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Buck Consultants, Inc. v. Glenpointe Associates

2010 WL 2104982 (U.S. Dist. Ct. D. N.J. 2010) (Unpublished)

LEASES; INTEREST RATE — Interest for unpaid rent should generally be based upon the rate of return earned by the State Treasury because the relationship of landlord and tenant is not the same as that of creditor and lender and, therefore, the interest rate should not be based on what the landlord believes it could have earned had the money owed actually been a loan from the landlord, but compounding interest, rather than simple interest, can be awarded.

After trial in the United States District Court, a tenant was found liable to a commercial landlord for rent due under a lease of the third floor of a commercial building. The court ordered the parties to hold a conference to try to reach agreement as to the appropriate amount of damages. They were unable to come to an agreement.

First, the parties disputed what floor area should be used to calculate the rent due. The Court found that the rent due should be calculated by using the floor area on which the lease was based, as the preceding tenant’s lease indicated this amount. It held the landlord would not consistently rent a smaller floor area than it possessed.

The Court next concluded that the landlord was entitled to prejudgment interest for the unpaid rent. The parties were unable to agree on an interest rate or whether simple or compound interest should have been applied. The landlord argued that the prime rate should apply, as that rate reflected the cost to borrow the amount of money wrongfully withheld by the tenant. It also found the relationship of the parties was not that of a creditor-lender, but one of landlord and tenant, and that the landlord had not demonstrated that if it had the rent on time, it could have earned the prime rate on the money. Therefore, the Court awarded interest based upon the rate of return earned by the State Treasury, which is the general standard to which lower courts adhere in setting a contractual prejudgment interest award.

The Court also awarded compound interest and not simple interest, because it found the landlord was a sophisticated business entity, and would have deposited the withheld rents in a financial vehicle that earned compound interest.

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