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Pinedge Associates v. Steliga Homes Corporation

A-4539-06T2 (N.J. Super. App. Div. 2009) (Unpublished)

LEASES; FEES — A liquidated damages provision in a commercial contract, such as a lease, between sophisticated parties is presumptively reasonable and the mere fact that in two separate leases between the same tenant and landlord there are two different late fee charges does not make the higher late fee rise to the level of unreasonableness.

A commercial tenant entered into a lease for the top level of a building. The lease called for the tenant to pay any increases in real estate taxes over a base year. Several years later, the tenant leased the lower levels as well. Both leases also included a clause providing for late charges and interest if the tenant paid the rent late. Subsequently, a fire severely damaged the building. This put the tenant “out in the streets.” After the tenant stopped paying rent for three months, the landlord sent a notice demanding payment of unpaid rent, additional rent, late charges, and interest. The letter also terminated the lease and requested that the tenant vacate its premises. When the tenant did not pay, the landlord sued, alleging breach of contract and unjust enrichment. The tenant responded by claiming it had a right of setoff against its rent for payments made for advertising costs and for clean-up following the fire.

The lower court awarded the landlord damages including late fees and interest, but permitted a setoff for certain repair work done by the tenant after the fire. It ruled that the tenant had failed to show that the late fees were unreasonable and permitted such fees. On the issue of real estate taxes, the lower court allowed the amount to be subject to proofs by the landlord. The landlord appealed, claiming that the lower court failed to include additional rent for the lower level’s lease and challenged the Court’s determination as to real estate taxes. The landlord also claimed it was entitled to additional rent as provided in the lease. Its tenant cross-appealed, claiming the late payment fee was an invalid stipulated damage clause.

The Appellate Division affirmed. First, as to the landlord’s additional rent claim, it noted that the landlord conceded that it had failed to submit any evidence to the lower court that it had delivered any statements calling for payment of additional rent as required by the lease. Moreover, it found that the landlord failed to provide any evidence that it was entitled to the additional rent or the amount of that additional rent. Further, it stated that the landlord had voluntarily withdrawn these claims before the lower court trial began. Given the facts on the record, it concluded there were no genuine issues of material fact in dispute as to this issue.

Second, it ruled that because the lease expressly stated that the landlord was responsible for payment of real estate taxes, there were no material facts in dispute as to that issue. Third, it observed that a liquidated damages provision in a commercial contract between sophisticated parties is presumptively reasonable. Although the late fees for the upper level and lower levels were different (five and ten percent respectively), the Court held that this fact alone did not rise to the level of unreasonableness. Since both parties were deemed to be sophisticated business entities and the landlord was not seen to have “strong-armed” the tenant into entering the lease, the Court agreed with the lower court that the late fee was reasonable. Finally, as to the lower court’s award of counsel fees to the landlord, although it agreed with the lower court that the landlord was entitled to such fees, it found that the record was devoid of the lower court’s reasoning as to the amount of the fees. Therefore, it reversed and remanded for a statement of reasons for the award of counsel fees.

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