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Bank Building Associates, LP v. Bank of America

A-3571-08T1 (N.J. Super. App. Div. 2010) (Unpublished)

LEASES; SURRENDER; @DAMAGES — There are two standards for the condition of a property; one is the standard of repair in the lease term, and the second, a different standard, is the condition of the property when the term ends.

A commercial landlord sued its tenant for breach of lease for failing to fulfill its lease obligations to maintain the property and surrender it at the expiration of the lease term in good repair except for normal wear and tear. The landlord’s complaints were not about the condition of the building itself, but rather they were about the condition of exterior improvements such as the parking lot, sidewalks, and landscaping.

The lease contained two provisions with respect to the tenant’s obligations. First, it provided that, during the lease term, the tenant was obligated to make any necessary repairs to preserve and return the property to the same condition as they were in on the commencement date of the lease. Second, it provided that the tenant had to surrender the property at the end of the lease in good order and repair, except for ordinary wear and tear. The landlord, who had purchased the property from the prior owner about a year and a half into the lease term, presented its pre-purchase due diligence reports as evidence of the condition of the property. The reports showed the exterior of the building to be in good condition, except for certain driveway repairs that the landlord was required to undertake. The landlord’s expert testified as to the condition of the parking lots and the repairs it undertook, and well as to the condition of the landscaping and the tree replacements.

The lower court found that there were two standards for the condition of the property, one for standard of repair during the lease term, and a different standard for the condition of the property when the term ends. The lower court concluded that the parties intended to require the property to be maintained in the condition it was in at the beginning of the lease, normal wear and tear excepted, but that the property was to be returned at the end of the lease in good repair. Based on that interpretation, the lower court issued a judgment in landlord’s favor for the repair costs for the parking lot as well as the replacement cost for the landscaping. The Appellate Division disagreed with the lower court’s finding that there were two different standards for property maintenance, one during the lease term, and one after the expiration of the lease. However, the Court agreed with the lower court’s finding of liability against the tenant.

The Appellate Division then turned to the issue of damages. It noted that when an action for damages is brought after the expiration of the lease, the measure of damages is the repair cost. Under this standard, a tenant who breaches a duty to maintain the property is not obligated to pay for new materials. Therefore, a tenant would not be obligated to pay the replacement cost of a roof if patching would cure the problem. Similarly, where the need for total replacement is proven, the landlord is compensated for the value of the item subject to war and tear over its lifetime. In this case, the lower court did not make factual findings with respect to the replacement of the trees, curbs, and sidewalks. According to the Court, the lower court should have accounted for reasonable wear and tear and depreciation in determining the amount owed by the tenant. With respect to the parking lot, since the lot was resurfaced and not replaced, the tenant was clearly liable for those costs under the lease.

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