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Richard Grabowsky, LLC v. Bangz Beauty Center

July 13, 2010

RICHARD GRABOWSKY, LLC, AND MARLEEN GRABOWSKY, LLC, PLAINTIFFS-APPELLANTS,
v.
BANGZ BEAUTY CENTER, INC. AND RICHARD CRONK, DEFENDANTS-RESPONDENTS.



On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-7211-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted April 21, 2010

Before Judges Stern and Sabatino.

This is a commercial lease dispute. Following a four-day bench trial, the Law Division entered a final judgment determining that the tenants owed $60,012.12 in past rent, and fixing a fair market rental of $18,901.60 per month for the last five months of the tenancy. The landlords now appeal, contending that the trial judge miscalculated the rental amounts in several respects. For the reasons stated herein, we affirm the final judgment in part, vacate it in part, and remand for additional proceedings.

I.

The tenants in this matter collectively are defendants Bangz Beauty Center, Inc. ("Bangz") and Richard Cronk ("Cronk"). The landlords are plaintiffs, Richard Grabowski, LLC and Marleen Grabowski, LLC.*fn1 The relevant fact, which we set forth in detail, are as follows.

A. The 1994 First Floor Lease

On March 25, 1994,*fn2 the tenants entered into the first of three leases with the landlords' predecessor in interest, Clairidge Mall Associates ("Clairidge") to occupy certain commercial property on Bloomfield Avenue in Montclair. The property is located on Block 2207, Lot 5 of the Montclair TaX Map and encompasses the entire triangular intersection of Bloomfield Avenue and Church Street.

Under this particular lease (the "first floor lease"), the tenants rented "[a]pproximately 2,700 [s]quare feet" at 470 Bloomfield Avenue in Montclair for a total rent of $224,304 over five years. Handwritten on the first page of this lease is the notation "1st floor" next to the description of the premises.

The first floor lease contained a clause in which the monthly rental would increase at five percent each year, beginning at a monthly rental of $3600 for the term of July 1, 1994*fn3 until February 28, 1995, and ending at a monthly rental of $4376 for the term of March 1, 1998 to February 28, 1999.

Attached to the first floor lease was a rider that provided, among other things, a holdover clause and a renewal option. The holdover clause established that, should the tenants remain on the premises after the expiration of the lease, they would owe Clairidge the sum of 125 percent "of the rate per square foot of [r]entable [a]rea being paid by [the tenants] immediately prior to the termination date[.]"

Paragraph thirty-nine of the first floor lease, which set forth the renewal option, granted the tenants an option to "extend the [l]ease for an additional five (5) year period" upon giving notice to the Clairidge of such intent. The renewal clause required that the tenants "[have] fully and timely satisfied all of [their] obligations, and [have] not breached or defaulted any of the terms of [the] agreement[.]" The rent for the renewal option was set at "the prevailing rental value[,] increased annually by [five percent] on the anniversary date of this [l]ease."

The rider to the first floor lease also included a personal guarantee clause. This personal guarantee established that defendant Richard Cronk was liable to Clairidge for up to "twelve (12) months of the prevailing rental value" in the case of a default by defendant Bangz.

B. The 1995 Lease Amendment

More than a year later, on May 15, 1995,*fn4 Clairidge and the tenants signed an amendment and modification of the first floor lease. The amendment specifically relied on paragraph thirty-nine of the 1994 lease--the renewal option--as authority to extend the operative terms of the lease for an additional five years, until February 29, 2004.

Similar to the original first floor lease, the lease amendment contemplated a five percent annual increase in the monthly rent for the remaining term, i.e., beginning at $4595 per month*fn5 for the period of March 1, 1999 through February 29, 2000, and increasing to $5585 per month for the term of March 1, 2003 through February 29, 2004.

The 1995 lease amendment also included a modified renewal term, again conferring upon the tenants the option to renew their lease for an additional five years at the close of the now-amended lease. However, the clause changed the method of calculating the rent due for any further renewal period from "the prevailing rental value[,] increased annually by [five percent]" to a new requirement that the rent "shall be negotiated at current market value."

C. The 1995 Second Floor Lease

On May 15, 1995, the parties also entered into a second lease for additional property located on the same block (the "second floor lease"). This second floor lease described an area of "approximately 3,176 [s]quare [f]eet" in "484 Bloomfield Avenue - 2nd Floor[.]" Specifically, the second floor lease covered the premises encompassing "[s]uites 13, 14, 15, 16, 17 & 18" in that building.*fn6

Unlike the parties' previous agreements, the second floor lease was established for a term of eight years and six months, running from September 1, 1995 until February 29, 2004. The total rent due for the entire term of this lease was $326,748. Similar to the first floor lease, the lease contained an escalation clause, whereby the monthly rent due increased at approximately five percent annually throughout the life of the lease--beginning at $2647 per month for the term of September 1, 1995 through August 31, 1996--and finishing at $3910 per month for the period of September 1, 2003 through February 29, 2004.

As with the first floor lease, the second floor lease contained a rider, which included a holdover provision and a renewal provision. The holdover provision was identical to the one in the first floor lease. It required payment of 125 percent of the rental value immediately preceding any holdover period. The renewal clause was identical to the substituted renewal clause in the amendment to the first floor lease, in that it permitted a renewal for a five-year period, but required the parties to negotiate the rent due for that period "at current market value."

Neither the second floor lease nor its attached rider contained a personal guarantee by Bangz similar to the one contained within the first floor lease.

D. Amendment of the Second Floor Lease

On November 15, 1995*fn7 Clairidge and the tenants amended the second floor lease to reflect a different measurement of the premises, as well as a lower monthly rent. The premises described on the amendment incuded "[a]pproximately 2,923 [s]quare [f]eet" encompassing "[s]uites 13, 14, 15, 16, 17, 18 and 21" in "484 Bloomfield Avenue[,] 2nd Floor[.]" This change in the wording of the lease reflected a decrease of 253 square feet from the original second floor lease but the addition of suite 21.*fn8 The term of the amendment was limited to "eight (8) years and [four and one-half] months commencing [on] October 15, 1995 and ending on February 29, 2004." Thus, the amendment would run for the entire duration of the original second floor lease, with the exception of the month of September 1995 and the first two weeks in October 1995.

The amendment also adjusted the monthly rent escalation schedule on the second floor lease downward to reflect a final total rental cost for the amended term of $294,856. The five percent escalation began with a monthly rental rate of $2436 per month from November 1, 1995*fn9 until October 31, 1996, and peaking at $3600 per month for November 1, 2003 through February 29, 2004.

Although the amendment to the second floor lease included no renewal clause, it did contain language that stated: "[e]xcept as herein modified, supplemented[,] or amended, all of the terms, covenants[,] and conditions of the original [l]ease dated May 4, 1995 [the second floor lease], shall remain in force and effect as heretofore written and the [l]ease as modified, supplemented[,] and amended by this [a]greement is hereby ratified and confirmed in every respect." This contract language signified that the five-year renewal clause in the second floor lease--providing that the parties will negotiate a renewal rent at "current market value"--remained intact.

E. The 1997 Kerwin Lease

Subsequently, on July 14, 1997, Clairidge entered into a lease with a third party, Suzanne Kerwin*fn10 of Totowa. This third lease (the "Kerwin lease") described a premises of "[a]pproximately 414 [s]quare [f]eet," including "Suite #12 -2nd Floor" of 484 Bloomfield Avenue. The Kerwin lease rented the premises for a term of three years "beginning September 1, 1997 and ending August 31, 2000," at a total rent of $15,540. The Kerwin lease provided for an annual four percent increase of the monthly rent payment, beginning at $414 per month for the lease period of September 1, 1997 through August 31, 1998, and concluding at $449 per month for the period of September 1, 1999 through August 31, 2000.

Similar to the first and second floor leases, the Kerwin lease contained a rider, which included identical holdover and renewal provisions to those found in the earlier leases. Additionally, the Kerwin lease included a personal guarantee that held Suzanne Kerwin liable for the entire amount of the lease plus damages in the event of default by the tenant. Finally, the rider to the Kerwin lease provided the only reference in any of the leasing documents to real estate taxes. Specifically, paragraph thirty-three of the rider established that Kerwin was liable for "[one percent] of any increase in ...


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