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Borough of Fort Lee v. Banque National De Paris

April 27, 1998

BOROUGH OF FORT LEE, PLAINTIFF-APPELLANT,
v.
BANQUE NATIONAL DE PARIS AND DBR MANAGEMENT, DEFENDANTS-RESPONDENTS AND FORT LEE HEADQUARTERS LIMITED PARTNERSHIP, AND RED ROCK HOLDINGS LTD., DEFENDANTS.



Argued November 12, 1997 On appeal from Superior Court of New Jersey, Chancery Division, Bergen County.

Before Judges Dreier, Keefe and Wecker.

The opinion of the court was delivered by: The opinion of the court was delivered by Wecker, J.A.D.

[9]    Steven D. Muhlstock argued the cause for appellant (Gittleman, Muhlstock, Chewcaskie & Kim, attorneys; Mr. Muhlstock on the brief). Kenneth N. Laptook argued the cause for respondents (Wolff & Samson, attorneys; Mr. Laptook and Vanessa H. Silverstin on the brief).

In early 1993, an underground gas leak forced the Police Department of plaintiff, Borough of Fort Lee, to relocate its entire headquarters including the municipal jail, to temporary facilities. A five-story office building in the Borough, known as 2115 Linwood Avenue, was largely vacant at the time and was the subject of a pending foreclosure action brought by defendant Banque National de Paris (the Bank). Plaintiff entered into a one year, temporary occupancy agreement with then owner, defendant Fort Lee Headquarters Limited Partnership, *fn1 for the department to occupy the 14,200 square foot, fifth floor of 2115 Linwood Avenue for a one-year period from February 1, 1993 through January 31, 1994. A contemplated lease agreement was never signed, but the occupancy was extended for an additional year to January 31, 1995, by agreement between the Borough and defendant DBR Management, the rent receiver for the property appointed in March 1993. Negotiations for a further extension were unsuccessful. The Bank, by this time the owner of the property, served a demand for possession effective August 1, 1995. The police department refused to vacate, and plaintiff brought this action seeking the right to remain in possession. The Bank counterclaimed for possession and damages. These facts, found by the trial Judge, are not disputed.

After several days of trial, the Chancery Division Judge dismissed plaintiff's claim, concluding that plaintiff had been a trespasser since August 1, 1995. That Conclusion is not and cannot be disputed. The judge awarded defendant a total of $465,188 in damages through that date, consisting of (1) $65,004 as underpayment of rent for the occupied fifth floor, at fair market value, for the period August 1, 1995 through July 31, 1996; (2) $337,250 as lost rent on the theory that plaintiff's holdover prevented defendant from leasing the vacant second, third, and fourth floors; *fn2 and (3) $62,934 as promised but "unpaid real estate tax credits" (including prejudgment interest) attributable to the municipal occupancy. The judgment also required plaintiff to pay $74,550 in "monthly use and occupancy fees" as a condition of staying the writ of possession. Plaintiff appeals only from that portion of the judgment awarding "lost rents in excess of $65,004."

This appeal presents the following questions: (1) Was there sufficient evidence to support the court's implicit Conclusion that plaintiff's trespass was the sole proximate cause of defendant's inability to lease the three vacant floors of its building, in the absence of explicit findings thereon? (2) In calculating lost profits on the vacant space, did the court take the correct factors into account and make sufficient findings to support its calculation? Our answer to both questions is "No."

The irony of the police department's trespass has not escaped us. Nevertheless, we conclude that the Chancery Judge did not sufficiently explain his implicit Conclusion that plaintiff's continuing trespass on defendant's property was the sole proximate cause of defendant's inability to lease three other floors of the property, space which had been vacant for three years prior to plaintiff's initial, lawful occupancy. In addition, the Judge erred in omitting, in his calculation of lost profits, some reduction to reflect the cost of those repairs required to market the space at the purported market rent. Finally, the judge did not adequately explain his calculation of the overhead expenses by which he reduced gross rent to net rent, i.e., lost profit. We therefore vacate that portion of the judgment for lost rent, $337,250, that the court awarded with respect to the vacant second, third, and fourth floors of the property, and remand the matter for a determination of comparative causation and a redetermination of lost profits. *fn3

After several days of testimony in June and July 1996, the Judge placed findings and decision on the record on July 25, 1996, including the following Conclusions of law which are not disputed on appeal: (1) The bank did not expressly or implicitly agree to allow the police department to remain beyond February 1995. (2) The police department was a trespasser as of August 1, 1995, either because its license to use the premises under the extended occupancy agreement had expired or because a month-to-month tenancy had expired, and because the Bank served a notice to quit and demanded possession as of August 1, 1995. (3) The Bank was entitled to a writ of possession immediately at the conclusion of the trial, but public safety concerns warranted a stay of execution of the writ until March 1, 1997, on condition that plaintiff would pay market rent. (4) The Bank was entitled to $65,004, the difference between the rent plaintiff actually paid and rent calculated at a net rate of $18 per square foot for the period August 1, 1995 through July 31, 1996. (5) The Bank was entitled to the promised real estate credit, $59,248, plus pre-judgment interest of $3,686 pursuant to R. 4:42-11, totaling $62,934.

However, on appeal the Borough disputes several findings of fact and Conclusions of law. The Borough contends that the court erred in implicitly finding that the police department's presence on the fifth floor of the building was the sole proximate cause of the Bank's failure to lease the second, third and fourth floor space as of August 1, 1995. The Borough also contends that the court erred in finding that defendant did not fail to mitigate damages by delaying repairs necessary to attract "class B" tenants and by refusing to lease the space at a lower rent to "class C" tenants. Finally, the Borough cites error in the court's calculation of lost profits by overstating the gross market (rental) value of the space; by understating necessary overhead expenses; and by refusing to include among those expenses some factor for the cost of essential repairs. As a result, the Borough contends that the inclusion of $337,250 in the total $402,254 awarded as lost rent represents a windfall for defendant.

The applicable standard of review is limited. We will defer to the factual findings of the trial Judge so long as they are supported by adequate, substantial, and credible evidence in the record. Township of West Windsor in the County of Mercer v. Nierenberg, 150 N.J. 111, 132-33 (1997); Rova Farms Resort, Inc. v. Investors Ins. Co. of America, 65 N.J. 474, 484 (1974). Legal Conclusions, however, are not entitled to the same deference; we address questions of law de novo. Manalapan Realty v. Township Comm. of Tp. of Manalapan, 140 N.J. 366, 378 (1995).

We first address the proximate cause issue. The evidence is undisputed that the second, third and fourth floors of the building were vacant during the three years prior to the police department's initial occupancy in February 1993. *fn4 Anne Shean, vice-president of the Bank in charge of "special assets," including foreclosed real property, testified as follows:

Q. And are you aware of whether or not there have been any tenants on the second, third, fourth floors of that building at any time during the past couple of years?

A. None since Alpha Lavelle.

What?

A. The Alpha Lavelle was the tenant who had owned the building and then did a sale lease-back transaction and it occupied it under a lease for a period of time.

Q. And that ended sometime in 1990?

A. Yes, I believe so.

Q. So the second, third and fourth floors have been vacant since then?

A. Correct . . . .

The second, third and fourth floors remained vacant through the date of trial. *fn5

Defendant's experts with respect to proximate cause and damages were Anne Shean and Dennis McConnell. Plaintiff's expert was Anthony Rinaldi. These witnesses essentially agreed that the age of the building prevented its valuation as a "class A" or most desirable office building and that in good structural repair and with cosmetic improvements, its location, size and facilities would make it a "class B" building, which according to Shean would attract "corporate type tenants, an accounting firm, back office operation to financial institution." There was ample testimony to support the Judge's conclusion that the building, with certain repairs, could attract "class B" tenants, but they would be unwilling to occupy a building that also housed the entire Fort Lee police operation; that without sufficient repairs and with the police presence, the building could not attract sales or marketing offices whose clients would visit the building, but could only attract class C tenants, at a lower rent; and that the Bank was not obligated to risk long term devaluation of the property by renting to a different class of tenant. Plaintiff contends that Shean's testimony about responses to her attempts to market the property was inadmissible hearsay. We need not decide that question, because we conclude that any error ...


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