Yale Enterprises, L.L.C. v Euksuzian

 In an unpublished opinion from the Appellate Division, Yale Enterprises, L.L.C. v. Franck and Sarkis Euksuzian, Docket No. A-1224-07T1, the Court dealt with some interesting issues between a landlord and a tenant.

The landlord and tenant entered into a commercial lease in Medford, New Jersey, to commence on October 1, 2002. The landlord was to perform certain interior renovations prior to occupancy. However, the landlord failed to deliver the space and a series of amendments were entered into, each extending the time by which the landlord was required to deliver the space and requiring the landlord to obtain a certificate of occupancy before the tenant was required to take possession of the space. The final amendment required delivery of the space by the landlord by March 1, 2005. However, although the tenant took possession of the space on March 1, 2005, the landlord had still not acquired a certificate of occupancy for the space. Thus, the tenant’s occupancy was illegal. At the time that the tenant occupied the space, it had been evicted from its former space (after having obtained a series of extensions), which explains why the tenant moved into the new space without the certificate of occupancy having been obtained by the landlord. 

Promptly following the tenant’s occupancy, Medford Township issued various citations and levied fines because of the tenant’s occupancy without a certificate of occupancy having been obtained. The tenant expended monies to complete the improvements that should have been performed by the landlord, eventually obtaining a certificate of occupancy. Thereafter, the landlord commenced an eviction action for the failure of the tenant to pay rent. The tenant admitted that it had not paid rent, but brought a counterclaim for the fines and penalties it paid to Medford Township, for unreimbursed costs expended by the tenant for improvements to the space that it made, and for rent paid by the plaintiff to its former landlord as holdover rent that the tenant was forced to pay because of the landlord’s failure to timely deliver the space. The tenant also claimed lost profits. 

 

However, as to the lost profits, the tenant’s failure to deliver to the landlord, during discovery, of economic information relating to the tenant’s business, resulted in the Court excluding any evidence that would have proved lost profits. (It should be noted that, often, lost profits are difficult to prove, particularly in a situation where there is not a history of the company to show prior years’ profits since, without such a history, lost profits are too speculative to prove.) 

The landlord argued that the tenant had waived its right to damages signing a series of amendments, each of which provided for the occupancy date of the space to be pushed back. Presumably, none of these amendments, copies of which are not included in the opinion, made any reference to the tenant’s holdover situation or to any damages incurred by the tenant because of the delay in delivery.

The jury found in favor of the tenant, requiring reimbursement from the landlord, as to the fines and penalties paid to Medford Township, for the unreimbursed costs expended by the tenant for the improvements to leased premises, and for the excess rent paid by the tenant to its former landlord. The jury also found that the space was uninhabitable for the first five months of the lease, and decided that the rent should be reduced by fifty percent for that five-month period. In addition, the jury found that the tenant should not be required to pay any late charges otherwise required by the terms of the lease. The Court upheld all the jury awards.

Finally, the Court enforced the provision of the lease that provided for the “successful party” to be paid its legal fees, and awarded a portion of the tenant’s legal fees to the tenant, based on the fact that the tenant was only partially successful in its claims.

The landlord made two arguments that the Court did not accept. 

First, the landlord argued that since the multiple amendments entered into between the landlord and the tenant did not reserve the tenant’s rights to damages because of the late delivery of the space by the landlord, the tenant waived its right to claim such damages. The Court found that silence as to damages did not constitute a waiver. Second, the landlord argued that the tenant should not have been permitted to argue “economic duress,” in that the tenant argued that the landlord knew that timely occupancy was essential to complete the transaction, and that the tenant was left with no alterative other than to act as it did, signing the series of extensions and then occupying the space without a certificate of occupancy having been issued. The Court rejected this argument of the landlord, finding that it was reasonable that the jury should determine that the landlord was aware of the economic pressures that the tenant was being put under by the landlord’s failure to timely deliver the space. 

The opinion provides no evidence as to the background in connection with the negotiation of the amendments. We do not know whether the landlord raised the issue of the tenant waiving its rights to damages and we do not know whether the tenant raised the issue of preserving its rights to damages. Since the amendments, presumably, were silent as to this issue, it was left to the Court and the jury to determine the intent of the parties when the various amendments were executed. 

From a landlord’s perspective, if a landlord is going to sign an addendum to a lease providing for an extension of a delivery date, the landlord should at that time try to specify that the tenant has suffered no damages up to that date. If the tenant is unwilling to agree to such a provision, the landlord should at least attempt to get the tenant to specify what its losses, such as holdover rent from the other location, might be. 

From a tenant’s perspective, the tenant should resist any attempt to limit its damages. However, the lesson from this case is that if the parties remain silent as to damages incurred through the date of execution of an amendment, a court will likely determine that there has been no waiver of a claim to those damages.

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