HERBERT J. SCANLAN, Plaintiff
v.
MICHAEL LAI, Defendant.
High
Court of
Trial
Division [4ASR3d98]
CA No. 17-99
March 24, 2000
[1] The Court is not prohibited by the Parol Evidence Rule from considering the contents of an additional writing aside from the original, written contract, where such additional writing is composed subsequent to the contract.
[2] The Court is not prohibited by the Parole Evidence Rule from considering the contents of an additional writing aside from the original, written contract, where such additional writing assists in interpreting the original terms of the contract.
[3]
If a contract is not ambiguous, its plain meaning controls and the Court need
not inquire further into the intent of the parties.
[4] When a provision of a contract is ambiguous, it may be interpreted according the parties’ subsequent conduct.
[5] Ambiguous lease provisions are to be construed against the drafter.
[6] A tenant who abandons occupancy before the expiration of the lease without any legal justification remains liable for rent.
[7] The implied covenant of quiet enjoyment allows a tenant to cancel his lease with no liability if the landlord “substantially interferes” with the tenant’s use of the property.
[8] In order to constitute “substantial interference” with a commercial lease, the landlord must unreasonably interfere with the tenant’s ability to conduct business.
[9] Where a tenant abandons leased property, the landlord is obligated to mitigate any damages flowing from the tenant’s liability by the amount of the rent collected from a substitute tenant.
[10] A landlord must exercise due diligence in making reasonable efforts to re-let abandoned premises.
[11]
In breach of lease agreement case, defendant-lessee was entitled to a reduction
in damages recovered by plaintiff-owner for rents plaintiff-owner received from
substitute lessee. However, Defendant
was obliged to pay plaintiff the costs of advertising the property as
consequential damages. [4ASR3d99]
[12] In breach of lease agreement case, prejudgment interest is awarded on each installment of rent, less mitigation, calculated from the date the installment fell due.
Before
Counsel:
For Plaintiff, Paul F. Miller
For Defendant, Malaetasi M. Togafau
OPINION AND ORDER
Plaintiff Herbert J. Scanlan
(“Scanlan”) initiated this suit on March 12, 1999,
alleging that defendant Michael Lal (“Lai”) breached
the lease for a certain commercial building in
Facts
Scanlan and Lai entered into a lease agreement on February 1,
1995, for the commercial building at issue.
The lease specified the term as 10 years and the monthly rent at the
greater of $2,500 or $2,000 plus 2% of the gross income. It also contained a provision whereby the
agreement would be “reviewed after first five years for reconsideration,
readjustments, amendments, as to agreeable new terms by both parties.” Despite
the written terms of the lease, Scanlan verbally
asked for payment, of six months’ rent in advance, $15,000, and Lai complied
with this request.
Lease in hand, Lai occupied the building and opened
the Evergreen store. A few months after
entering the lease, Scanlan wrote Lai a letter, dated
May 3, 1995, stating that the lease was effective for five years, with an
option for another five years. Scanlan also proposed in this letter to give Lai one and
one-half months’ free rent, $3,750, if Lai paid another three and one-half
months’ rent in advance, $8,750, before Scanlan’s
departure on a trip to
In July 1996, Scanlan
completed construction of a stairway, on the exterior of the adjacent building
that led to the second floor. The stairs
were installed on the Fagatogo malae
side of the existing stairs located on the adjacent building. Lai did not object to the additional stairway
during its construction. However, Lai
alleges this staircase so blocked the view of the entrance to the store that
potential customers shopped [4ASR3d100] elsewhere,
thus resulting in materially reduced sales revenue.
Lai complained several times to Scanlan
about the new staircase. As a result, in
late 1996 or early 1997, Scanlan reduced the rent
from $2,500 to $2,250 per month. At
Lai’s suggestion, and the parties also discussed
relocating the store entrance to the center of the street side of the leased
building. However, they disagreed over
mutual sharing of the cost, and the entrance was not moved. Lai also asserts that Scanlan
orally promised him at this time that if the business continued to deteriorate
over the next year, Scanlan would release him from
the lease. Scanlan
denies recollection of any such promise.
Lai’s sales revenues materially declined in 1997. By the end of the year, he wanted to move
out. However, Scanlan
persuaded Lai to stay on for another year. Again they discussed relocating the
store entrance, but nothing came of it. Lai’s business declined further during
1998. On December 1, 1998, he gave Scanlan notice
that he would be vacating the building at the end of January 1999. Lai did in fact vacate the premises on or
about January 22, 1999. Thus, he
occupied the building and paid his rent obligation for only four years of the
lease term.
Scanlan advertised the vacancy in a newspaper for about three
months at a cost of $20.00. Several
persons showed interest in leasing the building, but not for the amount of rent
established by Scanlan. Scanlan then
located his video store in the building. Scanlan owns
the building and does not require the video store to pay rent, but he testified
that the video store could only pay rent in the amount of $1,000 per month and remain profitable. Scanlan later
relocated the store entrance to the center of the building as the parties had
discussed.
Discussion
A. Lease
Term [4ASR3d101]
We turn first to the lease term. The lease itself
clearly states, in paragraph 1, that its term is 10 years. However, Scanlan’s
letter of May 3, 1995 to Lai just as clearly states that the lease term
extended for only five years, with an option for another five years. We are thus faced with a glaring
contradiction in these two documents, both prepared by Scanlan,
regarding the term of the lease.
[1-2] As a
preliminary matter, we are not barred from considering the contents of Scanlan’s letter by the parol
evidence rule for two reasons. First, it
is later in time than the lease, and second, it assists in interpreting the
lease. Calamari & Perillo,
The Law of Contracts §§ 3.2(a) & 3.9 (4th ed. 1998).
[3]
Interpretation of the lease does, however, begin with the document itself. If the document is not ambiguous, its plain
meaning controls and we need inquire no further into the intent of the
parties. See Toys “R” Us, Inc.
v. NBD Trust Co. of
Paragraph 2 states that the lease is to be reviewed
after five years for “reconsideration.”
Reconsideration, in the context of a lease, is not a term of art and its
meaning is thus ambiguous in this document.
It could mean that the parties were to reconsider certain terms of the
lease at this time, or it could mean that they could reconsider whether to
continue the lease agreement in its entirety.
[4-5] When, as is the case with paragraph 2, a provision is
ambiguous, it may be interpreted according to the parties’ subsequent
conduct. Harris
Trust & Sav. Bank
v. LaSalle Nat. Bank, 567 N.E.2d 408, 412 (
Lai vacated the premises in January 1999. The lease of five years expired on January
31, 2000. Accordingly, if Lai has
breached the lease agreement, he is liable for the 12 months following his
abandonment during which the lease remained valid.
B. Breach
[6-8] A tenant who abandons occupancy before the expiration of the
lease without any legal justification remains liable for rent. Mesilla Valley Mall Co. v. Crown Indus., 808 P.2d 633, 635
(N.M. 1991). Lai would have been
justified in moving out and refusing to pay rent if Scanlan
breached the implied covenant of quiet enjoyment owed by all landlords to their
tenants. Generally, the covenant of
quiet enjoyment allows a tenant to cancel the lease with no liability if the
landlord “substantially interferes” with the tenant’s use of the property. See Am. Dairy
Queen Corp. v. Brownport Co., 621 F.2d 255, 258
(7th Cir. 1980). In commercial settings, “substantial interference” has
been interpreted as meaning that the landlord must unreasonably interfere with
the tenant’s ability to conduct business.
The question of whether Lai breached the lease turns
on the interference with Lai’s business caused by Scanlan’s
stairway installation. While the stairs
could affect Lai’s business, we do not believe that the prospective [4ASR3d102] customers’ view of the
store entrance was blocked to the level of “unreasonable interference” with his
business. Lai’s other excuses do not
help him. Lai’s overture to move the
store entrance so that it was clearly visible to potential customers was
discussed, but the parties never reached any meeting of the minds on this
proposal. While Scanlan
could have promised to accept surrender of the premises if Lai’s business
continued downhill, Lai has failed to prove the existence of this promise by a
preponderance of the evidence. Thus, Lai
was not justified in abandoning the property and withholding rent, and he is
liable to Scanlan for the 12 months remaining on the
lease.
C. Scanlan’s Remedies
When a tenant has abandoned property without good
cause, the landlord has three options.
First, he may hold the tenant to the lease and continue to collect
rent. Second, he may accept the tenant’s
surrender of the property and re-let the premises, in which case the tenant is
relieved of liability. Third, he may relet the premises on behalf of the tenant, in which case
the tenant must make up any difference between the amount he owes in rent
versus the amount collected from the new tenant. Crolley v.
Crow-Childress-Mobley No. 2, 379 S.E.2d 202, 204 (Ga. Ct. App.
1989). Specific performance is
not available.
[9-10] The landlord is obligated, however, to mitigate any damages
flowing from the tenant’s liability by the amount of the rent collected from a
substitute tenant. Marco
Kona Warehouse v. Sharmilo,
Inc., 768 P.2d 247, 251 (Haw. Ct. App. 1989). A landlord must exercise due diligence in making
reasonable efforts to re-let abandoned premises.
[11]
Testimony offered at trial estimated the amount of rent allocable to the video
store’ occupation of the building to be $1,000 per month. Lai is liable for twelve months rent at
$2,250 per month, for a total of $27,000.
The video business occupied the building in question for nine months of
the 12 month period for which Lai is liable.
At a rate of $1,000 per month, this reduces the amount owed by Lai by
$9,000, leaving the amount of Scanlan’s lost rent at
a total of $18,000. Scanlan
may also recover his advertising expense of the $20.00 as consequential
damages. Thus, the principal amount of Scanlan’s damages is $18,020.
[12]
Prejudgment interest is awarded on each installment of rent, less mitigation,
calculated from the date the installment fell due. Robinson v. Peterson,
375 So.2d 294, 297 (Fla. Dist. Ct. App. 1979). Using an interest rate of
6% per annum, and applying the video store rent for nine of the 12 months, the
amount of prejudgment interest is $734.46.
Adding prejudgment interest to the entry date of the judgment produces a
[4ASR3d103] final sum of
$18,734.46. Scanlan
is also entitled to his court costs, based on an affidavit submitted by Scanlan’s counsel, and post-judgment interest at the rate
of 6% per annum on the full amount of the judgment.
Order
Judgment shall enter in favor of Scanlan
against Lai in the in the amount of $18,734.46, including prejudgment interest,
plus actual court costs. The total judgment, including costs, shall bear
post-judgment interest at the rate of 6% per annum from the judgment entry date
until the judgment is paid in full.
It is so ordered.
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