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Greg Realty Corp. v. Sternco Dominion Real Estate Corporation

A-3485-97T5 (N.J. Super. App. Div. 1999) (Unpublished)

LEASES; DAMAGES; MITIGATION—A demising wall installed primarily to re-let part of a defaulting tenant’s premises can be a reasonable and required expense to a landlord in discharge of its duty to mitigate damages through attracting a new tenant.

After a tenant defaulted on its lease, the landlord re-entered, took possession, terminated the lease, and sought to re-let the premises in addition to pursuing its other rights under the lease and guaranty. In mitigation, the landlord executed a lease agreement with a new tenant for the remaining space in the building. The lease provided that the landlord was obligated to construct a demising wall to separate the premises from adjacent premises occupied by, and leased to, another different tenant. When the landlord sued the original tenant claiming the cost of the demising wall as recoverable damages, the defaulting tenant agreed that the cost of the wall was reasonable, but contested the item as a proper element of damages. Simply stated, the issue was whether the demising wall separating the space between the two tenants could be considered an expense of mitigation to be fully borne by the defaulting tenant. Testimony was given that the demising wall was not located at a natural separation point within the building and therefore had no independent benefit as a capital improvement to the building. The Court found an ample basis to conclude that the demising wall was not a capital improvement or permanent alteration for the benefit of the building, but was only an accommodation to effectuate the new tenancy with no expectation that the wall had a purpose beyond the replacement tenancy. Since it was a necessary expense to discharge the landlord’s duty to mitigate damages through attracting a new tenant to the site, the cost was determined to be fully chargeable to the defaulting tenant as a breach of the lease agreement.


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