Jury Allowed to Consider Testimony on Oral Modification of Lease

In most leases, the landlord and tenant are specifically prohibited from orally modifying the lease. The purpose of such a prohibition is to protect them against a “he said, she said” scenario.

However, a decision recently handed down by the U.S. District Court for the Middle District of Pennsylvania in Sabatini v. Its Amore Corp., Civil Action No. 3:CV-05-2586, appeal filed in the Third U.S. Circuit Court of Appeals on June 10, 2010, illustrates how such a provision may be waived through the conduct of the parties.

The Case

According to the opinion, in the mid-1990s, Gino Sabatini purchased a parcel of land in South Abington Township, PA. Sabatini subsequently constructed a restaurant on the property and opened the restaurant soon thereafter. He also entered into a leasing arrangement with the adjacent property owner to use the parking lot adjoining his property for the benefit of the restaurant. Sabatini closed the restaurant in early 2004.

Soon thereafter, Sabatini entered into an agreement with Alex Tarapchak and his company for the sale of the restaurant. The agreement did not cover the parking lot property. According to the opinion, the parties then amended the agreement: 1) making the sale contingent upon the assignment of the lease relating to the parking lot; and 2) providing that if Sabatini purchased the parking lot and sold it to Tarapchak, the sales price would equal the amount for which Sabatini purchased it.

After Sabatini sold the restaurant, he entered into a lease with Tarapchak for the parking lot. The lease granted Tarapchak the option of purchasing the parking lot, conditioned upon Tarapchak not committing any breaches of the lease. It also stated that Tarapchak was required to maintain the parking lot in its existing condition. Importantly, the lease stated that no modification could be made to its contents unless the parties specifically agreed to do so in writing.

When Tarapchak attempted to exercise his option to purchase the parking lot from Sabatini, the latter refused to sell because of his alleged breach, i.e., failure to maintain the lot in its existing condition. After Tarapchak failed to cure the alleged breach of the lease, Sabatini then terminated the lease and instituted an ejectment lawsuit against Tarapchak in federal court.

Counter-Suit

Tarapchak instituted his own suit for specific performance in state court, seeking the entry of an order compelling Sabatini to sell the parking lot to him. In the state court action, Tarapchak denied that he was in breach of the lease for the parking lot. Rather, he alleged that Sabatini had authorized changes he made to the parking lot during a conversation that took place between the parties prior to the commencement of the work. Sabatini specifically denied having had such a conversation with Tarapchak, believing that Tarapchak was in breach ' and stated that he justifiably refused to sell the parking lot to Tarapchak. The state court action was removed to federal court and the cases were consolidated.

The Trial

The cases were tried before a jury, and the federal district court entered judgment for Tarapchak on Sabatini's ejectment claim and for Tarapchak on his claim for specific performance to purchase the parking lot. Sabatini then filed a post-trial motion for judgment as a matter of law or, in the alternative, for a new trial.

In a memorandum opinion, the federal district court focused most of its attention on whether the Statute of Frauds and the lease itself precluded the jury from considering evidence at trial concerning whether Tarapchak was given permission to make changes to the parking lot.

In Pennsylvania, the Statute of Frauds requires all terms and conditions of a lease to be in writing. However, Tarapchak, citing the Supreme Court, argued that the law in Pennsylvania has long held that the parties to a written agreement, which contains provisions prohibiting oral modifications, may waive such a provision.

After reviewing the evidence presented at trial, the federal district court in Sabatini concluded that Sabatini had, indeed, waived the “non-modification” provision when he failed to object to the changes being made to the parking lot at the time the building permits were issued and when the work commenced. The federal district court ultimately held that the jury should have been allowed to consider whether the lease was modified through the conduct of the parties and the evidence introduced at trial was thus not barred by the Statute of Frauds.

Lessons Learned

The federal district court's ruling in Sabatini is a cautionary tale for landlords across the commonwealth. Although the lease in Sabatini contained a provision disallowing any changes to be made to the parking lot by the tenant, the landlord's passivity or indecisiveness was clearly used against him. If the landlord in Sabatini did not wish for any changes to be made to the parking lot, the landlord should have stated so, orally and in writing.

Alan Nochumson is the sole shareholder of Nochumson P.C. The firm's primary practice areas consist of real estate, litigation, employment and labor, land use and zoning, and estate planning. He may be reached by by phone at 215-399-1346 or at [email protected]. This article first appeared in The Legal Intelligencer, an ALM sister publication of this newsletter.

In most leases, the landlord and tenant are specifically prohibited from orally modifying the lease. The purpose of such a prohibition is to protect them against a “he said, she said” scenario.

However, a decision recently handed down by the U.S. District Court for the Middle District of Pennsylvania in Sabatini v. Its Amore Corp., Civil Action No. 3:CV-05-2586, appeal filed in the Third U.S. Circuit Court of Appeals on June 10, 2010, illustrates how such a provision may be waived through the conduct of the parties.

The Case

According to the opinion, in the mid-1990s, Gino Sabatini purchased a parcel of land in South Abington Township, PA. Sabatini subsequently constructed a restaurant on the property and opened the restaurant soon thereafter. He also entered into a leasing arrangement with the adjacent property owner to use the parking lot adjoining his property for the benefit of the restaurant. Sabatini closed the restaurant in early 2004.

Soon thereafter, Sabatini entered into an agreement with Alex Tarapchak and his company for the sale of the restaurant. The agreement did not cover the parking lot property. According to the opinion, the parties then amended the agreement: 1) making the sale contingent upon the assignment of the lease relating to the parking lot; and 2) providing that if Sabatini purchased the parking lot and sold it to Tarapchak, the sales price would equal the amount for which Sabatini purchased it.

After Sabatini sold the restaurant, he entered into a lease with Tarapchak for the parking lot. The lease granted Tarapchak the option of purchasing the parking lot, conditioned upon Tarapchak not committing any breaches of the lease. It also stated that Tarapchak was required to maintain the parking lot in its existing condition. Importantly, the lease stated that no modification could be made to its contents unless the parties specifically agreed to do so in writing.

When Tarapchak attempted to exercise his option to purchase the parking lot from Sabatini, the latter refused to sell because of his alleged breach, i.e., failure to maintain the lot in its existing condition. After Tarapchak failed to cure the alleged breach of the lease, Sabatini then terminated the lease and instituted an ejectment lawsuit against Tarapchak in federal court.

Counter-Suit

Tarapchak instituted his own suit for specific performance in state court, seeking the entry of an order compelling Sabatini to sell the parking lot to him. In the state court action, Tarapchak denied that he was in breach of the lease for the parking lot. Rather, he alleged that Sabatini had authorized changes he made to the parking lot during a conversation that took place between the parties prior to the commencement of the work. Sabatini specifically denied having had such a conversation with Tarapchak, believing that Tarapchak was in breach ' and stated that he justifiably refused to sell the parking lot to Tarapchak. The state court action was removed to federal court and the cases were consolidated.

The Trial

The cases were tried before a jury, and the federal district court entered judgment for Tarapchak on Sabatini's ejectment claim and for Tarapchak on his claim for specific performance to purchase the parking lot. Sabatini then filed a post-trial motion for judgment as a matter of law or, in the alternative, for a new trial.

In a memorandum opinion, the federal district court focused most of its attention on whether the Statute of Frauds and the lease itself precluded the jury from considering evidence at trial concerning whether Tarapchak was given permission to make changes to the parking lot.

In Pennsylvania, the Statute of Frauds requires all terms and conditions of a lease to be in writing. However, Tarapchak, citing the Supreme Court, argued that the law in Pennsylvania has long held that the parties to a written agreement, which contains provisions prohibiting oral modifications, may waive such a provision.

After reviewing the evidence presented at trial, the federal district court in Sabatini concluded that Sabatini had, indeed, waived the “non-modification” provision when he failed to object to the changes being made to the parking lot at the time the building permits were issued and when the work commenced. The federal district court ultimately held that the jury should have been allowed to consider whether the lease was modified through the conduct of the parties and the evidence introduced at trial was thus not barred by the Statute of Frauds.

Lessons Learned

The federal district court's ruling in Sabatini is a cautionary tale for landlords across the commonwealth. Although the lease in Sabatini contained a provision disallowing any changes to be made to the parking lot by the tenant, the landlord's passivity or indecisiveness was clearly used against him. If the landlord in Sabatini did not wish for any changes to be made to the parking lot, the landlord should have stated so, orally and in writing.

Alan Nochumson is the sole shareholder of Nochumson P.C. The firm's primary practice areas consist of real estate, litigation, employment and labor, land use and zoning, and estate planning. He may be reached by by phone at 215-399-1346 or at [email protected]. This article first appeared in The Legal Intelligencer, an ALM sister publication of this newsletter.