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Star 72, Inc. v. Guardian Drug Company, Inc.

A-6527-02T2 (N.J. Super. App. Div. 2004) (Unpublished)

LEASES; TERMINATION; DAMAGES—Where there is nothing to show that a property owner actually had anyone interested in buying its property, it cannot recover damages for a lost sale from a tenant who failed to repair leased property after the term of its lease or failed to timely finish an environmental remediation.

Two parties entered into a lease that required the tenant to restore the leased building to the condition it was in when the first lease commenced between the parties and to comply with the requirements of the Industrial Site Recovery Act (ISRA). The tenant didn’t surrender the premises at the end of the lease term, and its landlord brought a dispossess action. The parties entered into a settlement that required the tenant to fulfill the obligations of the lease and to vacate the premises by February 29, 2000. It vacated the premises on that date, but left the building in disrepair. Also, the tenant did not comply with its ISRA obligation until seventeen months after vacating the premises. The landlord sold the building “as is” in November 2001 for $685,000. At the time of the sale, the landlord had completed only $11,000 worth of the $300,000 repairs that the tenant should have made at the end of its tenancy.

The landlord sued the tenant, alleging that it failed to comply with its ISRA obligation in a timely manner and that it failed to restore the building to its pre-tenancy condition when it surrendered possession. The landlord also sought damages for its inability to sell or rent the premises due to its damaged condition and for the costs of restoring the building to its pre-lease condition. Further, it sought damages for its alleged inability to sell or lease the premises by reason of the tenant’s failure to comply with ISRA during the seventeen-month period.

To rule on the tenant’s motion for partial summary judgment, the lower court observed that no prospective buyers or tenants ever said that they rejected the property because of the condition of the tenant’s leasehold, nor did any prospective tenant or buyer say that ISRA compliance was an issue. ISRA compliance took place before any buyer was identified. Therefore, the lower court granted the motion, holding that there was nothing in the record that would justify an award to the landlord for consequential damages during the “gap” time.

During a trial before a different judge, that judge decided that because of the earlier ruling on the motion for partial summary judgment, the landlord’s damages would be limited to the actual out-of-pocket repair costs it incurred before selling the property and that it would not be entitled to recover the estimated cost of any repairs it did not perform before the sale. Therefore, it excluded evidence of the estimated cost of the repairs required to restore the landlord’s building to the condition it was in before the tenant’s occupancy. After this ruling, the parties agreed to a judgment of $12,567.88.

The Appellate Division affirmed the partial summary judgment. However, it held that the lower court erred in excluding evidence of the estimated cost of the repairs required to restore the landlord’s building to the condition it was in before the tenant’s occupancy. It didn’t believe that the original partial summary judgment precluded the trial judge from considering a full range of damages. The partial summary judgment only dismissed the landlord’s claim for continuing rent during the twenty-month period between February 2000 and November 2001. The motion judge’s opinion did not address any of the landlord’s claims other than those based on its alleged inability to rent or sell the property during this “gap” period. Therefore, the partial summary judgment did not foreclose any claim the landlord may have had for the dimunition in value of the property as a result of the damage to the building caused by the tenant or the estimated cost of repairs required to restore the building to its pre-lease condition. As a result, the Appellate Division reversed the lower court’s decision and remanded the case for a new trial.


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