Case Notes

About a year later, Gamesa informed the landlord that it would be moving to a new location as part of its corporate office consolidation plan, but offered assurances that it would continue to pay the rent as it became due while looking for a subtenant to take over the emptied office space. This prompted the lessor to respond that Gamesa could not use any of the remaining $391,000 in the improvements allowance to accommodate any new subtenant's needs. This issue had not been resolved when Gamesa moved out, with the cooperation of the landlord's building's management personnel, which gave the tenant access to the building's elevators and loading docks. A month after vacating, Gamesa proposed to the landlord, in writing, a new subtenant, even hiring an architect to draw up plans for the proposed tenant's office layout and securing the services of a building contractor to accomplish the renovations. It was at this point that the landlord informed Gamesa that it considered it to be in default for vacating the leased premises “otherwise than in the ordinary and usual course of business.” The landlord then failed to notify Gamesa whether it approved or disapproved the proposed new tenant. The first subtenant, Viridity, was at this time still subletting a portion of the premises.

Gamesa brought suit in state court seeking declaratory judgment and asserting claims for breach of contract, tortious interference with prospective economic advantage and unjust enrichment. While the matter was pending, Gamesa continued to pay rent, and the landlord continued to accept it. The landlord, in response to the suit, claimed that Gamesa's depature from the property constituted default and that no subtenant could be proposed by Gamesa under the agreement until that issue was resolved.

At a bench trial before Judge Ramy I. Djerassi, the primary question was whether the landlord had breached the 30-day notification of acceptance or rejection of the proposed subtenant, and whether it had withheld acceptance unreasonably. Citing Turnway Corporation v. Soffer, 336 A.2d 871 (Pa. 1975), Judge Djerassi noted that the landlord could show default entitling it to immediate possession if it could prove that the tenant had indicated an intent to abandon the property and had taken some action to effectuate this intent. However, here the tenant had notified the landlord it was vacating but would continue to pay the rent while searching for a subtenant — and the tenant did that. Subtenant Viridity continued to rent its portion of the property, and the landlord's building management personnel assisted Gamesa in making its move out of the property. All these things showed that Gamesa did not intend to abandon the property in the manner required, under Turnway Corporation, for the landlord to show default.

On the other hand, the landlord self-declared default, yet made no effort to repossess the premises, all the while collecting rent. This constituted failure to conform with the standards of good faith and fair dealing, said the court. Also, the landlord's refusal to approve or disapprove the proposed new subtenant after 30 days of written request breached the terms of the lease agreement; this failure further prevented Gamesa from obtaining another subtenant, thus running up Gamesa's losses. Because of this last breach, the court awarded Gamesa damages of $265,463, plus $18,279 in prejudgment interest, to compensate it for three years of lost revenue attributable to the landlord's refusal to approve the proposed subtenant. Then the court assessed an additional $3,639,202 against the landlord for its unjust enrichment in accepting and retaining rent from Gamesa since July 2012.

Landlord's Self-Proclamation of Tenant's Breach Costs It Big

A commercial tenant has won a multi-million dollar judgment in a case pitting it against a landlord who, the court concluded, unreasonably refused to perform its obligations under the assignment provision of the parties' lease. Gamesa Energy USA v. Ten Penn Center, 2016 Phila. Ct. Com. Pl. LEXIS 270 (July 22, 2016).

Tenant Gamesa rented two floors of the Philadelphia office building known as Ten Penn Center. The lease, which was to expire on Sept. 1, 2018, provided that the lessor would give the tenant a large improvement allowance with which to build out the space to meet the tenant's needs. It also prohibited the tenant from subleasing to a third party absent the lessor's approval, but further provided that such “approval shall not be unreasonably withheld, conditioned or delayed.” The lease terms required the lessor to tell the tenant within 30 days of written request whether a proposed subtenant was approved or disapproved.
After the tenant had been in the space for several years, the lessor agreed to allow Gamesa to sublet part of the premises to third party Viridity Energy, Inc. Gamesa used part of its remaining improvements allowance to tailor the space for Viridity's use, leaving a further $391,000 of that fund to be used for its own unfinished office space.

About a year later, Gamesa informed the landlord that it would be moving to a new location as part of its corporate office consolidation plan, but offered assurances that it would continue to pay the rent as it became due while looking for a subtenant to take over the emptied office space. This prompted the lessor to respond that Gamesa could not use any of the remaining $391,000 in the improvements allowance to accommodate any new subtenant's needs. This issue had not been resolved when Gamesa moved out, with the cooperation of the landlord's building's management personnel, which gave the tenant access to the building's elevators and loading docks. A month after vacating, Gamesa proposed to the landlord, in writing, a new subtenant, even hiring an architect to draw up plans for the proposed tenant's office layout and securing the services of a building contractor to accomplish the renovations. It was at this point that the landlord informed Gamesa that it considered it to be in default for vacating the leased premises “otherwise than in the ordinary and usual course of business.” The landlord then failed to notify Gamesa whether it approved or disapproved the proposed new tenant. The first subtenant, Viridity, was at this time still subletting a portion of the premises.

Gamesa brought suit in state court seeking declaratory judgment and asserting claims for breach of contract, tortious interference with prospective economic advantage and unjust enrichment. While the matter was pending, Gamesa continued to pay rent, and the landlord continued to accept it. The landlord, in response to the suit, claimed that Gamesa's depature from the property constituted default and that no subtenant could be proposed by Gamesa under the agreement until that issue was resolved.

At a bench trial before Judge Ramy I. Djerassi, the primary question was whether the landlord had breached the 30-day notification of acceptance or rejection of the proposed subtenant, and whether it had withheld acceptance unreasonably. Citing Turnway Corporation v. Soffer , 336 A.2d 871 (Pa. 1975), Judge Djerassi noted that the landlord could show default entitling it to immediate possession if it could prove that the tenant had indicated an intent to abandon the property and had taken some action to effectuate this intent. However, here the tenant had notified the landlord it was vacating but would continue to pay the rent while searching for a subtenant — and the tenant did that. Subtenant Viridity continued to rent its portion of the property, and the landlord's building management personnel assisted Gamesa in making its move out of the property. All these things showed that Gamesa did not intend to abandon the property in the manner required, under Turnway Corporation, for the landlord to show default.

On the other hand, the landlord self-declared default, yet made no effort to repossess the premises, all the while collecting rent. This constituted failure to conform with the standards of good faith and fair dealing, said the court. Also, the landlord's refusal to approve or disapprove the proposed new subtenant after 30 days of written request breached the terms of the lease agreement; this failure further prevented Gamesa from obtaining another subtenant, thus running up Gamesa's losses. Because of this last breach, the court awarded Gamesa damages of $265,463, plus $18,279 in prejudgment interest, to compensate it for three years of lost revenue attributable to the landlord's refusal to approve the proposed subtenant. Then the court assessed an additional $3,639,202 against the landlord for its unjust enrichment in accepting and retaining rent from Gamesa since July 2012.