Case Law Summaries

RJS Corporation v. Sprint Spectrum, L.P.

• Opinion Date: May 10, 2001
• Real Property Law
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LEASES; MITIGATION—Where it is unclear whether a new lease made after an earlier tenant’s default would have constituted a possible second, independent tenancy had the earlier lease not been terminated, the new lease is to be treated as one in mitigation of a landlord’s damages under the defaulting tenant’s lease.

A cellular phone company leased a water tower for its antenna. The lease permitted the cellular company to terminate the lease if “in its sole discretion, [it] determines that it will be unable to use the Site for its intended purpose.” Credible testimony by the landlord was accepted by the lower court as evidence that because of the tenant’s refusal to modify the “termination for failure to make use of the tower for its ‘intended purpose’” of the form antenna contract, the parties added an “Exhibit C.” That exhibit stated that the cellular company “has determined ... that the site is suitable for its intended use.” For that reason, the lower court held that parol evidence was admissible to resolve an ambiguity between the termination rights language in favor of the cellular company and Exhibit C. This led the lower court to conclude that the cellular company had given up its right to terminate the contract for failure of the site to satisfy its “intended purpose” because of the representation in Exhibit C. As a consequence, the lower court held that the cellular company was obligated to “abide by the deal that it made.” The Appellate Division upheld the lower court’s use of parol evidence to determine the intent of the parties and upheld the lower court’s ruling. The cellular company also contended the damage award unjustly enriched the landlord. The cellular company’s lease contemplated other tenants might co-locate their cellular phone antennas on the tower, and provided, in such case, the landlord would pay the original cellular company 25% of the rental amount received from future tenants. After the lease had been wrongfully terminated by the cellular company, the tower owner found another cellular company that agreed to pay an even higher rent. The tower owner asserted that the only effect it had on its receipt of rental damages from the first cellular company was that the rent owed under the first lease would be reduced by 25% of the rent received from the newer tenant. The original cellular company, on the other hand, asserted that by leasing the tower to a second company for a higher rental than it had been obligated to pay, the landlord had completely mitigated its damages. The lower court, in discussing the mitigation credit, stated “[i]t is reasonable to infer that a 25% rent credit to [the original cellular company] was based on [its] improving the tower and thereby making it easier for [the tower owner] to attract co-locating companies. If [the cellular company] did not pay for the improvements it should not reap the benefit of ... the rent credit.” In this case, the original cellular company did not pay for the improvements. As a result, the lower court treated the newer cellular company lease, for damage-calculation purposes, as a co-location lease, in accordance with Exhibit C of the original lease through application of the 25% credit. The Appellate Division rejected that approach as being inconsistent with the landlord’s duty to mitigate damages. It further held that such an approach assumed, “without sufficient support in the record, that [the newer company] would have, or could have, co-located the cellular phone company on the” tower. A commercial landlord can agree to mitigate damages where a tenant breaches the term of the lease and, in commercial leases, the burden falls on the landlord “to demonstrate whether he executed reasonable diligence in attempting to re-let the premises.” The leasing of a tower to a second cellular company demonstrated that the landlord “at least partially fulfilled its affirmative obligation to mitigate damages… .” The purpose of damages is to compensate the injured party and to put the injured party in as good a position as he would have been had the contract never been breached. The Appellate Division viewed the new lease as having satisfied the landlord’s mitigation obligations, and not as if the tenant thereunder was a co-user of the tower. Accordingly, it calculated the amount of lost rent based on the original rent and the amount of rent actually to be collected during the period of time during which the newer lease overlapped the original term of the breached lease. This approach seemed to be based on the Court’s holding that it could not tell whether the second company would have or could have co-located its cellular phone antenna on the same tower. Therefore, the Court assumed that it could not have done so and that the second lease was fully in mitigation of the breached lease.

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