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New Flyer of America, Inc. v. Mid-Newark, L.P.

A-4791-08T1 (N.J. Super. App. Div. 2010) (Unpublished)

LEASES; ATTORNEYS FEES; GOOD FAITH AND FAIR DEALING — Where a lease does not permit a party to recover attorneys fees, a party’s breach of the implied covenant of good faith and fair dealing should not result in an award of attorneys fees either.

A company leased a warehouse for six months, with renewal options. The rent was $30,000 per month, and the security deposit was $60,000. The security deposit was to be returned at the end of the lease term after the company vacated the premises, provided it surrendered the premises in the same condition as received, broom clean, ordinary wear, tear, and damage excepted. The lease did not permit the tenant to recover attorneys fees if it filed suit against its landlord to enforce the lease’s terms.

Prior to vacating the property at the end of a renewal term, the tenant requested a final, joint inspection of the premises, and had the floor and offices cleaned by a professional cleaning company. The landlord did not appear at a scheduled date. So, the company turned the keys over to a warehouse manager and vacated the premises. Subsequently, the company sought return of its security deposit. The landlord claimed there was damage to the property. A walk-through inspection between the parties identified items needing repair. The tenant submitted a repair estimate totaling $9,100 and twice offered to have the money offset from its security deposit. The landlord eventually responded that its own estimate was $14,500 which it would deduct from the amount of the deposit in addition to one month’s rent of $42,000 to compensate for the time the building could not be rented due to the repairs. The tenant sued to recover $50,900, plus costs and attorney’s fees.

At trial, the landlord testified that as soon as its tenant vacated the premises, it decided to use the property and not rent the premises to any other tenants. It also testified that it did not get written estimates of the cost of repairs for more than one and one half years after the tenant had vacated. The lower court concluded the tenant had attempted to surrender the premises in its original condition by allowing the landlord to deduct $9,100 from the security deposit, but the landlord frustrated this effort. It found the landlord breached the implied covenant of good faith and fair dealing by failing to timely respond to its tenant’s efforts to resolve the damage issue. The lower court entered judgment for the tenant for $50,900 plus interest. It also awarded what it considered to be consequential damages for the landlord’s breach of the implied covenant of good faith and fair dealing, awarding the company its counsel fees and costs.

On appeal, the Appellate Division upheld the security deposit award, finding that the landlord’s actions breached the express terms of the lease. The Court noted the tenant had employed cleaners for the premises and had requested a joint inspection with the landlord. The inspection was scheduled, but the landlord failed to appear. The tenant then vacated the premises and asked for its deposit, albeit agreeing to a deduction.

On the other hand, the Court reversed the award of attorney’s fees and costs, holding that a party normally bears its own costs and attorney’s fees in a contract action absent a provision to the contrary in the contract. Here, the lease did not permit the tenant to recover attorney’s fees and costs to enforce a lease term. The Court further held that breach of the implied covenant of good faith and fair dealing does not result in an award for attorney’s fees in the event of its breach.

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