E-Alert Case Updates
Underlying information required for diminished value calculations for breach of commercial lease damages.
BLT Burger DC, LLC v. Norvin, 1301 CT, LLC.
In February 2010, BLT Burger DC, LLC (“BLT”) entered into a commercial lease agreement with Norvin 1301 CT, LLC (“Norvin”) to rent a three-story townhouse located at 1317 Connecticut Avenue, N.W. in Washington, DC (the “Property”). The lease required that BLT complete a $1.8 Million renovation of the property to convert it into a restaurant, which would have added value to the property, as well as pay rent, taxes and insurance. BLT paid $100,000 for its security deposit and first rent payment on August 3, 2010, but then refused to pay any further amounts, claiming that there were significant structural issues that Norvin had failed to remedy. After Norvin sent a notice of default, it filed suit seeking possession of the land. BLT left the premises and turned over the key on December 3, 2010. Norvin then put the Property up for rent, but also marketed it for sale with an adjoining property. The Property was sold as part of a two property package deal on July 6, 2011 for $27 Million.
BLT then filed suit against Norvin for violation of the warranty of quiet enjoyment, and Norvin counterclaimed for unpaid rent, taxes, insurance and other losses associated with the breach of lease. During a bench trial on February 4, 2013, the Judge granted a motion for judgment as a matter of law against BLT at the conclusion of BLT’s case-in-chief, ruling that BLT had breached the lease. Norvin then proceeded to present its damages claim, which included a claim for unpaid rent, taxes and insurance allocated before the sale of the property, and the diminished value of the property realized at the sale. The damages evidence was provided by Norvin’s principal, Norman Livingston, who testified that the diminished value of the building was $5.7 Million, who testified:
BLT Burger DC, 2014 WL 959424 at 3.
The Court entered judgment in the amount of $158,542 for the unpaid rent, taxes and insurance, and $5.7 Million for the “diminished value” of the property. The parties were permitted to submit post-trial briefs on the issue of damages. BLT filed its motion to amend the judgment, arguing judgment should have been entered in its favor, and, alternatively, that the trial court improperly calculated the damages award. The Court denied the motion on the basis that it was untimely filed, but also noting it was meritless. The Court then granted Norvin’s motion for attorney’s fees in the amount of $200,000. BLT timely appealed.
The District of Columbia Court of Appeals began its review of the trial court’s ruling by outlining the available damages for breach of a lease in the District of Columbia.
BLT Burger DC, 2014 WL 959424 at 4.
The Court observed that in this case, Norvin took the second option, but also advertised the property for sale. The Court observed that this variation, and how it affected the rights of the landlord and tenant, had never been addressed by the District of Columbia Court. The Court surveyed other jurisdictions’ holdings on the issue and adopted New York’s position, holding that the contract provision “’lawfully entitled’ Landlord, upon termination of the lease, to recover damages by selling the property and seeking relief based on diminished value of the premises, if reletting was not a realistic option and the facts otherwise justified that remedy.”
The Court then observed that while BLT had failed to preserve the issue of the “diminished value” damages or Livingston’s expertise on that issue, the calculations were so erroneous that permitting them to stand was a “manifest miscarriage of justice.” The Court noted that Livingston’s testimony included four (4) fundamental mistakes:
BLT Burger DC, 2014 WL 959424 at 8.
The Court noted that the proper way to calculate “diminished value” damages included a “stabilized net income” derived by reference to incomes and expenses over several years, including from other comparable properties, if necessary, which Livingston failed to consider. “In short, from Livingston’s testimony we cannot discern a valid minuend or subtrahend, and thus a new hearing on diminished value is required.” The trial court then vacated the $5.7 Million award.
BLT Burger DC, 2014 WL 959424 at 11.
The Court vacated the damages awards and remanded the case for additional proceedings consistent with its opinion.
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