December 2, 2013
PUCCINI FOODS, LLC, Plaintiff-Appellant,
ABBOTT INDUSTRIES, INC., HAROLD SCHECK and FLORENCE SCHECK a/k/a FLO SCHECK, Defendants/Third-Party Plaintiffs-Respondents,
JOHN O'MARA, Third-Party Defendant.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 21, 2013
On appeal from the Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-3554-10.
Nikaela Jacko Redd argued the cause for appellant (Gibbons P.C., attorneys; Ms. Redd, on the briefs).
Cameron A. Welch argued the cause for respondents (Cole, Schotz, Meisel, Forman & Leonard, P.A., attorneys; Mr. Welch, of counsel and on the brief; Eric S. Latzer, on the brief).
Before Judges Lihotz and Ostrer.
Plaintiff Puccini Foods, LLC (Puccini) appeals from a judgment, after a bench trial, dismissing its claim of constructive eviction from commercial premises it had leased from its landlord, defendant Abbott Industries, Inc. (Abbott). Having reviewed Puccini's arguments in light of the trial record and the applicable legal principles, we affirm.
We first review the terms of the parties' lease that underlies Puccini's constructive eviction claim. Puccini and Abbott entered into a lease dated October 15, 2009. The parties amended the lease by addendum later that year. The lease governed seven designated sections or "parcels" of premises at 1-11 Morris Street and 241 Grand Street in Paterson. The lease authorized Puccini to take possession of the parcels at different times. Together, the seven parcels constituted the whole property.
Puccini leased Parcel One commencing October 15, 2009. The parcel consisted of a 2500 square foot "seafood processing area, " a freezer container, plus a 400 square foot access area. Puccini paid a two-month security deposit and one-half of a month's rent.
Parcel Two consisted of another 2500 square feet on the second floor, to be used as a "cigar wholesale/retail establishment." The term commenced November 1. The first sixty days were rent-free. The first month's rent was due January 1, 2010. Puccini paid a two-month security deposit.
Parcel Three was denominated the "skylight area, " and consisted of 4000 square feet. The lease term for this parcel began January 1, 2010. Abbott agreed to "remove everything in the room, 5 days prior to the commencement of the lease, except the fixtures on the walls and ceiling which will be removed by the tenant (which he may start to remove and install partitions at any time)." The first month was rent-free, and a two-month security deposit was due upon execution of the lease addendum.
Parcel Four included a "'machine room' and the employee lounge" occupying 1241 square feet, with a start date of January 1, 2010. According to trial evidence, Parcel Four also included an employee bathroom. The first month was rent-free, and a two-month security deposit was due upon execution of the lease addendum.
A 2500 square foot retail area fronting Grand Street was denominated Parcel Five. The lease for this section started January 1, 2010. A two-month security deposit was required. Plaintiff was to have "immediate access" to the area to prepare it for retail sales and install various items.
Parcel Six consisted of a 390 square foot "refrigerated box and adjoining compressors" next to a restroom. The lease for the sixth parcel began October 15, 2009. A two-month security deposit was required. The lease stated that plaintiff was required to remove the "lobster tanks" by December 2009. However, the evidence at trial was that the lobster tanks measuring 800 square feet, were actually located in Parcel Seven, which consisted of a warehouse area.
The lease stated that Parcel Seven included the "remainder of the premises" which, under the original lease, Puccini was to lease by April 1, 2010. The addendum allowed Puccini to lease portions of the remainder upon fourteen days' notice, but not later than six months after the date of the agreement. The addendum stated, "Tenant will be responsible for 19, 200 square feet (the entire building) which the landlord agrees to vacant [sic]."
The lease provided that plaintiff had an option, for a term of three years, to purchase the entire premises for $850, 000. The option was granted in consideration of a "good faith deposit" of $20, 000 due January 31, 2010. However, if Puccini violated the lease in any manner, the $20, 000 deposit would be forfeited and the option canceled.
Puccini was permitted to sublet the premises, with Abbott's "prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, " upon payment of a $1000 review fee. Upon an event of default, Abbott was authorized to collect rent from sublessees and apply it toward Puccini's rent obligations. Abbott was also authorized, upon notice to Puccini, to "recapture" space proposed for sublease, whereby the space would be removed from Puccini's leasehold and Abbott would become the direct lessor of the space to the proposed subtenant. Upon notice of Abbott's intention to recapture, Puccini's only option was to abandon the sublease and continue to occupy the space itself.
The lease included various provisions regarding the condition of the premises. Puccini agreed to accept the premises in their "present condition." Puccini's owner, John O'Mara, was familiar with the premises, as he was a manager of the previous tenant, Ocean Blue, which Abbott had evicted in late 2009 for non-payment of rent. Ocean Blue imported, packaged and sold seafood. Puccini intended to pursue similar lines of business, as well as sublet part of the premises to unrelated firms.
Abbott promised to "maintain, repair and replace" the structure and exterior of the building and utility lines. Nonetheless, the parties agreed that as "additional rent", Puccini would pay Abbott $57, 000 as the cost of a roof repair, payable over thirty-eight months, at six percent interest. The lease provided that Puccini was responsible for keeping the leased premises in "good condition, " and agreed to replace at its expense "any and all glass which may become broken in and on the leased premises." Puccini was authorized, but not obliged, to repair any defects "of an emergency nature" that Abbott did not resolve within thirty days, and seek reimbursement or a rent credit from Abbott.
Inasmuch as Puccini's occupancy of the various parcels was to be phased in, the lease imposed rent of $4 a square foot. The $4-a-square-foot charge was set forth in the addendum. Rent included base rent, plus additional rent that included a share of Abbott's operating expenses. Puccini was responsible for paying its "proportional share of the real estate taxes, " but "all electric, gas, water, sewer, licenses, fees, permits and inspection charges." Puccini was required to pay rent "without deduction, counterclaim or set off at such place as [Abbott] may from time to time designate in writing."
We turn to Puccini's allegation that it was constructively evicted from the premises. In general, Puccini alleges Abbott denied it timely access to three of the parcels, or interfered with Puccini's full use of them, by leaving property and debris in the parcel, failing to repair a leaking skylight and a damaged gas pipe in another, and maintaining a locked bathroom in another parcel. After Puccini ceased paying rent, claiming its credits exceeded its rent obligation, Abbott threatened to lock out Puccini and deem it and its subtenants to be trespassers.
Puccini conceded that Abbott timely provided it access to Parcels One, Two and Six without defects. Parcel One was occupied on October 15, 2009 by Eland, a kosher food processor that sublet from Puccini with Abbott's approval. On November 1, 2009, Parcel Two was occupied by Olympio Cigar, another authorized subtenant, for a cigar lounge. Olympio performed various renovations to the parcel in November 2009. Parcel Six was made available by January 1, 2010. These three parcels constituted roughly thirty percent of the total leasehold.
O'Mara alleged that the other parcels were subject to delays in occupancy and interference with use. However, Abbott generally disputed those claims.
With respect to Parcel Three, the skylight area, O'Mara alleged Abbott denied Puccini full use by leaving debris and a cooling tower in the area; and by failing to repair a broken skylight that leaked whenever it rained. He also alleged that a worker for Abbott ruptured a gas pipe in the parcel that ultimately led PSE&G to shut off all gas to the building for three days until Puccini secured a repair. O'Mara testified that he intended to place refrigeration and freezers in the parcel; maintain a dry storage area; and sublease it to other companies. O'Mara asserted that the parcel was not cleaned out until March 9, 2010 — over two months later than required under the lease — but the skylight leak was never fixed. O'Mara asserted Abbott was obliged to repair the skylight as part of the roof repair. O'Mara claimed the lack of access constituted a constructive eviction because it prevented Puccini from installing equipment and buying inventory. However, O'Mara conceded that the cooling tower, which Abbott did not remove until March 9, occupied only 100 square feet. He also noted that the leaking skylight created a wet area of only ten by ten feet, in a corner of the parcel.
Abbott president Harold Sheck testified that the debris in Parcel Three was construction debris that Olympio placed there while renovating its space. O'Mara conceded that Olympio left construction debris. With respect to the leaking skylight, Sheck asserted that Puccini was responsible for its repair, because the leak resulted from broken glass, and Puccini was responsible under the lease for glass repair. Abbott's vice-president, John Klandt, testified that an Olympio employee hit the gas pipe. He also asserted that Puccini and its subtenants were using the area on a "regular basis" before February 2010.
O'Mara testified that Puccini could not occupy Parcel Four — the machine room and employee lounge — until February 1, 2010, a month late, because Abbott did not remove its property. He also alleged that even after February 1, Puccini did not have access to a bathroom in the parcel because Abbott kept it locked, reserving it for the sole use by its secretary, the only woman who worked in the building.
Sheck conceded that Abbott did not deliver the parcel on January 1, 2010, but asserted that Abbott had an oral agreement with Puccini that it would remove its property when Puccini notified Abbott it was ready to move in. Sheck also alleged that Puccini was using space in the warehouse — Parcel Seven — which Abbott needed. Klandt testified that 800 square feet of the warehouse area was occupied by giant lobster tanks, which Ocean Blue left on the premises, Puccini intended to use, but which Puccini failed to remove by December 1, 2009, as the lease required. Klandt also asserted that Puccini consented to setting aside the bathroom for the female employee because "nothing was happening in the machine room."
The parties also disputed whether Parcel Five, a retail area fronting Grand Street, was made available timely on January 1, 2010. O'Mara testified Puccini could not occupy the space until March 1, because Abbott located its office there, and failed to remove debris and materials. He testified that Puccini intended to use the area for a retail seafood store. O'Mara agreed that the store did not begin operations until May 2010, because it took time to fit it out.
Sheck insisted that the area was available to Puccini before January 1, 2010. The only items of property there were left behind by Ocean Blue, and he understood that Puccini wanted to keep them. Klandt also asserted that the parcel was vacant by January 1, 2010 as agreed under the lease. He conceded that Abbott temporarily located its office in the space, but did so because Puccini's refrigeration equipment created noise and heat that interfered with the use of Abbott's prior office space. Klandt asserted Abbott used the space with the oral permission of Puccini's manager, Anthony Salvatori.
O'Mara testified that as of March 9, 2010, Puccini had possession of the entire premises other than a 5400 square foot "warehouse." O'Hara claimed the warehouse was never made available to it, but did not specify what prevented Puccini from occupying the warehouse by April 1, 2010 as permitted under the lease.
By February 2010, the parties were engaged in a serious dispute over their respective obligations. O'Mara agreed that the last rent payment directly from Puccini to Abbott was made on February 1, 2010 for $2, 508.73. O'Mara stated that Puccini refused to pay rent in March because credits exceeded rent. Around February 8, 2010, Sheck asserted default, and advised O'Mara that Abbott intended to lock out Puccini and treat it as a trespasser. O'Mara testified that Abbott also advised Olympio and Eland in writing around February 15, 2010, to pay Abbott directly. The subtenants complied. O'Mara asserted that Puccini was constructively evicted on February 8, with the threat of a lock out, and February 16, with the notice to the subtenants.
However, Abbott never did lock out Puccini. Also, after a brief period of time, Sheck advised the subtenants to resume payment to Puccini. As a result, Puccini collected roughly $12, 000 from the two subtenants between February and April 2010. Sheck asserted he allowed Puccini to do so because O'Mara assured him that Puccini would cure its defaults. When it failed to do so, Sheck again directed the subtenants to pay Abbott directly.
Sheck maintained that Abbott had, by email,  notified Puccini repeatedly that it was in default of its rent obligations. In May 2010, Abbott sent Puccini a formal notice of default. Abbott then commenced a summary dispossess action which led to a consent judgment, entered by the parties on July 16, 2010. Puccini agreed to vacate the premises as of July 2010. O'Mara testified that he did not vacate the premises earlier than July because he was "trying to negotiate a settlement" with Abbott.
Shortly before the summary dispossess action was resolved, Puccini filed its complaint against Abbott alleging constructive eviction and various other contract and tort claims. In an answer dated October 28, 2010, defendants essentially denied all of plaintiff's claims. Abbott counterclaimed against plaintiff and filed a third-party complaint against O'Mara. Abbott alleged Puccini defaulted on its rent obligations and other duties under the lease.
In a non-jury trial, the court bifurcated trial of liability and damages with the parties' consent. The court also initially limited proofs to Puccini's claim of constructive eviction. After summations on the issue of constructive eviction, the court issued a brief oral opinion denying Puccini's claim. Without resolving many of the factual disputes presented, the court held that Puccini failed to prove that Abbott's interference with its use and enjoyment of the premises was significant enough to constitute constructive eviction; moreover, Puccini waived its constructive eviction claim by not vacating the premises within a reasonable period of time.
The judge stated, "[W]ith regard to the denial of use[, ] I think the plaintiff has failed to demonstrate that the[re] were any serious consequences, even if there was denial of the use of a part of the premises." The court proceeded to note that the leak in the skylight area, Parcel Three, affected a ten-by-ten-foot area, which did not render the premises uninhabitable, and did not justify abandonment of the premises or withholding of rent. The judge concluded the bathroom in Parcel Four was locked by agreement. He did not expressly address the other claims of denial or interference with use. However, the judge concluded that even accepting the remainder of Puccini's allegations as true, they did not prove constructive eviction:
Although there are some disputes as to the factual basis of the denial [of use] claim, I think the majority of them I can take from the plaintiff's point of view other than . . . denial of the bathroom, and indicate that neither in the[ir] individual aspects nor in the total aspects of the alleged denial of use does the situation rise to the level of a constructive eviction. They seem to be de minimis at best.
The court also found that Puccini's claim of constructive eviction was undermined by its continued use of the premises. The judge rejected Puccini's claim that Abbott constructively evicted it when it threatened a lock-out. The judge concluded, "It was a threat only." The court also concluded that Abbott's demand of rent from subtenants did not support Puccini's constructive eviction claim. Finally, the judge held that Puccini waived any claim of constructive eviction by remaining on the premises until July.
The court did not proceed to trial of the remaining issues in the complaint, counter-claim, and third-party complaint, as the parties resolved all remaining issues. In particular, the parties agreed to dismiss all remaining claims and defenses without prejudice to their revival if Puccini prevailed on an appeal from the dismissal of its constructive eviction claim.
This appeal then followed. Puccini argues the court's findings were unsupported by the record, and the evidence demonstrated that Abbott substantially interfered with Puccini's use and enjoyment of the premises amounting to a constructive eviction. We disagree.
We shall not disturb the fact-findings of the trial court sitting without a jury if they are "supported by adequate, substantial and credible evidence." Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974) (citation omitted). On the other hand, we exercise de novo review of the trial judge's "interpretation of the law and the legal consequences that flow from established facts, " including those related to the interpretation of a contract. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
A constructive eviction occurs when a landlord's "act or omission . . . renders the premises substantially unsuitable for the purpose for which they are leased, or which seriously interferes with the beneficial enjoyment of the premises." Reste Realty Corp. v. Cooper, 53 N.J. 444, 457 (1969). "What amounts to a constructive eviction is a question of fact." Gottdiener v. Mailhot, 179 N.J.Super. 286, 293 (App. Div. 1981) (citing Weiss v. I. Zapinsky, Inc., 65 N.J.Super. 351, 357 (App. Div. 1961)). Upon a constructive eviction, a tenant may be authorized to vacate the premises without further liability to pay rent under the lease. Reste Realty, supra, 53 N.J. at 459-60.
However, the interference must affect use of the entire premises. "The payment of rent is not suspended by reason of a partial eviction unless the deprivation of such part is in character and degree sufficient to prevent the beneficial enjoyment by the tenant of the entire property." Chelsea Hotel Corp. v. Gelles, 129 N.J.L. 102, 105 (E. & A. 1942). See also Duncan Dev. Co. v. Duncan Hardware, Inc., 34 N.J.Super. 293, 298 (App. Div.) (stating "partial eviction" must prevent enjoyment of "entire property" and landlord's obstruction of driveway did not suffice), certif. denied, 19 N.J. 328 (1955).
The interference must be substantial, as in Reste Realty, supra, where flooding of a leased basement affected use of the entire leasehold; the water reached as high as five inches; the tenant was forced to raise furniture above the floor; and, on some occasions, to vacate the building to conduct business elsewhere, and to bear an additional cost. 53 N.J. at 449-50. The interference must also be permanent; however, a regularly recurring interference, such as continual flooding, qualifies. Id. at 458-59.
Our courts have recognized a constructive eviction only when it arises from a physical interference with use. JS Props., L.L.C. v. Brown & Filson, Inc., 389 N.J.Super. 542, 548-49 (App. Div. 2006).
In this State, the doctrine of constructive eviction has been held properly invoked where there has been a physical interference with the tenant's use of the premises, such as when the landlord has failed to provide heat, Higgins v. Whiting, 102 N.J.L. 279, 280-81 (Sup. Ct. 1926), or repair defective plumbing, McCurdy v. Wyckoff, 73 N.J.L. 368, 369 (Sup. Ct. 1906), or prevent water seeping through exterior walls, Reste Realty, supra, 53 N.J. at 458-59, or fix a leaky roof, Weiss, supra, 65 N.J.Super. at 355. But our courts have never applied this doctrine to a nonphysical interference with the right of quiet enjoyment, such as is argued here.
In JS Properties, supra, we concluded that the filing of an eviction suit, or the threat of a lock-out by the sheriff, was not a reasonable basis for a tenant to conclude it was constructively evicted and to vacate the premises. Id. at 549-50. We reasoned that such a lock-out could not be accomplished without judicial approval. Id. at 550 n. 3.
A tenant claiming constructive eviction must also show that it vacated the premises within a reasonable time after the premises became unusable. "The general rule is, of course, that a tenant's right to claim a constructive eviction will be lost if he does not vacate the premises within a reasonable time after the right comes into existence." Reste Realty, supra, 53 N.J. at 461. See also JS Properties, supra, 389 N.J.Super. at 550 (rejecting constructive eviction claim, finding that tenant's six-month occupancy after alleged constructive eviction was an unreasonable delay); Duncan Dev. Co., supra, 34 N.J.Super. at 298-99 (rejecting constructive eviction claim in part because "tenant's continuance in possession . . . operated as a waiver"). A court must engage in a fact-sensitive inquiry to determine what constitutes an unreasonable period of time. Reste Realty, supra, 53 N.J. at 461; JS Properties, supra, 389 N.J.Super. at 550-51.
In particular, we have held it unreasonable for a tenant to delay vacating the premises until after the landlord has cured or addressed the alleged defects. See Weiss, supra, 65 N.J.Super. at 355, 357-58 (finding unreasonable delay where tenant complains of leaky roof in July 1957, landlord repairs roof by November, and tenant vacated four months later). We have also considered a tenant's engagement in litigation while remaining on the premises as evidence of a waiver of a constructive eviction claim. See JS Properties, supra, 389 N.J.Super. at 551 (noting that tenant engaged in litigation with landlord while remaining on the premises for six months).
Applying these principles, we discern sufficient credible evidence in the record to support the trial court's determination. We reach this conclusion cognizant that the trial judge's findings were incomplete, and did not resolve numerous factual disputes. For example, the court did not decide whether Abbott located its office in Parcel Five with permission; and whether Puccini intended to use the materials left behind by Ocean Blue. Nor did the court resolve whether the only debris in Parcel Three was left by Olympio; and whether Abbott was prevented from relocating some of its material because Puccini failed to remove the lobster tanks from the warehouse. The court neither credited nor rejected Sheck's claim that Abbott agreed with Puccini to make Parcel Four available when Puccini needed it. Nonetheless, the court found, with adequate support in the record, that the skylight leak impaired use of only a 100 square foot area in a 4000 square foot parcel, and that Puccini consented to the continued use of the Parcel Four bathroom by Abbott's female employee.
More importantly, the court found, even assuming the truth of the majority of Puccini's remaining interference claims, the alleged interference with use did not constitute constructive eviction. We find no basis to disturb that determination.
First, we dispense with Puccini's claim that it was constructively evicted by Abbott's lock-out threat. As we recognized in JS Properties, supra, we are aware of no precedent supporting a constructive eviction claim grounded in an alleged non-physical interference. The lock-out did not occur.
Sufficient credible evidence in the record supported the court's conclusion that Abbott's presumed interference did not render the premises "substantially unsuitable" nor did it "seriously interfere" with the tenant's beneficial enjoyment. Reste Realty, supra, 53 N.J. at 457. Even if Abbott barred Puccini's access to some of the parcels, it was at most a partial eviction. Puccini concededly had timely access to Parcels One, Two and Six. The partial eviction was thus not so extensive as to "prevent the beneficial enjoyment . . . of the entire property." Chelsea Hotel, supra, 129 N.J.L. at 105. Puccini continued to profit from its subtenants, as it collected rent from them at rates significantly over what it was required to pay Abbott. In Parcel Three, the skylight area, Abbott's cooling tower occupied only 100 square feet in a 4000 square foot parcel. The leaking skylight dampened only another 100 square feet. Although Puccini complained about other debris and property, none was identified other than the debris that Puccini's own sub-tenant, Olympio, left there during its renovation of other space.
Moreover, aside from the unrepaired skylight, Abbott's alleged interference was neither permanent nor recurring. See Reste Realty, supra, 53 N.J. at 458-59. Accepting Puccini's allegations, it obtained occupancy of Parcel Three on March 9, 2010, slightly over two months late; Parcel Four on February 1, a month late; and Parcel Five on March 1, 2010, two months late. While the denial of timely occupancy may have given rise to other claims, the denial was temporary, and therefore, does not constitute a constructive eviction.
Finally, we do not disturb the trial judge's finding that Puccini waived any constructive eviction claim by remaining in the premises for an unreasonably long period of time. O'Mara alleged Puccini was constructively evicted by mid-February 2010. Yet, Puccini did not vacate until July 2010, in settlement of a summary dispossess action that had been filed two months earlier. In the interim, Puccini collected rent from subtenants, readied Parcel Five for retail business, and continued to solicit subtenants. By the time Puccini finally vacated, it had gained access to all parcels, except allegedly for Parcel Seven, the warehouse; however, there was a lack of detailed proof regarding what if anything interfered with its access to that parcel. While the skylight apparently still leaked, the record does not include any expert evidence as to the cause. If broken or cracked glass was the problem, then the lease clearly assigned the duty to repair to Puccini. Moreover, rather than vacate the premises, Puccini resisted Abbott's summary dispossess action until an acceptable consent judgment could be reached. We also find no evidence in the record to support Puccini's argument before us that it required an extended period of time to relocate because of the nature of its business and the alleged difficulty in finding substitute space.
Puccini's remaining arguments lack sufficient merit to warrant discussion in a written opinion. R. 2:11-3(d)(1)(E).