Lease Was Unclear Regarding Initial Buildout Construction

Facts: An owner signed a lease with a tenant for space to operate a convenience store. After the tenant took possession of the space it notified the owner that the owner’s obligation to remove or remediate any asbestos in the building was waived. The tenant began making improvements to the space; in the process of construction, some drilling work released asbestos into the building. The owner undertook expensive asbestos removal procedures that totaled nearly $170,000 to remediate the problem the tenant’s construction had created. 

The tenant refused to reimburse the owner for the remediation costs. The owner then sued the tenant. Among several other claims, the owner asserted that the tenant was liable for breach of contract for allegedly violating the lease by using construction methods that had been forbidden, such as core drilling; failing to take proper precautions before drilling; and failing to perform any alterations “in a good workmanlike manner without cost to Landlord.” It also argued that it was entitled to reimbursement for the costs of remediating the asbestos once it was disturbed.

Decision: A New Jersey trial court ruled in favor of the owner on the breach of contract claim.

Reasoning: The trial court explained that, in order to adequately state a claim for breach of contract, a plaintiff must allege: (1) a contract between the parties; (2) a breach of that contract; (3) damages flowing therefrom; and (4) that the party stating the claim performed its own contractual obligations. The tenant claimed that its core drilling wasn’t prohibited because it had taken place during and not after the initial buildout of the space. According to the tenant, the language in the lease required it to get written consent from the owner only if the drilling was to be done after the initial buildout. The owner claimed that the lease forbade core drilling at any time. 

The trial court determined that the tenant might have breached the lease; the lease terms weren’t ambiguous, but they weren’t entirely clear regarding whether when or if the tenant’s core drilling was prohibited, and so a trial was needed.

• Kinney Bldg. Assocs., L.L.C. v. 7-Eleven, Inc., May 2016