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The appellate court affirmed the money judgment. It held that under California law, although a landlord is required to mitigate damages, a landlord is not prohibited from selling the subject property in order to do so, as long as the trier of fact finds the sale to be a reasonable solution to avoid incurring further damages. Moreover, although selling expenses may not always be awarded to a landlord, the court found that, in this case, an award of the landlord's costs expended to sell the property abandoned by the tenant was appropriate. It concluded that the tenant had reason to foresee the possibility that the landlord might sell the building to mitigate its damages after the tenant's abandonment. The court considered that the tenant was in the real estate business and should have been aware that the abandonment of its lease of the entire building would make it difficult for the landlord to bear the burden of a vacant building. Finally, the tenant could not prove that the expenses incurred by the landlord were unreasonable, unnecessary or could have been avoided.

TRESPASS AND WRONGFUL EVICTION

A landlord may be guilty of trespass and wrongful eviction of a tenant where the tenant closes the subject premises but does not surrender its keys or the lease and where the tenant established it was attempting to sell its business, including the lease to the subject premises. North Main Street Bagel Corp. v. Duncan, Index No. 31180/97, 2003-01746, Supreme Court of New York, Appellate Division, Second Department, 775 N.Y.S. 2d 362, April 19, 2004.

The tenant closed its bagel store but did not surrender its lease or keys to the premises. The tenant left the electricity on and left its equipment in the store. The tenant continued to pay rent arrears and was attempting to sell its business, including the lease. The landlord failed to make a demand for rent, and re-entered and relet the premises. The tenant sued for trespass, wrongful eviction and tortious interference with contractual relations.

The trial court dismissed the claims for trespass and wrongful eviction, and the tenant appealed. The appellate court held that the tenant did not abandon the premises and that the landlord's re-entry and reletting of the premises without giving the tenant the required notice amounted to trespass and wrongful eviction. Consequently, the landlord was liable for damages for both wrongful eviction and trespass. However, the tenant could not maintain an action for tortious interference with a contract for the sale of its business that included the lease, because the tenant could not establish that the landlord's attempts to relet the premises were designed solely to injure the plaintiff or that the landlord used “wrongful means” to re-enter the premises.

RIGHT OF FIRST REFUSAL

A sublessor may have a right of first refusal where the landlord executes additional documents demonstrating the landlord's promise to uphold the right of first refusal as per the sublessor. Chrysler Realty Corporation v. Davis, Case No. 4D02-3755, Court of Appeal of Florida, Fourth District, April 21, 2004.

In 1985, Davis entered into a net ground lease with Frontier Realty with respect to approximately 17 acres of property. The lease provided Frontier with an option to purchase the property at the end of the 21st year (2006). In 1987, Frontier entered into a long-term ground sublease with Chrysler for 6 of the 17 acres. The initial term of the sublease was 25 years and gave Chrysler an option to purchase under the same terms and conditions as the net ground lease between Davis and Frontier. Davis acknowledged the sublease. Davis also executed a Non-Disturbance Agreement (NDA) with Frontier and Chrysler that stated that if the prime lease terminated, the sublease would continue with the same force and effect, but that Chrysler would become a direct tenant of Davis. In 1988, Frontier defaulted on the lease. In 1990, Davis and Chrysler entered into a First Amendment to Agreement where Davis agreed to recognize the rights of Chrysler under the sublease and acknowledged that Davis was the landlord. In 1995, Davis executed a warranty deed to Seidle for approximately 11 acres, not including the 6 subleased to Chrysler. In 1999, Davis executed a quit claim deed to Schumacker for 40 acres, including the 6 subleased to Chrysler.

Chrysler commenced an action, arguing that its right of first refusal was violated. The trial court held that any rights that Chrysler had were extinguished when Frontier defaulted. Chrysler appealed, and the appellate court reversed. It held that the NDA provided that the sublease would continue even if Frontier defaulted, and this particular document obligated Davis to Chrysler to fulfill the terms of the sublease. Furthermore, the sublease required Davis to give Chrysler a right of first refusal, and Davis' acknowledgment of the NDA and the First Amendment to the Agreement required Davis to honor this right. The court noted that it was the NDA that bound Davis to honor the right of first refusal; without this document, Chrysler would not have been protected. One justice dissented, arguing that Chrysler only had a right of first refusal with respect to Frontier, and not to Davis.

SELLING EXPENSES

A tenant that abandons a lease may be responsible for the expenses incurred by the landlord in selling the subject premises in order to mitigate damages from the tenant's abandonment. Millikan v. American Spectrum Real Estate Services California, Inc., G031944, Court of Appeal of California, Fourth Appellate District, Division Three, April 20, 2004.

Commencing Dec. 22, 1998, tenant American Spectrum and landlord Millikan entered into a lease of an office building for a period of 5 years. After 3 years, the tenant abandoned the property. The premises were encumbered by a secured loan for which the landlord was responsible. The landlord eventually sold the property but incurred various penalties and other selling expenses. The landlord commenced an action against the tenant seeking reimbursement for the penalties and selling expenses and received a money judgment in its favor. The tenant appealed, arguing that an award of selling expenses was prohibited as a matter of law.

The appellate court affirmed the money judgment. It held that under California law, although a landlord is required to mitigate damages, a landlord is not prohibited from selling the subject property in order to do so, as long as the trier of fact finds the sale to be a reasonable solution to avoid incurring further damages. Moreover, although selling expenses may not always be awarded to a landlord, the court found that, in this case, an award of the landlord's costs expended to sell the property abandoned by the tenant was appropriate. It concluded that the tenant had reason to foresee the possibility that the landlord might sell the building to mitigate its damages after the tenant's abandonment. The court considered that the tenant was in the real estate business and should have been aware that the abandonment of its lease of the entire building would make it difficult for the landlord to bear the burden of a vacant building. Finally, the tenant could not prove that the expenses incurred by the landlord were unreasonable, unnecessary or could have been avoided.

TRESPASS AND WRONGFUL EVICTION

A landlord may be guilty of trespass and wrongful eviction of a tenant where the tenant closes the subject premises but does not surrender its keys or the lease and where the tenant established it was attempting to sell its business, including the lease to the subject premises. North Main Street Bagel Corp. v. Duncan, Index No. 31180/97, 2003-01746, Supreme Court of New York, Appellate Division, Second Department, 775 N.Y.S. 2d 362, April 19, 2004.

The tenant closed its bagel store but did not surrender its lease or keys to the premises. The tenant left the electricity on and left its equipment in the store. The tenant continued to pay rent arrears and was attempting to sell its business, including the lease. The landlord failed to make a demand for rent, and re-entered and relet the premises. The tenant sued for trespass, wrongful eviction and tortious interference with contractual relations.

The trial court dismissed the claims for trespass and wrongful eviction, and the tenant appealed. The appellate court held that the tenant did not abandon the premises and that the landlord's re-entry and reletting of the premises without giving the tenant the required notice amounted to trespass and wrongful eviction. Consequently, the landlord was liable for damages for both wrongful eviction and trespass. However, the tenant could not maintain an action for tortious interference with a contract for the sale of its business that included the lease, because the tenant could not establish that the landlord's attempts to relet the premises were designed solely to injure the plaintiff or that the landlord used “wrongful means” to re-enter the premises.

RIGHT OF FIRST REFUSAL

A sublessor may have a right of first refusal where the landlord executes additional documents demonstrating the landlord's promise to uphold the right of first refusal as per the sublessor. Chrysler Realty Corporation v. Davis, Case No. 4D02-3755, Court of Appeal of Florida, Fourth District, April 21, 2004.

In 1985, Davis entered into a net ground lease with Frontier Realty with respect to approximately 17 acres of property. The lease provided Frontier with an option to purchase the property at the end of the 21st year (2006). In 1987, Frontier entered into a long-term ground sublease with Chrysler for 6 of the 17 acres. The initial term of the sublease was 25 years and gave Chrysler an option to purchase under the same terms and conditions as the net ground lease between Davis and Frontier. Davis acknowledged the sublease. Davis also executed a Non-Disturbance Agreement (NDA) with Frontier and Chrysler that stated that if the prime lease terminated, the sublease would continue with the same force and effect, but that Chrysler would become a direct tenant of Davis. In 1988, Frontier defaulted on the lease. In 1990, Davis and Chrysler entered into a First Amendment to Agreement where Davis agreed to recognize the rights of Chrysler under the sublease and acknowledged that Davis was the landlord. In 1995, Davis executed a warranty deed to Seidle for approximately 11 acres, not including the 6 subleased to Chrysler. In 1999, Davis executed a quit claim deed to Schumacker for 40 acres, including the 6 subleased to Chrysler.

Chrysler commenced an action, arguing that its right of first refusal was violated. The trial court held that any rights that Chrysler had were extinguished when Frontier defaulted. Chrysler appealed, and the appellate court reversed. It held that the NDA provided that the sublease would continue even if Frontier defaulted, and this particular document obligated Davis to Chrysler to fulfill the terms of the sublease. Furthermore, the sublease required Davis to give Chrysler a right of first refusal, and Davis' acknowledgment of the NDA and the First Amendment to the Agreement required Davis to honor this right. The court noted that it was the NDA that bound Davis to honor the right of first refusal; without this document, Chrysler would not have been protected. One justice dissented, arguing that Chrysler only had a right of first refusal with respect to Frontier, and not to Davis.