Bill is the owner of a small office building, and Richard is an accountant who rents office space from Bill. After failing to receive rental payments for two months in a row, Bill files a lawsuit to have Richard evicted and to collect back rent that is owed. In response to this lawsuit, Richard notifies the court that the office space has a leaky roof and is full of cockroaches. Richard claims that the office space he rents from Bill is unsuitable for any human to run a business from, and that he should not have to pay rent to Bill until Bill is able to repair the space.

(a) If everything that Richard said is true, has Bill violated the warranty of habitability? Briefly explain why or why not?

(b) After hearing both sides, the court ultimately rules in favor of Bill. Thus, the court orders Richard to immediately vacate the office space and to pay Bill all back rent owed. If everything that Richard said was true, why did the court seemingly overlook the horrible condition of the office space?

(c) Assume that Richard and Bill resolve their differences, and Richard agrees to stay in the office space until the lease ends. What will be the residual value of the lease to Richard?