X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
A nearly $3.5 million judgment emanating out of a commercial lease prompted an appeal to the Pennsylvania Superior Court, with a whole host of questions presented. This matter, the Trizechahn Gateway case, just decided this summer, is worthy of consideration. Titus & McConomy, a now-defunct Pennsylvania law firm, negotiated and executed a significant lease in 1995. The deal, entered into with Trizechahn Gateway, called for a 10-year term on the 20th and part of the 21st floor as well as basement storage in a downtown Pittsburgh office building. Several years later, Titus & McConomy increased its storage by way of a second storage lease. The trouble began, as it usually does, when Titus & McConomy ran out of money in 1999. Its intent to liquidate and wind up the partnership was communicated to the landlord early on; Titus & McConomy originally wished to work toward a sublet. However, prior to securing a replacement tenant, Titus & McConomy simply decided to vacate, even leaving behind files in the basement and fixtures in the office proper. Trizechahn commenced immediate negotiations with potential sub-tenants and Titus & McConomy continued to pay rent for a few additional months. Ultimately, a default occurred with more than five years remaining on the leases. The remedies section of the deal provided Trizechahn with the power to re-let under these very circumstances. Additionally, the defaulting tenant would be compelled to foot the bill for costs associated therewith and potential rent deficiencies. Of course termination was discretionary as well. In fact, Trizechahn went so far as to present Titus & McConomy with two payment scenarios in an effort to resolve the dispute pursuant to a termination. It also expressed the necessity of correcting a code violation, not possible without the recovery of a section of the main storage area. Hearing no response from its tenant, Trizechahn followed up with a second letter announcing its intent to re-let the main storage space and again requesting removal of the files left behind. Titus & McConomy eventually sought access to remove the files and then proceeded to vacate altogether. Trizechahn was forced to commence suit shortly thereafter. Approximately eight months passed before Trizechahn was able to re-let the 21st floor space, with that tenant neither paying rent nor taking possession for an additional two years; that area was taken “as is.” Trizechahn also managed to secure a tenant for the 20th floor but not until more than two years after Titus & McConomy’s default. That lessee took the space rent-free for the first six months and almost 600K was incurred for alterations and the like. Procedurally, the Court of Common Pleas of Allegheny County, entered several orders which directed the dismissal of several of the individually named defendants and awarded damages, interest and counsel fees to Trizechahn. Cross-appeals ensued, placing issues of good faith and fair dealing, quiet enjoyment, personal liability and damages before the Superior Court. Taking the duty of good faith and fair dealing first, appellants presented several inventive arguments. According to Titus & McConomy, Trizechahn’s notice of the necessity of taking back storage space constituted a misrepresentation in that Trizechahn had already secured a new tenant for that space prior to initiating the request. Consequently, it was deprived of critical information which might have been leveraged in a buyout negotiation. Titus & McConomy also contended that Trizechahn blocked its efforts to re-let and that once the duty was breached, it was excused altogether under the contract. The Superior Court responded by setting forth basic contract principles, mainly that the intent of parties may be gleaned where the language is clear and that every contract imposes a duty of good faith and fair dealing. Appellants conceded default and the existence of unambiguous contractual language, paving the way for an easy decision for the Trizechahn court. The contract clearly permitted the lessor to enter and re-let. Plus the record was entirely devoid of evidence of Trizechahn’s refusal to re-let to a tenant secured by appellants. Appellants proceeded with the contention that there had been a breach of the covenant of quiet enjoyment, relying upon the seminal state supreme court decision in Kelly v. Miller. Essentially every lease in the Commonwealth contains such a covenant which may not be wrongfully disturbed with a termination � title issues and liens shall not evict or otherwise disturb the tenancy. It was a plain fact that Titus & McConomy abandoned the premises. As such, there was no possession even to be disturbed. And as for the argument that Trizechahn had accepted appellants’ “surrender”, they were unable to meet their burden that Trizechahn engaged in an “unequivocal act” illustrative of such conduct. Finally, re-letting the premises for a longer term was well within Trizechahn’s right, under no duty to mitigate. The absolution clause contained within the master lease proved the next point of controversy for appellants. Specifically, as the lease was nonrecourse in nature, liability upon the general partners in their capacity as individuals was misplaced. The lease provides that: “In the absence of fraud, no person, firm or corporation . . . executing this lease as agent, trustee or in any other representative capacity shall ever be deemed or held individually liable hereunder for any reason or cause whatsoever.” Predictably, appellants sought blanket immunity for all partners and hence favored an over-inclusive reading of the clause; for Trizechahn, protection should only extend to those specific partners who actually executed the documents. The Trizechahn court sided with Trizechahn, after wrestling with questions of ambiguity within the clause itself. Only those partners who executed the lease enjoyed absolution. On the issue of damages, appellants argued that the common law rules of mitigation should apply as a fundamental tenet of contract law. They seized upon the following provision for support: “This contract and lease shall create the relationship of landlord and tenant between landlord and tenant; no estate shall pass out of the landlord; and tenant has only a usufruct, which is not subject to levy and sale.” Apparently Trizechahn framed the lease as a usufruct (analogous to a life estate) in an effort to shield the leased premises from potential creditors of appellants and to present a more favorable priority scheme to lenders. However, characterizing the master lease as a usufruct might also give rise to a duty to mitigate, which is clearly not the case in a commercial lease, unless expressly stated otherwise. Fortunately for Trizechahn however, the court applied a substance over form analysis and concluded that no duty to mitigate arose. As such, crediting appellants for Trizechahn’s inducement (six month rent-free occupancy) would be improper. Even a reduction in restoration costs, which arguably became necessary as part of an asbestos abatement plan, were not warranted, especially in light of appellants’ inability to substantiate such claims. The tide eventually did start to turn for appellants, specifically on the issues of prejudgment interest, counsel fees and further questions of personal liability. Most significantly, the lease document did not contain an acceleration clause. Nevertheless, the trial court awarded interest in excess of 1M, ignoring the lease’s plain terms. And Trizechahn’s conduct subsequent to appellants’ default further supported the Trizechahn court’s reversal on this point. Another example of poor drafting, at least from the landlord’s perspective, comes in the form of an ambiguous counsel fee provision. The deficiency as presented by appellants, involves the use of the term “hereunder.” As part of landlord’s remedies, there can be no doubt that attorney’s fees are carved out. Yet because these fees are only referenced in a paragraph addressing the enforcement of tenant’s performance, the argument that the recovery of such fees should be applicable to the recovery of rent in arrears (not specifically enumerated) was too tenuous for the court. That language was vulnerable to differing interpretations and the law requires a clear agreement for counsel fees. Consequently, Trizechahn’s counsel fee award was vacated � all 325K of it. The Trizechahn decision is valuable not only for its exploration of commercial leasing principles but also underscores the import of clear drafting. There is no reason why an aggrieved landlord should be docked valuable interest and fees as a result of contractual ambiguous ambiguities or downright omissions.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.