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Washington and Court, L.L.C. v. Bangz Salon Hoboken, L.L.C.

A-1405-08T2 (N.J. Super. App. Div. 2009) (Unpublished)

LEASES — While a court can order that a landlord give an accounting to its tenant for charges payable by the tenant under the lease on account of operating expenses, it cannot order yearly, future accountings if the lease itself does not require those accountings.

A commercial tenant’s lease required it to pay a percentage of the “Building’s overhead charge.” The tenant paid the estimated overhead charge but disputed the landlord’s calculation of the actual charge for a particular calendar year. The tenant claimed that the charge was inaccurate because invoices were illegible or modified, certain expenses did not relate to the building, and other expenses were not properly included as part of the overhead charge. The landlord sued its tenant to recover the unpaid overhead charge.

The lower court ruled in favor of the tenant. It determined the lease was ambiguous and found that the term “Building” actually applied to only one address not the multiple addresses claimed by the landlord. It held that workers compensation insurance premiums were not includable as part of the overhead charges because such premiums were not specifically listed as one of the covered common area expenses. Further, it held that although the lease provided for the tenant to pay water and sewer charges for the demised premises, it expressly excluded such charges attributable to other tenants in the building. It also held that tenant was not responsible for real estate taxes or charges associated with the basement. Because the lower court decided that certain expenses were excluded from the overhead expense calculation and other receipts were either illegible or not applicable to the building in question, it ordered an accounting for the calendar year in dispute and for all future years. The landlord appealed.

The Appellate Division affirmed in part, reversed in part, and remanded the case to the lower court. First, in determining what the lease meant when it provided that the tenant was to pay a portion of the “Building’s” overhead expenses, the Court stated that the lower court correctly found that the building next to the subject premises should not have been included in the overhead charge. It was separate from the tenant’s building and was owned by another entity. The Court determined, however, that the lower court’s conclusion that the “Building” consisted only of a property known as a certain address - and not other addresses that the landlord contended were part of the “Building” – was not supported by sufficient credible evidence in the record. The matter was remanded for proofs to be taken to find the parameters of the term “Building” as referenced in the lease. It agreed with the lower court’s ruling as to workers compensation insurance and the water and sewer charges, but reversed the lower court and held that the tenant was responsible for its share of real estate taxes. It stated that the size of tenant’s share of real estate taxes had to await determination of the parameters of the “Building.” Finally, the Court reversed the lower court’s ruling that the landlord had to provide an accounting for each year after the initial year in dispute. Although it agreed with the lower court that there was ample reason to order an accounting for the disputed year’s overhead expense, it ruled that the lease did not require a yearly accounting. It refused to make a better contract for the tenant than the one tenant made.

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