The Leasing Hotline

Galouzis commenced an action against Dorr for breach of the lease agreement, claiming Dorr's bad faith refusal to agree to the sale caused the sale to fall through. Galouzis claimed that Dorr's demand for additional rent from the third party resulted in the failed sale. The court disagreed and found in favor of Dorr. It held that the credible evidence presented showed that the third party was willing to pay the increased rent, but Galouzis refused to allow additional rent to be paid by the third party and thereafter broke off negotiations with the third party. The court concluded that Dorr's request for additional rent and the third party's willingness to consider the increased rent demonstrated that there was no bad faith.

SUBTENANT DAMAGES

If a subtenant has paid its rent in full, its damages for breach of the lease by the landlord should be calculated by the actual rental value of the portion of the property lost as a result of the breach; the determination of the actual rental value may require expert testimony. Appliance Giant, Inc., v. Columbia 90 Associates, LLC, No. 95104, Supreme Court of New York, Appellate Division, Third Department, June 24, 2004.

Columbia (the landlord) purchased a shopping center where Appliance Giant was a subtenant. Columbia then built an office building close to the appliance store. The subtenant commenced an action for damages based on Columbia's conduct during the construction.

After a jury trial, Columbia was found to have breached the subtenant's covenant of quiet enjoyment by interfering with the use of the appliance store. Columbia also was found to be in breach of the sublease by depriving the subtenant of 400 parking spaces. The jury awarded the subtenant $8724 on the quiet enjoyment claim and $46,776 based on deletion of the parking spaces.

The appellate court affirmed the breaches but set aside the damages award and remanded for a new trial to calculate the damages. It held that the subtenant's damages should be calculated by the actual rental value of the parking spaces lost because of defendant's breach. It noted that the actual rental value could only be determined by expert testimony, which would include the calculation of lost profits. With regard to the damages calculated for breach of the covenant of quiet enjoyment, the appellate court held that the lower court incorrectly used a calculation for a situation where the subtenant had not paid rent. Here, the subtenant was current with rent, and the appellate court remanded for the correct calculation.

REMEDY AT LAW

If there is an adequate remedy at law and there is no uncertainty of legal relations between the parties, a court may find that the issues before it are not suited for resolution by declaratory judgment. Woodgreen Portland Limited Partnership v. Town of Portland, CV020098499S, Superior Court of Connecticut, Judicial District of Middlesex, at Middletown, June 1, 2004.

In 1995, the landlord purchased property known as Portland Plaza. In 1996, the landlord entered into a lease agreement with Your Laundry Spot, Inc., (YLS), a laundromat. YLS accumulated water bills due to the town but failed to pay the town. The town placed liens on Portland Plaza as a whole and sent notices to the landlord. It notified the landlord that the water bills were the landlord's responsibility and that in order to shut off water to YLS it would have to shut off water to the entire Portland Plaza. YLS was evicted, and the landlord commenced an action for a declaratory judgment seeking to determine the legal rights and obligations of the town, the landlord and YLS.

The court held that the issues before it were not suited for resolution by declaratory judgment because there was no substantial uncertainty of legal relations to require a declaratory judgment. It held that the issue before it was a simple collection issue and that the proper procedure would be for the landlord to bring an action at law to release the liens. It further held that the landlord could defend itself in any action brought by the town for the unpaid water bills.

RES JUDICATA

The doctrine of res judicata may apply in a federal action commenced after a state action is dismissed with prejudice and where the same causes of action are alleged against the same parties, even if the plaintiff added one claim and some additional parties in the federal action. Jett v. Beech Interplex, Inc., Civil Action No. 02-9131, U.S. District Court for the Eastern District of Pennsylvania, July 15, 2004.

In September 2000, Jett and Beech entered into a lease for office space. Thereafter, a dispute arose between the parties, and Jett vacated the premises and terminated rent payments. Subsequently, a controversy arose between the parties concerning the ownership and entitlement to the property that Jett left behind when he and his business vacated the rented office space. In October 2001, Jett sued Beech in the Pennsylvania Court of Common Pleas, (Jett I), alleging unjust enrichment, loss of business, loss of security and breach of contract. Thereafter, the parties agreed before the court that Jett would secure a rental facility to store the property at issue. However, Jett failed to follow that agreement and instead moved the disputed property to his home in North Carolina. Thereafter, the Pennsylvania court entered an order to show cause why the Jett I action should not be dismissed with prejudice because of Jett's actions. On Jan. 30, 2003, after a hearing, the court dismissed the Jett I action with prejudice.

Thereafter, Jett commenced an action in the federal district court (Jett II) with the same claims as the Jett I action, except Jett added some additional parties and one additional claim. Beech moved for summary judgment based on res judicata, and the district court granted the motion. It held that the Jett II action failed as a matter of law because the lawsuit filed in federal court was nearly identical to the one dismissed by the state court. It held that Jett I and Jett II met all four prongs of the test for res judicata: identity of the thing sued upon, identity of the causes of action, identity of the parties, and identity of the capacity of the parties. It concluded that even though Jett added some parties and a claim in his federal action, the cause of action arose out of the same claim. It considered that the parties added in Jett II were parties in privity to the parties named in Jett I, and that the claim for burglary and theft added in the Jett II action did not destroy the identity that is required for a finding of res judicata.

'YELLOWSTONE' INJUNCTION

A Yellowstone injunction that enjoins the landlord from terminating a tenancy may be granted if the tenant shows it is ready, willing and able to cure the default, even if the tenant argues that it already cured the default and no further action is needed. TSI West 14 v. Samson Associates, LLC, 3358N, Supreme Court of New York, Appellate Division, First Department, June 8, 2004.

Samson and TSI entered into a 15-year commercial lease for space to be used as a health club. The lease provided that TSI would not make or allow any vibration or noise that might interfere with the safety, comfort or well being of other tenants. After the heath club opened, Samson complained about the noise and vibrations coming from the health club. TSI hired acoustical engineers to conduct tests and arranged for changes to the health club floor to reduce the sound and vibrations. TSI expended approximately $100,000 in its attempt to cure the problem. Samson was still not satisfied with the results from TSI's attempts and served TSI with a 15-day notice to cure the default. TSI served Samson with a complaint seeking a declaration that it was not in violation of the lease. TSI also moved for a Yellowstone injunction to enjoin and restrain Samson from terminating its tenancy on the basis of the notice to cure default. Under New York law, a Yellowstone injunction maintains the status quo and tolls the “cure period” so that after a determination of the merits, the tenant has the opportunity to cure a default and avoid forfeiture.

The trial court denied the motion, holding that TSI did not demonstrate its readiness, willingness and ability to cure a default. The appellate court reversed and granted the Yellowstone injunction. It held that TSI never represented that it was unable or unwilling to cure a default. It held that TSI satisfied its burden of proving that it had the desire and the ability to cure, including the substantial efforts it had already expended. TSI's argument that it did not need to make further repairs did not negate its argument that it was ready, willing and able to cure the default.

BAD FAITH

A landlord may not be found to have acted in bad faith if it seeks nominal increased rent from a sublessor and if it is established that the sublessor would have considered paying the nominal increase. Galouzis v. Dorr, 565519, Superior Court of Connecticut, Judicial District of New London, at New London, July 20, 2004.

Galouzis leased premises from Dorr for a 10-year term to operate a pizza parlor. Thereafter, Galouzis attempted to sell the entire business, including the lease, to a third party. However, the lease required Dorr's permission to sublease. Dorr did not give his permission, and the sale of the pizza parlor was never completed.

Galouzis commenced an action against Dorr for breach of the lease agreement, claiming Dorr's bad faith refusal to agree to the sale caused the sale to fall through. Galouzis claimed that Dorr's demand for additional rent from the third party resulted in the failed sale. The court disagreed and found in favor of Dorr. It held that the credible evidence presented showed that the third party was willing to pay the increased rent, but Galouzis refused to allow additional rent to be paid by the third party and thereafter broke off negotiations with the third party. The court concluded that Dorr's request for additional rent and the third party's willingness to consider the increased rent demonstrated that there was no bad faith.

SUBTENANT DAMAGES

If a subtenant has paid its rent in full, its damages for breach of the lease by the landlord should be calculated by the actual rental value of the portion of the property lost as a result of the breach; the determination of the actual rental value may require expert testimony. Appliance Giant, Inc., v. Columbia 90 Associates, LLC, No. 95104, Supreme Court of New York, Appellate Division, Third Department, June 24, 2004.

Columbia (the landlord) purchased a shopping center where Appliance Giant was a subtenant. Columbia then built an office building close to the appliance store. The subtenant commenced an action for damages based on Columbia's conduct during the construction.

After a jury trial, Columbia was found to have breached the subtenant's covenant of quiet enjoyment by interfering with the use of the appliance store. Columbia also was found to be in breach of the sublease by depriving the subtenant of 400 parking spaces. The jury awarded the subtenant $8724 on the quiet enjoyment claim and $46,776 based on deletion of the parking spaces.

The appellate court affirmed the breaches but set aside the damages award and remanded for a new trial to calculate the damages. It held that the subtenant's damages should be calculated by the actual rental value of the parking spaces lost because of defendant's breach. It noted that the actual rental value could only be determined by expert testimony, which would include the calculation of lost profits. With regard to the damages calculated for breach of the covenant of quiet enjoyment, the appellate court held that the lower court incorrectly used a calculation for a situation where the subtenant had not paid rent. Here, the subtenant was current with rent, and the appellate court remanded for the correct calculation.

REMEDY AT LAW

If there is an adequate remedy at law and there is no uncertainty of legal relations between the parties, a court may find that the issues before it are not suited for resolution by declaratory judgment. Woodgreen Portland Limited Partnership v. Town of Portland, CV020098499S, Superior Court of Connecticut, Judicial District of Middlesex, at Middletown, June 1, 2004.

In 1995, the landlord purchased property known as Portland Plaza. In 1996, the landlord entered into a lease agreement with Your Laundry Spot, Inc., (YLS), a laundromat. YLS accumulated water bills due to the town but failed to pay the town. The town placed liens on Portland Plaza as a whole and sent notices to the landlord. It notified the landlord that the water bills were the landlord's responsibility and that in order to shut off water to YLS it would have to shut off water to the entire Portland Plaza. YLS was evicted, and the landlord commenced an action for a declaratory judgment seeking to determine the legal rights and obligations of the town, the landlord and YLS.

The court held that the issues before it were not suited for resolution by declaratory judgment because there was no substantial uncertainty of legal relations to require a declaratory judgment. It held that the issue before it was a simple collection issue and that the proper procedure would be for the landlord to bring an action at law to release the liens. It further held that the landlord could defend itself in any action brought by the town for the unpaid water bills.

RES JUDICATA

The doctrine of res judicata may apply in a federal action commenced after a state action is dismissed with prejudice and where the same causes of action are alleged against the same parties, even if the plaintiff added one claim and some additional parties in the federal action. Jett v. Beech Interplex, Inc., Civil Action No. 02-9131, U.S. District Court for the Eastern District of Pennsylvania, July 15, 2004.

In September 2000, Jett and Beech entered into a lease for office space. Thereafter, a dispute arose between the parties, and Jett vacated the premises and terminated rent payments. Subsequently, a controversy arose between the parties concerning the ownership and entitlement to the property that Jett left behind when he and his business vacated the rented office space. In October 2001, Jett sued Beech in the Pennsylvania Court of Common Pleas, (Jett I), alleging unjust enrichment, loss of business, loss of security and breach of contract. Thereafter, the parties agreed before the court that Jett would secure a rental facility to store the property at issue. However, Jett failed to follow that agreement and instead moved the disputed property to his home in North Carolina. Thereafter, the Pennsylvania court entered an order to show cause why the Jett I action should not be dismissed with prejudice because of Jett's actions. On Jan. 30, 2003, after a hearing, the court dismissed the Jett I action with prejudice.

Thereafter, Jett commenced an action in the federal district court (Jett II) with the same claims as the Jett I action, except Jett added some additional parties and one additional claim. Beech moved for summary judgment based on res judicata, and the district court granted the motion. It held that the Jett II action failed as a matter of law because the lawsuit filed in federal court was nearly identical to the one dismissed by the state court. It held that Jett I and Jett II met all four prongs of the test for res judicata: identity of the thing sued upon, identity of the causes of action, identity of the parties, and identity of the capacity of the parties. It concluded that even though Jett added some parties and a claim in his federal action, the cause of action arose out of the same claim. It considered that the parties added in Jett II were parties in privity to the parties named in Jett I, and that the claim for burglary and theft added in the Jett II action did not destroy the identity that is required for a finding of res judicata.

'YELLOWSTONE' INJUNCTION

A Yellowstone injunction that enjoins the landlord from terminating a tenancy may be granted if the tenant shows it is ready, willing and able to cure the default, even if the tenant argues that it already cured the default and no further action is needed. TSI West 14 v. Samson Associates, LLC, 3358N, Supreme Court of New York, Appellate Division, First Department, June 8, 2004.

Samson and TSI entered into a 15-year commercial lease for space to be used as a health club. The lease provided that TSI would not make or allow any vibration or noise that might interfere with the safety, comfort or well being of other tenants. After the heath club opened, Samson complained about the noise and vibrations coming from the health club. TSI hired acoustical engineers to conduct tests and arranged for changes to the health club floor to reduce the sound and vibrations. TSI expended approximately $100,000 in its attempt to cure the problem. Samson was still not satisfied with the results from TSI's attempts and served TSI with a 15-day notice to cure the default. TSI served Samson with a complaint seeking a declaration that it was not in violation of the lease. TSI also moved for a Yellowstone injunction to enjoin and restrain Samson from terminating its tenancy on the basis of the notice to cure default. Under New York law, a Yellowstone injunction maintains the status quo and tolls the “cure period” so that after a determination of the merits, the tenant has the opportunity to cure a default and avoid forfeiture.

The trial court denied the motion, holding that TSI did not demonstrate its readiness, willingness and ability to cure a default. The appellate court reversed and granted the Yellowstone injunction. It held that TSI never represented that it was unable or unwilling to cure a default. It held that TSI satisfied its burden of proving that it had the desire and the ability to cure, including the substantial efforts it had already expended. TSI's argument that it did not need to make further repairs did not negate its argument that it was ready, willing and able to cure the default.