Case Law Summaries

Sharut Furniture, Inc. v. Vornado Realty Trust

• Opinion Date: November 28, 2001
• Real Property Law
• E-Mail

LEASES; CONSTRUCTIVE EVICTION—A tenant found to have been constructively evicted from its premises under one lease may also be deemed constructively evicted under related leases where it was contemplated that use of the first premises was needed to enjoy the benefit of the space occupied under the other leases.

The primary issue in this matter was whether a tenant’s vacation of its premises prior to the expiration of its leases “was due to a constructive eviction, relieving it from its rent obligation for the balance of the term.” The tenant was a manufacturer, assembler, and seller of furniture with leased premises in a large industrial warehouse. Over the years, it expanded its space within the warehouse by adding separate leases. Eventually, it occupied three floors of a building, using the basement space for storage and subassembly, the first floor for assembly and finishing, and the second floor of the building for shipping. A fire broke out on the roof of the building. “Although the damage was not extensive and was soon repaired, the fire precipitated an inspection by [municipal] fire officials who found various code violations.” A significant, relevant violation was “the insufficient egress from both the first-floor and basement areas proximate to the portion of the building leased to” this tenant. The landlord eventually abated the first-floor violation “by constructing four new exits leading out of vacant space and which might not, therefore, be available to [this tenant] if [the landlord] leased that space to others in the future.” As to the basement, however, the parties disputed responsibility for constructing egresses. Consequently, the basement egress violation was not abated. Eventually, the municipal fire official issued a notice of imminent hazard, requiring the tenant to vacate all areas more than 75 feet from an exit door. The tenant advised its landlord of its consequent need to vacate and that its occupancy of the basement would cease as of March 1. It did not, however, complete the removal of all of its equipment and materials from the basement until August, although it appeared to have ceased operations there. Then, the tenant attempted for some months to continue its first-floor operation, including the second floor loading dock. This required employment of a time-consuming impractical, expensive process of moving goods from another warehouse to this location. Eventually, by November, the tenant decided to vacate all of its space, although it did not remove all of its heavy equipment until February of the following year. Essentially, “[i]ts claim was that its use of the basement, first floor and second floor was completely integrated and hence that the constructive eviction from the basement space justified, if not compelled, its removal from the balance of the space.”

The lower court addressed the question as to whether there had been a constructive eviction from the basement space. Under the doctrine of constructive eviction in New Jersey, the act or omission of a landlord “which renders premises substantially unsuitable for the purpose for which they are leased, or which seriously interferes with the beneficial enjoyment of the premises, is a breach of the covenant of quiet enjoyment and constitutes a constructive eviction of the tenant.” The Appellate Division could “hardly imagine a more complete interference with the tenant’s right of peaceful enjoyment than an order to vacate by a [municipal] official.” The landlord did not argue to the contrary. Instead, it asserted that the egress obligation was that of the tenant. Thus, the resolution of the constructive eviction issue depended upon whose responsibility it was to construct appropriate and code-complying exits for the basement space. The Appellate Division agreed with the lower court that the responsibility was that of the landlord. An important element in doing so, was its application of the principle that construes ambiguous lease provisions against the party who drafts the lease. Here, the lease provisions in question were drafted by the landlord. Concededly, the lease required the tenant “to ensure compliance with all legal requirements and required the tenant to obtain the landlord’s permission before making any structural changes.” The tenant testified that the negotiated language anticipated only its making such changes to further its own business operations and not for changes that did not directly relate to advancing the company’s business operations. “Based on the lease itself, the testimony, and the site inspections conducted by the [lower] court with the parties which demonstrated the extent of the structural repairs necessary to provide the mandated egresses, the [lower] court resolved the ambiguity in [the tenant’s], concluding that compliance with the fire code was, in this instance, [the landlord’s] responsibility.” The Court then looked to see whether constructive eviction from the basement space constituted, as well, a constructive eviction from the first-floor space. The Court found no question that the lower court’s “finding of the difficulty and impracticality of [the tenant’s] continuing to use the first-floor space without the extensive basement space [was] fully supported by the record.” The Court also agreed that the tenant made a “business decision” to terminate its first-floor lease. Unlike the lower court, however, the Appellate Division refused to make the assumption that characterizing the termination of the first-floor lease as a “business decision” precluded also characterizing it as a constructive eviction. “The question is not whether [the tenant] vacated because of a business judgment, but rather, whether that business judgment was imposed upon it not by its own will but because of the breach of the basement lease by [its landlord].” It didn’t matter to the Court that the lease for much of the basement space was a separate lease from that described in the first-floor lease because it was clear to the Court that “renewal of the first-floor lease and entry into the basement lease were mutually dependent acts since, without the storage and sub-assembly capacity of the basement and the access to the second floor loading dock ..., the first-floor space had little utility to [a tenant] as an independent demise.” Consequently, the Court held that depriving the tenant “of any of the single elements of space as a whole deprived it of its reasonable expectations and known purposes in renting all of the space included in the separate demises.” Finally, the Court, based on the findings of the lower court that the tenant had been constructively evicted from the basement, reversed those portions of the lower court’s judgment requiring the tenant to pay the rental value for the non-basement space and held, instead, that the tenant had been constructively evicted from all of the spaces occupied in the building, regardless of the existence of separate leases for those spaces.

Copyright ©2003. Meislik & Meislik. All rights reserved.