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Michaels Stores, Inc. v. Castle Ridge Plaza Associates

98-603 (U.S. Dist. Ct. D. N.J. 1999) (Unpublished)

LEASES; QUIET ENJOYMENT; EXCLUSIVE USE; DAMAGES—A landlord that refused to allow an assignee access to leased premises until ordered to do so by a court cannot collect rent for the entire period during which access was denied. Where a landlord does not protect an exclusive use right granted to its tenant by failing to incorporate the restriction into a subsequent tenant’s lease, it is exposed to a damage claim from the earlier tenant.

A linen store entered into a commercial lease with a shopping center landlord. Later, it assigned the lease to an arts and crafts store. The landlord objected to the assignment of lease and refused to allow the arts and crafts store to settle the dispute. The assignee commenced litigation against the landlord and the linen store. In an earlier decision, the Court held that the assignment of the lease was valid and that the arts and crafts store’s proposed use of the premises did not conflict with the restrictions of the lease. In addition, the Court had held that the landlord could not interfere with the arts and crafts store’s use of the premises. During the pendency of the litigation, the premises were vacant, but the assignee sent rent checks to the landlord on a monthly basis, despite being denied access to the premises. Each check was promptly returned. The landlord, before turning the keys over to the new tenant, requested that back rent be paid. In the meantime, the amount of money that the assignee was to pay the assignor for the lease was being held in escrow, pending outcome of the litigation. Ultimately, it was agreed that the rent money would be held in escrow and the parties would seek a court ruling on the period for which back rent was due. The original tenant argued that it was not liable for the back rent because the assignment was deemed valid by the Court and thus its assignee, the arts and crafts store, was the proper tenant. The arts and crafts store, on the other hand, contended that the rent payments that it tendered were rejected by the landlord and that it was denied access to the premises. The landlord apparently contended that either the assignor should pay the rent as it was not entitled to “free rent” and was never denied access to the premises; or (2) that the court implied it its Order that the arts and crafts store was responsible for the rent. The Court disagreed with both propositions. It explained that because the assignment was found to be valid, the arts and crafts store became the tenant, effective with the assignment. Thus as a matter of law, the linen store could not be held primarily liable for the rent owed after it assigned the lease. The arts and crafts store, although the proper tenant, was denied access to the premises. “In a commercial lease, the tenant’s covenant to pay rent is dependant upon the landlord’s satisfaction of the covenant of quiet enjoyment.” Here, the arts and crafts store was barred from entering the premises, a clear violation of the covenant of quiet enjoyment. Therefore, no obligation to pay rent on the part of the arts and crafts store arose, as it was not permitted to occupy the premises. As a result, the landlord was not entitled to collect back rent from either the assignor or the assignee.

This agreement also affected another tenant at the shopping center. That tenant operated a fabric store. In the fabric store’s lease, the landlord granted it the exclusive right to sell a long list of items, including arts and crafts, in the shopping center. In the linen store’s lease, the fabric store’s business was described only as a “fabric store.” Thus, as the Court had previously held, the arts and crafts store tenant could operate as an arts and crafts store because it did not conflict with a “fabric store” or any other restriction in its own lease, despite the fact the fabric store’s lease granted the fabric store the exclusive right to sell arts and crafts within the shopping center. As a result of the Court allowing the arts and crafts store to operate in the center, the fabric store claimed that it was damaged because the landlord had not protected its exclusive right to operate an arts and crafts store within the shopping center. As the Court analyzed the situation, the landlord ‟clearly failed to adequately protect [the fabric store’s] exclusivity provision by inaccurately describing it as a ‛fabric store’ in another tenant’s lease.” Therefore, the landlord was liable for breach of the fabric store’s lease. The measure of damages is to be governed by the same principles of contract law as are applicable to all other kinds of contract breaches. Therefore, the Court granted partial summary judgment in favor of the fabric store, finding that the landlord was liable to it for breach of its lease’s exclusivity provision. The matter was held open for further proceedings to allow the fabric store to prove its damages, if any.


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