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Yale Enterprises, L.L.C. v. Euksuzian

A-1224-07T1 (N.J. Super. App. Div. 2009) (Unpublished)

LEASES; DAMAGES — Where a tenant, despite discovery requests, fails to provide its landlord an opportunity to review the tenant’s business records so that the landlord can make a determination as to what impact a claimed loss of income stream might have on the tenant’s business, the tenant can be excluded from giving testimony relating to a lost profits claim.

A tenant entered into an office lease. The lease provided that interior renovations would be ready prior to occupancy. After a series of amendments postponing the occupancy date, the tenant moved into the premises. The landlord had not obtained a certificate of occupancy (CO) and had not completed the required improvements at that time. Thus, the tenant did not commence making rent or tax payments. The day after the tenant moved into the premises, a municipal official issued a notice of violation and order to terminate to the landlord. Six days later, a notice of unsafe structure was issued. Shortly thereafter, the principal of the tenant received a notice of penalty for continued non-compliance with the statute. The tenant sued the landlord in the Law Division. The landlord responded by suing the tenant and seeking summary dispossession for non-payment of rent.

The Law Division initially entered an order directing the tenant to deposit a sum representing past due rent and taxes. It also precluded the tenant from presenting testimony that profits were lost because of the delay in opening its office. After a trial, the jury found that landlord breached the contract and that tenant had suffered damages in the form of: (a) municipal fines and penalties for occupancy prior to the issuance of a CO; (b) the tenant’s un-reimbursed costs for improvements to the premises; and (c) excess rent paid by the tenant for its prior office. The jury also found that rent for the first five months should be abated by fifty percent because the building was uninhabitable during that period. Finally, the jury held that the tenant should not be required to pay any late charges under the lease for rents and taxes due during the first five months of the term. The Court awarded counsel fees to the tenant. Both the landlord and tenant appealed certain portions of the Law Division’s decision.

The Appellate Division ruled that the lower court properly excluded testimony relating to lost profits. In its view, excluding such testimony was appropriate in light of the tenant’s previous failure, despite discovery requests, to provide the landlord with an opportunity to review the tenant’s business records so that it could make a determination as to what impact the loss of income stream would have had on tenant’s business. On the other hand, the Court rejected the landlord’s contention that the jury should have been charged on the issue of legal fraud. This was because the Court held that the tenant’s complaint failed to allege such a cause of action and the tenant only requested such a charge at the conclusion of trial. It believed that to charge the jury in this regard would have been unfair at that point in the trial. Further, the tenant’s claim of equitable fraud was not pled with the specificity required by law. As to the tenant’s claim for legal fees, the Court opined that tenant was only partially successful and declined to award counsel fees for services performed prior to trial counsel’s substitution into the case. According to the Court, the lower court’s award of eighty percent of the tenant’s requested attorney’s fees was reasonable. Further, the Court noted that the lower court had authority to set the fees as the agreement permitted the award of attorney’s fees to be “fixed by the court.”

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