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Acbb-Bits, L.L.C v. 550 Broad Street

November 22, 2011


On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-93-07.

Per curiam.


Argued October 26, 2011

Before Judges Graves, Harris, and Koblitz.

This appeal arose from a routine economic dispute between a property owner and its prospective commercial tenant. The fulcrum of their disagreement concerned rent, which was to be calculated based upon the measurement of the rentable area for the seventh floor premises of a multi-tenanted office building in Newark. Notwithstanding a mutual failure to resolve this lingering dispute, the property owner and prospective tenant serially executed a lease agreement and a first amendment to the lease within a three-month period in 2006, providing that the ultimate leased premises consisted of "12,990 rentable square feet."

Within thirty-five days of signing the last of the lease documents, the parties' difference of opinion spawned a lawsuit by the tenant -- not against its landlord, but against its real estate broker -- seeking remedies for injuries allegedly caused by tortious conduct, breach of contract, and violation of consumer protection laws. The broker then joined the tenant's attorney as a third-party defendant, claiming that the lawyer was a joint tortfeasor. The litigation expanded again when the tenant commenced suit against the landlord for, among other things, reformation or rescission of the lease and breach of the implied covenant of good faith and fair dealing.

We have this matter on appeal after the tenant's third amended complaint was dismissed with prejudice following two successful motions for summary judgment by the broker and landlord. The tenant's attorney was also successful in dismissing the broker's third-party complaint. The only party prosecuting an appeal, however, is the tenant. After a review of the record generated by the multiple motions, we affirm both the dismissal of the tenant's causes of action against the landlord and the dismissal of the broker's third-party complaint against the attorney. However, we reverse and remand the tenant's tort, breach of contract, and statutory claims against the broker for further proceedings. I.*fn1


Plaintiff ACBB-BITS, L.L.C. (BITS) provides telecommications services to community banks. In 2005, it decided to move some of the company's operations from Pennsylvania to New Jersey. For that purpose, BITS's chief executive officer, Charles P. Daniels, engaged defendant Clancey Realty Group (Clancey Realty) to locate permanent office space in Newark.*fn2

A representative of Clancey Realty initially arranged a short-term, eleven-month sublease for BITS to sublet "3,101 rentable square feet" in the Gateway I building in Newark to be used for office space. According to a certification authored by a representative of Gateway I, BITS actually obtained only 2,552 "usable square feet."*fn3 The Clancey Realty representative insisted that Daniels was informed about the difference between rentable square footage and usable square footage, sometimes called a loss factor. Daniels denied that a loss factor attributable to the Gateway I premises was ever discussed.

In February 2006, BITS entered into a second leasing arrangement: a sublease for "approximately Two Thousand Five Hundred (2,500) square feet of rentable space on the 7th floor" of a building at Halsey Street in Newark. The Halsey Street location was intended to be used for the storage of telecommunications equipment, not office space, and (according to Daniels who had it measured) actually consisted of 2,502 square feet.

Third-party defendant Bart Lombardo, affiliated with third-party co-defendant law firm Frieri, Conroy & Lombardo, L.L.C., (collectively Lombardo) reviewed both subleases.

Shortly after BITS moved into the Gateway I premises, Daniels commenced the search for permanent space in Newark. Daniels advised defendant Frank Clancey, the president of Clancey Realty, that he wished to sever their companies' business relationship. Clancey offered to personally handle BITS's account, emphasizing that he had thirty-five years of experience in the real estate business. According to Daniels, Clancey also stated that no other real estate broker would be willing to work with BITS because of their supposed retention agreement. Claiming to be without options, Daniels accepted Clancey's offer. Clancey denied that he coerced Daniels into acceding to the deal.

In April 2006, BITS became interested in leasing office space in a building located at 550 Broad Street in Newark, which was owned by defendant 550 Broad Street, LP (550 Broad). Clancey introduced Daniels to Jeffrey Greenberg, a representative of 550 Broad.

On May 5, 2006, Daniels was sent a floor plan of the building's seventh floor, which indicated that the aggregate available space was "approximately 12,800 'R.S.F.'" On May 26, 2006, Greenberg sent a letter to Daniels offering proposed terms for a lease with BITS and identifying the "Floor/Area" to be let as the following:

Approximately 9,000 rentable square feet located on the Seventh (7th) floor. Exact measurement to be confirmed by Landlord.

The term "rentable square feet" was not defined in the letter. 550 Broad proposed a "Base Rent" of "$21.00 per rentable square foot" plus "$1.50 per rentable square foot" for "Tenant Electric." The proposal offered rent credits "for each month prior to November 31[sic], 2006 that [BITS] occupies the premises." Additionally, BITS was offered two months of "free rent to be used in 2006 or 2007." BITS was also offered an option (called "a right of first offer") to lease "all future available space on the Seventh (7th) floor." Finally, 550 Broad agreed to pay BITS's broker's fee as follows: "one (1) commission in accordance with a separate agreement to [BITS's] authorized representative."*fn4

Soon thereafter, a draft lease agreement was circulated among the parties. On June 13, 2006, Clancey forwarded his handwritten, marked-up copy to Greenberg and Daniels. In particular, Clancey wrote, "what is the net usable area?" next to the typed provision indicating that the "Rentable Area of Premises" was "8990 rentable square feet." Greenberg claimed that he subsequently told Clancey that "the loss factor of the building is approximately [eighteen] percent for a multi-tenanted floor." Greenberg, however, did not communicate this information directly to Daniels because "[BITS] was represented by a broker," adding that he "communicate[d] [only] through the broker. [He did not] review lease comments with a tenant." He also discussed the loss factor with his attorney, Michael Woodruff, who wrote it on his own copy of the draft lease. Thereafter, Woodruff spoke with Clancey and confirmed the eighteen percent loss factor.

Clancey contends that he advised Daniels of this loss factor and that it was within the acceptable range for similar office buildings in Newark. He noted that rent in multi-tenanted office buildings was never based upon usable square footage, and explained to Daniels how the loss factor was calculated. Clancey recalled that "Daniels had no issue with same and accepted these calculations." To the contrary, Daniels denied that Clancey explained these matters to him. He claimed that although he received the draft lease agreement marked up by Clancey, he never reviewed it.

On June 29, 2006, Daniels, Woodruff, Greenberg, and Clancey participated in a conference call regarding the draft lease agreement. According to Greenberg, all of Clancey's comments regarding the lease were reviewed and discussed by the participants. Daniels testified at his deposition that the loss factor was never discussed:

Q. In any of those conversations that you recall that you had with Frank Clancey he never once mentioned anything regarding rentable square feet, usable square feet, loss factor, common area factor, and add-on factor, correct?

A. Not a word.

In July 2006, Lombardo reviewed the draft lease agreement. According to Daniels and Lombardo, Lombardo's review of the lease agreement was limited to those aspects connected with a related guaranty to be signed by BITS's parent company, Atlantic Central Bankers Bank. At his deposition, Lombardo did not specifically testify that he explained the meaning of "rentable square feet" to Daniels. He noted that it was his general practice to advise clients to measure the area of leased premises for themselves, in order to confirm the size of the demised premises.*fn5

In early September 2006, the parties executed the fully-negotiated lease agreement. Among its final provisions were the following:

* Rentable area of premises: "8,990 rentable square feet."

* BITS's percentage share of the building's operating expenses and taxes: "3.18% based on 282,500 rentable square feet in the Building."

* BITS's electric charge: "13,485.00 per annum ($1.50 per rentable square foot)."

* BITS's option to lease additional space located on the seventh floor of the building.

Serendipitously, additional space on the seventh floor became available, even before the parties' signatures on the lease agreement were inked. In a letter to Daniels dated August 16, 2006, Greenberg confirmed that BITS and 550 Broad had tentatively reached an agreement regarding a possible future lease amendment for "the adjacent 4,000 rentable square feet." Specifically, upon receipt of written notice from BITS by October 5, 2006, 550 Broad agreed to lease this "[e]xpansion

[p]remises" and to pay for all of the costs to renovate the space for BITS's use. 550 Broad also agreed that it would give the following eighteen-month rent concession -- related to the 4,000 square feet only -- if the option were exercised: (1) free rent for the first six months of the lease; (2) reduced rent at a rate of one-third of the base rent for the second six months of the lease; and (3) reduced rent at a rate of two-thirds of the base rent for the third six months.

Also on August 16, 2006, 550 Broad e-mailed Daniels a digital file containing a drawing of the proposed improvements for both the original and the adjacent premises. Daniels also received a digital file containing the floor plans in computer aided design (CAD) format.*fn6 Daniels, however, did not secure access to the AutoCAD software necessary to open and use the CAD file. Had he done so, or asked an expert such as an architect*fn7

to do so, he would have learned that the useable space of the entire premises (original plus expansion premises) was only 9,678 square feet.

A detailed floor plan of the leased premises was included as an exhibit to the final lease agreement. Lombardo confirmed at his deposition that "[he] would think" this floor plan was sufficient to calculate the rentable square feet of the premises. The dimensions depicted on this floor plan were ...

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