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Cantor v. TSI Old Bridge, Inc.

A-4130-01T5 (N.J. Super. App. Div. 2003) (Unpublished)

LEASES; REFORMATION; DAMAGES—Where a lease’s rent provision is reformed, and it is equitable under the circumstances for it to do so, a court may award interest to the landlord on the rent deficiency because the tenant has had use of the “unpaid” rent until the drafting error is corrected.

In an earlier visit to the Appellate Division, the Court held that a landlord was entitled to reformation of a lease modification to correct a scrivener’s error in the stated rent. The matter was remanded to the lower court to fix the rent arrears and also for counsel fees, late fees and prejudgment interest on the arrears. The lower court calculated the arrears, but denied the other relief. The landlord argued that the standard “hold-harmless agreement” in the lease in respect of “all claims, injury, expenses, costs, damages or fines incurred or suffered by Landlord by reason of any breach, default, violation or non-performance by Tenant…” required the tenant to pay the extra charges. The Appellate Division rejected that logic, pointing out that the intended scope of such a hold-harmless agreement was a matter of common understanding and “ordinarily implies the indemnitee’s liability to third persons caused by the indemnitor’s acts or rights accruing to the indemnitee resulting from a third-person’s conduct.” The landlord also pointed to provisions of the lease requiring the tenant to pay attorney’s fees in the enforcement of the lease, with or without court action, and to a specific provision in the lease calling for a late fee and interest. In essence, the lower court refused to enforce either provision “because the initial error, which gave rise to the litigation, was [landlord’s] and because, as it found, [the tenant] had not acted in bad faith in paying rent in accordance with the precise terms of the unreformed lease.” The Appellate Division agreed, also pointing out that the counsel fee provision was triggered by “enforcement” of the lease, and the action taken by the landlord was not to enforce the lease, but to reform it. The Court found the landlord’s right to counsel fees “was at least debatable, justifying [the tenant’s] insistence on complying with the terms of the lease as written.” Nonetheless, the Court was “satisfied that [the landlord was] entitled to prejudgment interest on an equitable basis. The equitable power of this court to award prejudgment interest on contract claims is well-settled.” It was clear to the Court that the landlord was entitled to receive the reformed rent and because the tenant had use of the differential, it should have been “equitably obliged to pay prejudgment interest on that sum” in an amount equal to the rate set forth in the court rules.

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