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Occupancy Date - Litigation Issue

In Jack Quinn's Norfolk, LLC v. Commonwealth Enterprises, LLC, Circuit Court of City of Norfolk (2002) a Tenant filed a multi-part claim against a Landlord. The ruling of the Court on the Landlord's preliminary motions to dismiss Tenant's case provides insight into some matters of general interest to property owners.

FACTS: It appears from the opinion that the Tenant is suing the Landlord for delay in providing occupancy of the premises. The Tenant claimed damages due to Landlord's failure to: (a) acquire the property at the time of execution of the Lease; (b) timely obtain funding necessary to perform Landlord's work; (c) timely engage a contractor to perform Landlord's work; and (d) timely buy materials and pay contractors for Landlord's work.

COUNT 1: The Landlord sought to limit the Tenant's damages to the amount designated in the Lease. The Tenant argued that the limitation in the Lease was an "unenforceable penalty" because the Landlord did not do everything within its power to insure that the Lease was properly performed. The Court refused to enforce the Lease's limitation on Landlord's damages.

COUNT 2: The Tenant argues that there was an oral agreement to provide occupancy on a specific date, which oral agreement was breached by the Landlord. The Court rules that the Lease is not subject to "oral modification".

COUNT 3 & 4: Tenant sued Landlord for fraud based upon Landlord's failure to inform Tenant that it did not have title to the property. The Court allowed the fraud claim to proceed because the Landlord should have informed the Tenant of the uncertain possibility that the Landlord might acquire title to the premises.

COUNT 5: Withdrawn.

COUNT 6: Tenant sues under negligence theory. Court rules that Tenant cannot pursue a negligence claim based upon a contract breach.

COUNT 7: Tenant seeks a declaratory judgment regarding the lease commencement date and whether the Tenant has a right to offset the rent against the claimed damages suffered by the Tenant. Tenant also seeks an injunction preventing its removal from the premises pending the final resolution of the dispute. The Court agrees to determine the commencement date and the offset issue. Due to the harm that would be caused to Tenant by a removal, the Court agreed to consider imposing an injunction.

ADVICE:

Occupancy date: While landlord will want a flexible date for occupancy, tenant should seek a firm date for occupancy after which date it can terminate the lease.

Landlord obligations: Landlord must diligently pursue improvements and other obligations of the lease or it may be held liable.

Damages provisions: Limitation on award of damages contained in the lease may not be enforced if they are considered an penalty.

Fraud: Under certain circumstances it may be fraud by a landlord to lease a premises without title to the property, even though it was later acquired. It would be prudent to reveal the lack of ownership at the time of leasing.