Commercial Lease Gentrification Continues

by Thomas V. Bennett

The laws governing commercial leases have been developing since the case of Wesson v. Leone Enterprises, Inc. where it was decided. (See Article entitled “Changes to Tenant’s Rights” on the Barron & Stadfeld, P.C. web site).

 Another recent case involved a build to suit lease which provided another opportunity to produce further guidance in the evolution of commercial landlord/tenant law.

 Here, the lessee that entered into the lease was a company that engaged in the bottling, distributing and sale of water products. Before the occupancy of the lease began, the tenant attempted to cancel the lease because it considered that “an important part of its requirements for the property” would not be forthcoming. The town in which the property was located would not grant approval of a proposed fleet shop for maintenance of the tenant’s many delivery trucks.

 

After notice to the landlord, the landlord brought an action against the tenant in the Superior Court. The Superior Court awarded judgment for the landlord for $984,098.40 in liquidated damages and placed the tenant under a continuing obligation to pay monthly rent, less the net proceeds of reletting. The Court entered that order based upon a summary judgment which means that there were no facts that the Court needed to find other than those in the pleadings and, based upon the facts in the pleadings, the landlord was entitled to prevail as a matter of law.
 

The tenant appealed on a number of grounds.
 

The facts include the following:
 

The tenant was informed by its broker that the subject property had been listed for lease. The principal of the tenant inquired of its broker and the principal of the landlord who was also a broker if the facility would allow for parking for about forty trucks and sixty cars, office space, a fleet shop for maintenance and repair of trucks and a 10,000 gallon above ground diesel tank for fueling the fleet of trucks. She also informed the landlord that every distribution site serving ten or more delivery routes must be equipped with a fleet shop. She relied on her broker only to refer her to properties where the zoning would comply with the company’s needs. The landlord notified the tenant that, other than a requirement for minor configuration of the parking area, there would be no restrictions which would interfere with the tenant’s intended use of the premises as an active distribution center and warehouse. The tenant asked the landlord to confirm that and the landlord did confirm it by stating that there would be no zoning restrictions on the tenant’s intended use of the property. The tenant did not seek independent advice as she was satisfied with the landord’s representations.
 

The tenant signed a ten-year lease. The lease required the landlord to make certain alterations, including a fleet shop. Before the plaintiff’s work was performed, the tenant learned that the diesel fuel tank could not be placed where planned because the proposed location was in a ground water protection district and that a fleet shop could not be built because the property was located in a limited industrial district that specifically prohibited an automobile (or fleet) shop. Despite efforts of the landlord’s attorney to obtain permission for the fleet shop, the Zoning Board of Appeals in the town in which the property was located denied the application.
 

The tenant claimed there was a genuine issue of material fact that needed to be tried as to whether or note the tenant was induced by the landlord to sign the lease deliberately misrepresenting that the property could be used for the tenant’s purposes.
 

In the lease there was a standard integration clause which provided that “This lease expressly supercedes any proposals or other written documents relating thereto . . . . ” The landlord took the position that ruled out any attempt by the tenant to claim that it was fraudulently induced to enter into the lease. The Appellate Court disagreed. The Court noted that if the finder of fact found that the representation was made and that it was material and was made with knowledge of its falsity or with reckless disregard for the actual facts, the tenant would have a defense to the claim of the landlord of a breach of the lease.
 

The tenant’s next position was that there was a mutual mistake by both the landlord and the tenant on the underlying assumption that the town zoning bylaws imposed no obstacle to the use of a part of the premises as a fleet shop and that as a result of the mutual mistake, the contract can be avoided. The Court held, however, that to avoid a contract relief is only appropriate in situations where the mistake of both parties has had a material effect on the agreed exchange of performances as to the very basis of the contract. Here the court found that the fleet shop was not the subject matter of the main focus of the contract and that the only reference to it appeared as an exhibit. Moreover, the tenant acknowledged in an affidavit that it could “outsource” the maintenance of its trucks albeit at a higher cost. The Court on that basis felt that there was not a mutual mistake of the parties which would allow the avoidance of the contract.
 

The defendant following the decision in Wesson moved to amend its answer to raise the defense of dependent contracts. That case provided that if the landlord fails to perform a valid promise contained in a lease to do or to refrain from doing something and as a consequence thereof, the tenant is deprived of the inducement to the making of the lease and if the landlord does not perform his promise within a reasonable period of time after being requested to do so, the tenant may terminate the lease. The Court found it was error not to permit the tenant to raise that as a defense. The landlord claimed that the tenant could not raise the defense because it had not, under the notice provisions of the lease, given notice to the landlord of its default and in its claim and given it an opportunity to cure. The Court found that compliance with a notice provision is not required where it would amount to a “useless gesture” and, under the facts in this case, the Court noted that it would be a useless gesture.
 

This case represents another interesting attempt by the Courts to hammer out fairness between landlords and tenants in a relationship that was historically and still continues to be slanted in the landlord’s favor.