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CCG Holdings, Inc. v. Hickory Tree Properties, LLC

A-3591-05T5 (N.J. Super. App. Div. 2007) (Unpublished)

LEASES; MEASUREMENTS; DUE DILIGENCE —Where a tenant had equal bargaining power with its landlord and was represented by counsel during negotiations, the tenant cannot have its lease reformed based upon a remeasurement of its floor area years later when it failed to measure the space at the outset and the lease sets forth a fixed annual amount for rent.

A tenant and its landlord had a lease for commercial space where the rent was based on floor area. The lease had been amended a number of times to include additional space. Then, the tenant notified the landlord that it disputed the way a portion of space had been measured and asserted that it had been overcharged by nearly $300,000 over the course of four years. The landlord, in turn, disputed the tenant’s assertions and calculations. The tenant sued, seeking return of the allegedly overcharged amount and for reformation of the lease to reflect its calculations of floor area. The tenant also claimed that it relied on misrepresentations made by the landlord and that the landlord had fraudulently induced the tenant to enter into the lease. It also brought a claim for breach of the covenant of good faith and fair dealing.

The landlord argued that there was no evidence of fraudulent activity on its part, and that as a result, the tenant could not get reformation. The landlord also pointed to a provision in the lease that waived all liability on its part as a condition for entering into the lease and sought dismissal on summary judgment. The tenant argued that the exculpatory clause, i.e., the waiver of liability in the lease, did not apply to actions on the landlord’s part that occurred before the execution of the agreement. The lower court granted summary judgment to the landlord, finding that the tenant had not produced sufficient evidence to show that the landlord’s actions amounted to willful or wanton misconduct. It also pointed out that the tenant was a sophisticated commercial entity, maintained legal representation during the negotiation period, and failed to conduct due diligence when it didn’t measure the floor area before leasing the space.

On appeal, the Court found the exculpatory clause in the lease did not bar the tenant from seeking relief, but only limited the tenant to seek relief from the landlord’s interest in the property itself, nont from any other asset of the landlord. On the other hand, the Court rejected the tenant’s request for reformation based on mutual mistake and noted that in order to grant such a request, both parties must be in agreement that the size of the space was a factor in setting the rent at the time the lease was signed. The Court noted that since the landlord clearly stated the amount of money expected to be paid per year, the tenant’s claim of mutual mistake did not apply. Additionally, it found that the tenant’s claim of mutual mistake also would not apply because the tenant negligently failed to measure the space prior to entering into the lease.

The tenant’s claim of common law fraud was also rejected because it did not meet all five of the elements for a finding of common law fraud. The Court found that the tenant failed to prove the element of its reasonable reliance on the landlord. The Court pointed out, as did the lower court, that the parties had equal bargaining power, the tenant was represented by counsel during the negotiations, and again mentioned the tenant’s failure to measure the rental space. The tenant’s claim for reformation on the grounds that enforcement of the contract’s terms would have been unconscionable was also rejected because the landlord did not enjoy an undue advantage over the tenant. Additionally, the Court pointed out that because the tenant paid the rent for years without considering it excessive, it could not retrospectively argue that the terms of the lease were unconscionable when it never exercised reasonable care in determining the area of the rental space in the first place.

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