A Pennsylvania landlord was recently ordered to pay $11,790 to tenants he evicted. The payment was ordered as reimbursement to the tenants for repairs and improvements the tenants made to the rental home. The Pennsylvania court's decision was based on the legal theory of "unjust enrichment."
Unjust enrichment is a doctrine that arises from the most basic legal principle of fundamental fairness. When work or services are performed by one party and accepted by another under circumstances where payment fairly can be expected, the doctrine of unjust enrichment applies. However, the doctrine only applies to situations where one party's gain or benefit would be unjust-the simple fact that one party has benefited from the work or services of the other is not enough.
An exception to the doctrine of unjust enrichment exists in cases involving persons related by blood or marriage. If a close family relationship exists between the parties, the courts will presume that the goods or services given by one party to the other were given without any expectation of payment. Also, the doctrine of unjust enrichment cannot be used by a person who is unhappy with the terms of a contract. Where an oral or written contract exists, the contract itself will control the rights and obligations of the parties. But where there is no contract, or where the contract's terms do not clearly provide for payment, a party who sues for payment can raise the doctrine of unjust enrichment.
In the case under discussion, the lease term was month-to-month. In a month-to-month lease, generally either party is free to terminate the lease with notice of only one month or less. The tenants claimed that in addition to the written lease terms they had an understanding with the landlord that they could live in the house "for as long as they continued to pay rent." The lease terms required very low rent in the first four years of the lease, followed by a slight increase in rent during the next four years. In the first three years of the lease, the tenants made substantial improvements to the home, adding two new bathrooms, carpeting the floors, installing a new septic system and furnace, rewiring the entire house, constructing two new porches, and painting the exterior of the home. There was no agreement between the parties about the improvements.
Seven years after the lease was signed, the landlord gave the tenants 15 days' notice of his intention to terminate the lease. The tenants had not breached the lease in any way. The tenants sued for reimbursement for the extensive improvements they had made to the home. The court found that, because the tenants had a reasonable and good-faith expectation of a long-term occupancy of the home and because the landlord knew they were making improvements to the home, the tenants were entitled to reimbursement under the doctrine of unjust enrichment. The court ruled that it would be unconscionable for the landlord to retain the benefit of a dwelling "completely transformed" from a dilapidated old structure into a greatly improved, marketable home.
In requiring the landlord to reimburse the tenants, the court found that the tenants' claims to an unlimited right to live in the house as long as they paid rent amounted to a claim to a life estate title. This case may herald an expansion of the doctrine of unjust enrichment in matters of residential real estate. In future Pennsylvania cases, tenants who have an expectation of an unlimited lease term may be treated as holding a life estate or an expectancy of title.
In light of this recent case, landlords who are pleased with their tenants should be cautious about giving oral assurances that the lease will never be terminated. Additionally, landlords should establish a clear understanding with tenants who undertake to make major improvements to the leased property. A clear, written directive that no reimbursements will be made or can be expected will provide landlords with valuable protection against a later finding of unjust enrichment.