August 18, 2010
BANK BUILDING ASSOCIATES, LP (AS SUCCESSOR IN INTEREST TO PANTERRA REALTY INVESTMENTS, INC.), PLAINTIFF-RESPONDENT/CROSS-APPELLANT,
BANK OF AMERICA (AS SUCCESSOR IN INTEREST TO UNITED JERSEY BANK), DEFENDANT-APPELLANT/CROSS-RESPONDENT.
On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-2172-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued April 20, 2010
Before Judges Wefing, Grall and Messano.
In this civil action alleging breach of a lease for commercial property, plaintiff Bank Building Associates, LP (BBA) filed a complaint to recover the costs of restoring premises leased to Bank of America (BOA). The issues of liability and damages were tried to the court, and on June 3, 2008 the judge awarded BBA damages in the amount that BBA spent to restore the exterior elements of the premises, $430,600. On July 1, 2008, the judge stayed the judgment pending appeal "without the necessity of BOA posting a bond or other security" and dissolved a writ of execution.
BOA appeals seeking reversal of the judgment, and BBA cross-appeals from the order staying execution of the judgment without posting of a bond as required by Rule 2:9-5.*fn1 We affirm the trial judge's determination on liability. To the extent the judgment awards damages equivalent to the costs of repairing, resurfacing and relining the parking lot, it is affirmed. The judgment is otherwise reversed and remanded for further proceedings in conformity with this opinion. Our order vacating the judgment moots the issue raised by BBA on its cross-appeal.
On July 30, 1994, BOA's predecessor, United Jersey Bank (UJB), leased the commercial real estate, a bank building, from Panterra Realty Investments, Inc., for a ten-year period commencing on April 24, 1995. BBA purchased the property from Panterra in December 1995, about one year and five months after the lease was signed; at that time, UJB was the tenant. BOA and BBA do not dispute their obligations to comply with the terms of the lease as the successors of UJB and Panterra, respectively.
On September 7, 2004, about seven months before the lease was to expire, BBA gave BOA notice of its failure to fulfill its obligations under the lease to maintain the premises and surrender the property at the end of the lease in good order and repair except for ordinary wear and tear. BBA's complaints were not about the building but about exterior improvements - initially the landscaping and asphalt parking lots, and later two loading docks and concrete sidewalks and concrete curbing as well as the landscaping and parking areas.
Three provisions of the lease are relevant to BOA's obligations to maintain and repair the exterior improvements:
Paragraph 8(d) provides, in relevant part:
Tenant shall make, at its sole cost and expense, any and all necessary repairs . . . in order to preserve, protect, and maintain the Premises in the condition they were in on the Commencement Date, reasonable wear and tear excepted, or to such superior condition as Tenant may desire . . . . Tenant's obligation for repairs extends to repairs made after the Tenant has vacated the Premises which were necessary because of damage by Tenant to the Premises. If the Tenant refuses or neglects to commence such repairs or fails to diligently prosecute the same to completion within thirty (30) days from the date on which Tenant receives written notice from Landlord of the need therefor, Landlord may make such repairs at the expense of Tenant and such expense shall be collectible as Additional Rent hereunder. [(Emphasis added).]
Paragraph 8(f) states, in relevant part:
Surrender of Premises. At the end of the Term or any renewal or extension thereof, Tenant shall surrender the Premises to Landlord, together with all alterations, additions, renovations and improvements thereto, in broom-clean condition and in good order and repair except for ordinary wear and tear, failing which Landlord may restore the Premises to such condition and Tenant shall pay the cost of said repair and restoration.
Paragraph 9 addresses additional rent, and subparagraph (iii) includes the "cost of maintaining, repairing and operating the [l]eased [p]remises during the term of the [l]ease . . . ." It specifically includes, all costs to keep and maintain the [l]eased [p]remises in a clean and sanitary condition free from rubbish and debris, ordinary wear and tear excepted, landscaping maintenance; snow and ice removal; . . . repainting of parking lot lines, repair, maintenance and resurfacing of macadam and concrete surfaces . . . .
BBA provided the only evidence tending to establish the condition of the exterior improvements at the time of the lease. That evidence was of the condition of the premises just prior to BBA's purchase, which was, as noted above, about one year and five months after the lease was signed and about eight months after the term of the lease commenced.
In preparation for BBA's purchase and as contemplated by paragraph 22 of the lease, UJB's senior vice president executed an "estoppel certificate" in favor of Panterra and the prospective purchaser of the leased property. Through that estoppel certificate, the senior vice president acknowledged that the terms of the lease would remain in full force, that UJB knew of no defaults by the landlord and that he had the authority to execute the estoppel certificate. The senior vice president also recognized the prospective purchaser's right to rely upon the tenant's representations.
On December 20, 1995, BBA's financer obtained a site survey from ATEC Associates, Inc. The stated purpose of ATEC's survey was to "provide an observation and report on the physical condition and maintenance of the building and site improvements." The report includes a description of conditions ATEC deemed "significant" to "continued operation of the facility . . . consistent with comparable properties of similar age." ATEC used the following terms to describe the conditions: "Good - No remedial work is recommended; Fair - Minor remedial work is recommended; and Poor - Replacement or major remedial work is recommended."
The condition of the exterior improvements at issue here was reported as follows:
. . . The landscaping components are in good condition. ATEC recommends the following work this year: None.
3.1.2 Parking and Drives
. . . The parking area and drives have asphalt pavement which is in fair to good condition. Minor to moderate cracking was observed scattered in the pavement. A few potholes were observed, and these potholes have been repaired. Alligatoring of pavement was noted at a few scattered locations. The alligatoring observed was minor, and in ATEC's opinion, does not require repair. An asphalt pavement overlay was installed in the main parking area. The age of the overlay is unknown, but appeared to be in overall fair to good condition. Asphalt sealer has not been applied to the areas of the pavement which did not receive an overlay. The paint striping is in good condition. Most parking areas are bordered by concrete curbs which are in good condition. ATEC recommends the following work this year: Recommendation 1 - Properly seal all cracks and apply an asphalt surface sealer to all areas of asphalt pavement where the overlay was not installed (estimate 5000 square feet).
3.1.3 Loading Docks and Loading Areas
Loading docks are provided at the front of the building on the north side. The concrete pavement, rubber bumpers, and metal roll-up doors are in good condition. ATEC recommends the following work this year: None.
Concrete pedestrian walks provide access to the building. The walks are in good condition. No trip hazards were observed.
ATEC recommends the following work this year: None.
The President of BBA, Lawrence Berger, who was involved in negotiating the purchase from Panterra, testified that BBA's financer held back $1200 to complete the repairs ATEC estimated would be needed for the work on the auxiliary parking lot, which is the 5000 square-foot lot that had not received an overlay of asphalt. Berger had resisted that hold back on the ground that the tenant, then UJB, was obligated to maintain the parking lot, but he did not prevail. To Berger, that hold back was "incredibly frustrating, because it was, clearly, the tenant's responsibility."
According to Berger, he had an opportunity to observe the driveways, curbing, walkways and landscaping, and there were no problems with any of those things.
[The property] was pristine. There were some very, very, very minor things involved in, I think the [ATEC] report . . . indicated that there were some very minor things between -
But other than that, the building was - interior and exterior was absolutely pristine.
BBA also introduced evidence to establish the condition of the property at the end of the lease. BOA had not responded to BBA's September 7, 2004 letter giving notice of its intention to require surrender of the property at the expiration of the lease in the condition required by the lease. Thus, in March 2005, BBA arranged for Ronald Petillo to recommend and perform the exterior work needed, which he did.
Petillo has a college degree in civil engineering but is not licensed as a civil engineer. He also has experience in constructing, paving and repairing roads and parking areas and has been operating his family's business since 1980. In the course of his work, Petillo assesses the suitability of the surface and subsurface of the ground to hold paving. At trial, Petillo was qualified as an expert in "subsurface stability, soil stability," and he also testified, as a fact witness, about conditions on the leased premises before he did his work with reference to photographs of the site and explaining the need for the work his company did and what was done.
The conditions of the concrete curbing and sidewalks varied. In some places the curbs were "a little chipped and broken" and in others they had deteriorated to the point that grass was growing out of the top of the curb. Similarly, the condition of the sidewalks varied. In some places they were cracked to the point of being broken and posed a tripping hazard; in other areas the sidewalks were not in need of repair at all.
Petillo suspected that the damage to the curbing and the sidewalks was from snow plowing and vehicles riding on the curb. He stated that the sidewalks should have been shoveled and not plowed. Petillo also found calcium chloride used to melt ice on the property. He noted that calcium chloride is appropriate for asphalt surfaces but causes concrete to deteriorate.
Petillo replaced the sidewalks and curbs as needed. Where hazardous portions could be cut out and replaced, leaving the sidewalk on either side intact, that was done. In some areas, the curbing and sidewalk was one unit, constructed in a "monolithic pour." In those areas, the curb and the sidewalk had to be replaced together.
Conditions also varied throughout the parking lots. The combined area of the main and auxiliary parking lots was about four and one-half acres. There was cracking throughout the entire area. According to Petillo, some areas of the main lot were "beginning to have" cracking. There the cracks were short, narrow and shallow. Other cracks, like one running along the driveway and another across the lot, were longer. There were additional cracks from which grass and weeds were growing; in the auxiliary lot, the 5000 square-foot lot that ATEC noted had not been resurfaced with an overlay, the vegetation was so prevalent that Petillo said it had "more grass than pavement." In another area, the roots of a tree were protruding through the asphalt of the parking lot.
In portions of the lots, there were multiple cracks that were beginning to "blossom into a bigger . . . pothole" and would "develop into a larger pothole." There were potholes in several areas. In other sections, there was alligatoring indicative, as we understand the testimony, of deterioration below the top surfaces of asphalt that affects the stability of the top surface.
According to Petillo, the development of potholes and alligatoring on this site could have been avoided by regular maintenance. He explained that cracking naturally occurs in asphalt. If left unsealed, water seeps through the cracks, causing deterioration during periods of freezing and thaw. Vegetation in the cracks exacerbates the problem. As the seeped water warms, the asphalt heats and is softened. That can lead to potholes. If the softened condition extends to the bottom layers of the asphalt, then the surface layer of asphalt is not supported and alligatoring develops.
Petillo explained that cracks should be addressed by regular annual inspection and sealing. Proper sealing prevents water from "getting into the cracks and seeping down" and the resulting damage.
Petillo found two places in which some effort to seal a crack had been made. Both attempts were unsuccessful because the crack had not been sealed properly. Proper repair requires pouring liquid asphalt into a crack that has been cleared by blowing out debris and water. Instead, the repairs attempted here were done using asphalt mixed with rock. There was no evidence that any attempt to repair had been undertaken in the auxiliary lot.
BOA's theory of the case was that the condition of the parking lots was attributable to its structure, not its maintenance. In the opinion of BOA's expert, a licensed engineer, the subsurface ground was inappropriate for a parking lot. He explained that alligatoring "is a clear indication of failure of subsurface soil materials." It is not a failure that can be attributed to nonperformance of crack repair but rather a "structural failure." It had occurred years before Petillo saw the property and was a result of the original construction. Sealing would not have helped. BOA's expert admitted, however, that if surface water got into a crack it could cause alligator cracking if there was a "structural failure as a result of the perforation." Similarly, during his deposition he answered "yes" when asked, "What if water got under the pavement, could that cause an alligator crack?"
BOA's expert's opinion was based on information that the surface beneath the pavement of these lots was water-retaining clay, subject to great impact from thaw and freezing. He obtained his information about the clay from a website that has information from the United States Department of Agriculture. He had not tested the subsurface material at this site, and he acknowledged that the data he used designated the land as urban land, which he explained "means that the natural soil is not on the surface anymore." He further indicated, however, that any change affecting only a few inches from the top surface of the ground down does not alter the problem posed by clay beneath.
In Petillo's opinion neither ground water nor subsurface materials played a role in the condition of these parking lots. Petillo had six to eight test holes, or borings, dug to a depth of six feet by an engineer from a testing laboratory. No underground water was reached at that depth. Moreover, there was no topsoil or clay under the pavement; the material was sand and gravel. According to Petillo, subsurface comprised of sand is "good" for "underneath roadways" because water drains through it.
Petillo also described in detail a process, "proving," that is used to check the suitability of the subsurface before asphalt is laid. A truck is heavily loaded and driven over the entire surface to be paved. If there are problems with subsurface, they are revealed by depressions that result when the subsurface cannot support the weight. He used that process, and where isolated problem areas were detected, he corrected them by "milling" and replacing the subsurface.
Petillo resurfaced both lots. He installed an overlay. Both experts agreed that Petillo did not construct a new parking lot. Repairs of items accessory to the parking lot were also required. The concrete bars positioned at the head of the parking spaces had been damaged and moved by snow plows. Petillo removed and replaced them. The parking space lines which were so faded in places as to be undetectable, were repainted; something that would have been required in any event in connection with the resurfacing.
With respect to the landscaping, Petillo noted that trees in a windrow had died and that the typical cause of that is neglect. He removed and replaced ten dead trees, repaired the grass that was disturbed and trimmed damaged shrubbery.
BBA presented no evidence as to the useful life of any of the landscaping or structures replaced. BBA's evidence was an invoice from Petillo itemizing the charges for the work he performed. The total amount was $430,600.*fn2 The trial judge found that BBA established a breach based on the condition of the property at the expiration of the lease and entered judgment in favor of BBA in the amount of Petillo's bill.
On review of a judgment entered following a bench trial, we must accept "'the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice . . . .'" In re Trust Created By Agreement Dated Dec. 20, 1961, 194 N.J. 276, 284 (2008) (quoting Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974) (internal quotations and citations omitted)). In contrast, "'[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference.'" The Estate of Hanges v. Metro Prop. & Cas. Ins. Co., ___ N.J. ___, ___ (2010) (slip op. at 15) (quoting Manalapan Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378 (1995)).
The construction of a contract or written lease is generally a question of law for the court. Michaels v. Brookchester, Inc., 26 N.J. 379, 387 (1958); Crest Drug Store v. Levine, 142 N.J. Eq. 652, 655 (E. & A. 1948). "The principles of law pertaining to the construction of a contract" are applied in interpreting a commercial lease. Great Atl. & Pac. Tea Co., Inc. v. Checchio, 335 N.J. Super. 495, 501 (App. Div. 2000) (internal quotations omitted).
BOA contends that the trial judge erroneously concluded that this lease required BOA to surrender the leased premises in "good condition" without regard to its condition at the inception of the lease and without reference to ordinary wear and tear. We agree.
The trial judge reasoned that subparagraphs (d) and (f) of paragraph 8, quoted above, established different standards for the conditions of the property. The language of those subparagraphs clearly differs. Subparagraph (d) applies during the term of the lease and requires the tenant to maintain the premises "in the condition they were in [at beginning of the lease term], reasonable wear and tear excepted." (emphasis added). Subparagraph (f) applies at the end of the lease term and requires the tenant to surrender the premises "in broom-clean condition and in good order and repair except for ordinary wear and tear." (emphasis added). The judge concluded that the parties intended to apply different standards; the condition of the premises at the inception of the lease controlled during the term of the lease but at expiration of the lease the standard was "good order and repair."
Given that the tenant's obligation to maintain exists throughout the life of the lease, we cannot conclude that the parties intended to have a different standard govern on the day prior to expiration and the day of expiration. Moreover, both standards account for "wear and tear." The notions of "reasonable wear and tear" and "ordinary wear and tear" cannot have meaning without reference to the initial condition of the premises. Braem v. Wash. Piece Dye Works, 100 N.J.L. 209, 209-11 (Sup. Ct. 1924). For all of those reasons, we cannot conclude that the standards stated in both subparagraphs are materially different.
Although we accept BOA's legal objection, it has no import on the question of liability. The judge assessed the condition of the premises at the time of surrender against both standards - "good order and repair" and "the condition they were in" at the beginning of the lease. The judge determined that the condition of the property fell short under both standards.
BOA, implicitly acknowledging the judge's factual findings under both standards, argues that BBA failed to present adequate evidence as to the condition of the premises at the inception of the lease. We reject that claim because the factual finding is supported by substantial credible evidence in the record.
The testimony of Berger, the ATEC report and BOA's "estoppel certificate" acknowledging that the landlord was not in default were sufficient to establish the condition of the exterior improvements at a point in time about one year and five months after the term of the ten-year lease commenced. There is no evidence to suggest that BOA did anything to improve the condition of the exterior improvements at issue here after taking possession and before the time that Berger viewed the property, BBA obtained the estoppel certificate and ATEC prepared its report.
The reasonable inference available from that evidence, as the trial judge properly determined, was that BBA's evidence fairly established the condition at the inception of the lease. Moreover, in the absence of any evidence that BOA's predecessor had done exterior work during that period, there is absolutely no reasonable basis to infer that the condition of these exterior improvements was better one year and five months after BOA's predecessor took occupancy. BOA's objections to the adequacy of the evidence as to relative condition lack sufficient merit to warrant any further discussion; on these facts, all that was required was a comparison of the condition described by Berger and the ATEC report and Petillo. In short, the judge's assessment of the relative condition of the premises at the beginning and end of the lease is not a product of legal error and is supported by the evidence. See R. 2:11-3(e)(1)(A), (E).
The determination of relative condition, however, does not end the inquiry. Generally, when an action for damages due to the condition of the leased premises "is brought after the expiration of the lease, the authorities agree, the measure of damages is the cost of repair." Winrow v. Marriott Corp., 230 N.J. Super. 189, 192-93 (App. Div. 1989). The repairs encompassed by that general rule are measured by the "amount required to restore the premises to the condition they were in at the inception of the original tenancy, reasonable wear and tear excepted." S.D.G. v. Inventory Control Co., 178 N.J. Super. 411, 416 (App. Div. 1981); Braem, supra, 100 N.J.L. at 211. There is no question that standard is applicable here; as noted above, it is plainly stated in the lease.
Under this standard incorporating the factor of ordinary or reasonable wear and tear, a tenant who breaches a duty to maintain is not obligated to pay for new materials or structures. Thus, a tenant is not obligated to pay for a new roof if patching will cure the leaks through the period of the lease. Liqui-Box Corp. v. Estate of Elkman, 238 N.J. Super. 588, 602 (App. Div.), certif. denied, 122 N.J. 142 (1990). And, where damage not attributable to ordinary wear and tear and the need for total replacement is established, the remedy is to compensate the landlord for what was lost - i.e., the value of the item subject to wear and tear over its lifetime. S.D.G., supra, 178 N.J. Super. at 416 (ink-stained carpet); see Chatlos Sys. v. Kaplan (In re TIE/Communications), 163 B.R. 435, 441 (Bankr. D. Del. 1994) (cannibalized air-conditioners).
Analysis of this sort was required with respect to the award of damages for replacement of the trees, curbing and sidewalk. There are no factual findings on these issues, and those matters must be retried to isolate costs for replacement of trees, sidewalks and curbs to account for reasonable wear and tear and depreciation. We note that a general discussion of the issues relevant to damages in this context and the proof required can be found in William H. Danne, Jr., Annotation, Measure and Elements of Damages for Lessee's Breach of Covenant as to Repairs, 45 A.L.R. 5th 251 (2010).
Paragraph 9(iii) obviates the need for that analysis with respect to the parking lots. There was no dispute that the parking lots were resurfaced, not replaced. The parking lots, as BOA's expert conceded and Petillo explained, were not new. Repairs essential to the resurfacing - installation of the overlay - were done, and the lines were repainted on the new surface. Pursuant to paragraph 9(iii) of the lease, BOA's rent included "all costs to keep and maintain the [l]eased [p]remises." BOA's responsibilities with respect to the parking lots included "repainting of parking lot lines, repair, maintenance and resurfacing of macadam and concrete surfaces . . . ." (emphasis added). By requiring BOA to pay the cost of those specified tasks, there is no merit to the claim that BBA received a benefit greater than the one the parties intended at the inception of the lease. Because of BOA's specific obligation to resurface the lots and repaint the lines as needed, wear and tear is not relevant here. We note that BOA never took the position that the resurfacing was not needed; BOA's position was that resurfacing accomplished nothing because the entire parking lot suffered from a structural defect and a new parking lot was needed.
BOA raises several objections to the judge's rejection of the evidence it offered to establish a structural defect in the parking lot sufficient to absolve BOA of all responsibility.
Among them are the inadequacy of BBA's evidence establishing a condition attributable to BOA's failure to maintain the lot, the judge's cross-examination of BOA's expert and the judge's allegedly unfair conclusion that BOA's expert was not credible.
We reject those claims. The transcript of the expert's testimony and the judge's questions, and the transcript of her decision have been scrutinized. It is clear to us that the judge's determinations with respect to credibility, however tone-laden, are based upon an unbiased consideration of the testimony and evidential materials. There is no question that the evidence, discussed at length above, provided more than adequate support for a finding that the deplorable conditions depicted in the photographs of the parking lot were not attributable to a structural defect.
We affirm the trial judge's determination on liability. To the extent the judgment awards damages equivalent to the costs of repairing, resurfacing and relining the parking lot, it is affirmed. The judgment is otherwise reversed and remanded for further proceedings in conformity with this opinion.