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The trial court held that a landlord does not become liable for damages when he merely requests key money. It held that Section 1950.8 only provides for a penalty where key money is requested and paid by the tenant, and where the landlord subsequently refuses to state the amount of the key money payment in the resulting lease. The appellate court affirmed upon its review de novo. The appellate court held that the legislature's intent in creating the statute was to protect tenants from “under the table” key money payments, and not to discourage the practice of key money payments completely. The appellate court noted that key money need not be discussed in a tenant's existing lease for a landlord to request key money to extend or create a new lease, as long as the key money payment is stated in the extended or new lease.

WRONGFUL EVICTION DAMAGES

Where a tenant claimed but was unable to prove that its entire business was damaged by an alleged conversion and wrongful eviction by a landlord, it could not recover damages for loss of the entire business, even if there was wrongdoing by the landlord. Rost v. Bowling, Case No. 2D03-271, Court of Appeal of Florida, Second District, Dec. 12, 2003.

The landlord and tenant entered into a lease in June 1998 for the purpose of the tenant's operating an automotive repair business. By November 1998, the tenant fell behind in its rent payments, and the landlord locked the tenant out of the premises without providing notice or initiating eviction proceedings. The landlord's lockout prevented the tenant from accessing his automotive repair tools. Thereafter, the tenant located another building from which to conduct his business without his repair tools. The tenant sued the landlord seeking damages for wrongful eviction and conversion of property, and the landlord counterclaimed for rent.

The trial court held that the tenant owed the landlord $4400 in unpaid rent but also found that the landlord's action resulted in the tenant's inability to conduct his automotive repair business. The trial court calculated the value of the tenant's business at $50,000, and entered a final judgment in favor of the tenant in the net sum of $45,600 after deducting the unpaid rent owed the landlord. The trial court, however, held that the tenant did not present sufficient evidence for it to make a finding of conversion.

The appellate court reversed the award of damages to the tenant. It held that the key to the tenant's claim that he could not conduct business was the conversion claim, which he lost at trial. The appellate court further considered that the tenant could not prove that the landlord's action completely destroyed his business. The appellate court noted that because the tenant only sought recovery for the entire value of his business and failed to present any evidence for other recoverable damages, it could neither make any alternate award to the tenant nor remand for further proceedings.

ESTOPPEL CERTIFICATES

An estoppel certificate may not be enforceable if the party seeking enforcement takes the estoppel certificate with knowledge that it contains a defect or conflicting provisions. Bush Realty Associates v. A.M. Cosmetics, Supreme Court of New York, Appellate Division, First Department, No. 1860, Dec. 18, 2003.

Bush Realty and A.M. Cosmetics entered into a lease agreement that contained provisions for rent increases under a cost of living increase adjustment (COLA clause) formula. After 1993, the managing agent for Bush Realty Associates calculated, but then forgave, certain increases in rent for which A.M. Cosmetics may have been liable. Bush Realty then sued A.M. Cosmetics for increases in the payment of rent. A.M. Cosmetics moved for summary judgment, arguing that an existing estoppel certificate precluded Bush Realty from recovering unpaid increases in rent from A.M. Cosmetics.

The trial court granted A.M. Cosmetics' motion for summary judgment and the appellate court reversed. It held that issues of fact precluded the granting of the summary judgment motion and that an estoppel certificate may not be enforceable if the party seeking enforcement (here, A.M. Cosmetics) took the certificate with knowledge of a defect. Here, there were factual issues related to whether A.M. Cosmetics had actual knowledge that Bush Realty's calculation of the rent increases was based on a formula that contradicted the formula presented in the COLA clause. The court held that despite the conscious decision of the managing agent to forgo certain post-1993 increases to which Bush was entitled, nothing in the record indicated that he or anyone else acting on behalf of Bush was aware of the faulty foundation for the pre-1993 increases, or that a knowing decision was made to ignore the lease terms concerning the calculation of the rent.

BANKRUPTCY

Rejection of a second lease does not terminate the original lease between the parties if the condition precedent described in the second lease does not occur. If the original lease remains in effect, the tenant cannot be evicted. In re: Kmart Corporation, Case No. 03 C 2513, U.S. District Court for the Northern District of Illinois, Eastern Division, Dec. 24, 2003.

Kmart Corporation (Kmart) leased property from Sierra Vista Associates and operated a “Big K” store on the property located in the Sierra Vista Shopping Center in New Mexico. The parties thereafter entered into a ground lease for property on which Kmart intended to construct and operate a “Super K” store. Under the terms of the ground lease, the original lease for the Big K store would terminate at a time certain and after that period the only remaining lease between Kmart and Sierra Vista would be the ground lease. Thereafter, Kmart rejected the ground lease one day prior to filing for bankruptcy. Kmart continued to operate the Big K store under the terms of the original lease. Sierra Vista made a motion in the bankruptcy court to lift the automatic stay so that it could pursue state court eviction proceedings against Kmart in order to obtain possession of the property.

The bankruptcy court denied the motion, and Sierra Vista appealed to the federal district court. The federal district court affirmed. It held that Kmart and Sierra Vista had two separate leases (contracts) that did not merge. Under New Mexico law, merger only applies when two contracts on the same subject matter exist. The federal district court held that in this case, the two leases between the parties did not cover the same subject matter, even though there was some overlap. It concluded that the ground lease was a separate contract and not an amendment to the original lease. The court further held that Kmart's rejection of the ground lease did not terminate the original lease because the condition precedent described in the ground lease never occurred. Because the original lease remained in effect, Kmart could not be evicted. However, the court noted that Kmart's rejection of the ground lease constituted a breach of the ground lease and because Kmart rejected the lease one day before it filed its bankruptcy petition, any damages suffered by Sierra Vista were pre-petition claims and that Sierra Vista would be appropriately compensated for any damages under its pre-petition claims along with other unpaid construction rent claims.

KEY MONEY

Under California law, a landlord has no liability for damages when he merely requests “key money” (an upfront bonus payment made by the tenant in order to secure the tenancy); he may be subject to a penalty where key money is requested and paid by the tenant, and where the landlord subsequently refuses to state the amount of the key money payment in the resulting lease. Edamerica Inc., et al., v. Superior Court of the State of California for the County of Los Angeles; Kwan Jin Jung, Real Parties in Interest, B167449, Court of Appeal of California, Second Appellate District, Division Eight, Dec. 23, 2003.

Yeng Pil Ji and Kyong Ji operated a Korean restaurant through their company Edamerica. Edamerica entered into a written commercial lease with the Jungs in 1995. From December 2001 through March 2002, the Jis sought to obtain a new lease or extend their existing lease with the Jungs. The Jungs informed the Jis that they would neither issue a new lease nor extend the existing lease unless the Jis paid the Jungs $1 million in “key money.” The Jis did not pay the Jungs any key money and lost an offer from a third party to purchase their business because they did not make the key money payment and, as a result, had no lease to assign to the third party. The Jis sued the Jungs, claiming that the Jungs' request for key money was a violation of Section 1950.8 of the California Civil Code. The Jis sought damages for their business losses and a civil penalty of $3 million.

The trial court held that a landlord does not become liable for damages when he merely requests key money. It held that Section 1950.8 only provides for a penalty where key money is requested and paid by the tenant, and where the landlord subsequently refuses to state the amount of the key money payment in the resulting lease. The appellate court affirmed upon its review de novo. The appellate court held that the legislature's intent in creating the statute was to protect tenants from “under the table” key money payments, and not to discourage the practice of key money payments completely. The appellate court noted that key money need not be discussed in a tenant's existing lease for a landlord to request key money to extend or create a new lease, as long as the key money payment is stated in the extended or new lease.

WRONGFUL EVICTION DAMAGES

Where a tenant claimed but was unable to prove that its entire business was damaged by an alleged conversion and wrongful eviction by a landlord, it could not recover damages for loss of the entire business, even if there was wrongdoing by the landlord. Rost v. Bowling, Case No. 2D03-271, Court of Appeal of Florida, Second District, Dec. 12, 2003.

The landlord and tenant entered into a lease in June 1998 for the purpose of the tenant's operating an automotive repair business. By November 1998, the tenant fell behind in its rent payments, and the landlord locked the tenant out of the premises without providing notice or initiating eviction proceedings. The landlord's lockout prevented the tenant from accessing his automotive repair tools. Thereafter, the tenant located another building from which to conduct his business without his repair tools. The tenant sued the landlord seeking damages for wrongful eviction and conversion of property, and the landlord counterclaimed for rent.

The trial court held that the tenant owed the landlord $4400 in unpaid rent but also found that the landlord's action resulted in the tenant's inability to conduct his automotive repair business. The trial court calculated the value of the tenant's business at $50,000, and entered a final judgment in favor of the tenant in the net sum of $45,600 after deducting the unpaid rent owed the landlord. The trial court, however, held that the tenant did not present sufficient evidence for it to make a finding of conversion.

The appellate court reversed the award of damages to the tenant. It held that the key to the tenant's claim that he could not conduct business was the conversion claim, which he lost at trial. The appellate court further considered that the tenant could not prove that the landlord's action completely destroyed his business. The appellate court noted that because the tenant only sought recovery for the entire value of his business and failed to present any evidence for other recoverable damages, it could neither make any alternate award to the tenant nor remand for further proceedings.

ESTOPPEL CERTIFICATES

An estoppel certificate may not be enforceable if the party seeking enforcement takes the estoppel certificate with knowledge that it contains a defect or conflicting provisions. Bush Realty Associates v. A.M. Cosmetics, Supreme Court of New York, Appellate Division, First Department, No. 1860, Dec. 18, 2003.

Bush Realty and A.M. Cosmetics entered into a lease agreement that contained provisions for rent increases under a cost of living increase adjustment (COLA clause) formula. After 1993, the managing agent for Bush Realty Associates calculated, but then forgave, certain increases in rent for which A.M. Cosmetics may have been liable. Bush Realty then sued A.M. Cosmetics for increases in the payment of rent. A.M. Cosmetics moved for summary judgment, arguing that an existing estoppel certificate precluded Bush Realty from recovering unpaid increases in rent from A.M. Cosmetics.

The trial court granted A.M. Cosmetics' motion for summary judgment and the appellate court reversed. It held that issues of fact precluded the granting of the summary judgment motion and that an estoppel certificate may not be enforceable if the party seeking enforcement (here, A.M. Cosmetics) took the certificate with knowledge of a defect. Here, there were factual issues related to whether A.M. Cosmetics had actual knowledge that Bush Realty's calculation of the rent increases was based on a formula that contradicted the formula presented in the COLA clause. The court held that despite the conscious decision of the managing agent to forgo certain post-1993 increases to which Bush was entitled, nothing in the record indicated that he or anyone else acting on behalf of Bush was aware of the faulty foundation for the pre-1993 increases, or that a knowing decision was made to ignore the lease terms concerning the calculation of the rent.

BANKRUPTCY

Rejection of a second lease does not terminate the original lease between the parties if the condition precedent described in the second lease does not occur. If the original lease remains in effect, the tenant cannot be evicted. In re: Kmart Corporation, Case No. 03 C 2513, U.S. District Court for the Northern District of Illinois, Eastern Division, Dec. 24, 2003.

Kmart Corporation (Kmart) leased property from Sierra Vista Associates and operated a “Big K” store on the property located in the Sierra Vista Shopping Center in New Mexico. The parties thereafter entered into a ground lease for property on which Kmart intended to construct and operate a “Super K” store. Under the terms of the ground lease, the original lease for the Big K store would terminate at a time certain and after that period the only remaining lease between Kmart and Sierra Vista would be the ground lease. Thereafter, Kmart rejected the ground lease one day prior to filing for bankruptcy. Kmart continued to operate the Big K store under the terms of the original lease. Sierra Vista made a motion in the bankruptcy court to lift the automatic stay so that it could pursue state court eviction proceedings against Kmart in order to obtain possession of the property.

The bankruptcy court denied the motion, and Sierra Vista appealed to the federal district court. The federal district court affirmed. It held that Kmart and Sierra Vista had two separate leases (contracts) that did not merge. Under New Mexico law, merger only applies when two contracts on the same subject matter exist. The federal district court held that in this case, the two leases between the parties did not cover the same subject matter, even though there was some overlap. It concluded that the ground lease was a separate contract and not an amendment to the original lease. The court further held that Kmart's rejection of the ground lease did not terminate the original lease because the condition precedent described in the ground lease never occurred. Because the original lease remained in effect, Kmart could not be evicted. However, the court noted that Kmart's rejection of the ground lease constituted a breach of the ground lease and because Kmart rejected the lease one day before it filed its bankruptcy petition, any damages suffered by Sierra Vista were pre-petition claims and that Sierra Vista would be appropriately compensated for any damages under its pre-petition claims along with other unpaid construction rent claims.