important for all parties.

Yours very truly,

RAINEY, KIZER, REVIERE & BELL, P.L.C.

William C. Bell, Jr., Attorney at Law