Landlord Entitled to Limited Additional Rent

On April 9, the Pennsylvania Superior Court held that a commercial landlord was entitled to recover certain portions of unpaid additional rent under a lease agreement but limited the landlord’s recovery based on the statute of limitations. While the decision was nonprecedential, the case provides helpful guidance to practitioners in determining when claims for rent should be brought against a tenant in a commercial lease agreement and emphasizes the importance of timely filing any claims under a lease agreement for unpaid rent.

In Tsung Tsin Association v. Luen Fong Produce, a landlord alleged that its commercial tenant, a grocery store in Philadelphia’s Chinatown, failed to pay additional rent as required under the lease agreement. In 1995, the landlord and the tenant entered into a multiyear commercial lease agreement that required the tenant to pay the landlord for additional rent, including increases in property taxes, use and occupancy taxes, and water, sewer, and gas expenses. The landlord and the tenant then entered into a new lease agreement in 2003, which was determined by the court to supplant the original lease agreement and govern the relationship between the parties in the dispute. Notably, the new lease agreement only required the tenant to pay increases in property taxes and use and occupancy taxes. Payment of water and sewer expenses were only required if certain conditions under the lease agreement were met.

The landlord sued the tenant on June 6, 2015, in the Philadelphia Municipal Court, alleging breach of the lease agreement in connection with the tenant’s failure to pay 12 years’ worth of additional rent. After the landlord prevailed, the tenant appealed to the Philadelphia Court of Common Pleas, claiming that the four-year statute of limitations for contract claims in Pennsylvania barred the landlord’s suit. The trial court partially agreed with the tenant and limited the landlord’s damages to the period between the date that was four years prior to the date the landlord filed suit and the date the suit was filed. After the landlord presented evidence of the alleged additional rent owed, the jury found that the tenant breached the lease agreement and awarded $38,558 in damages to the landlord.

The tenant appealed the jury’s decision and award to the Superior Court. The Superior Court reviewed the tenant’s claims that the statute of limitations barred the landlord’s suit, the landlord failed to establish a prima facie case of breach of contract, and the trial should have molded the trial verdict consistent with the trial evidence.

Statute of Limitations

The tenant argued that the four-year statute of limitations barred any suit brought by the landlord after June 2007, because the statute of limitations began running when the tenant first failed to pay additional rent under the 2003 lease agreement. The Superior Court disagreed with the tenant and found that the statute of limitations only barred claims for any failure to pay additional rent prior to the tenant’s breach in 2011. The court reasoned that each one of the tenant’s failures to pay the additional rent since 2003 constituted a new breach, subject to a four-year statute of limitations under contract law in Pennsylvania. Because the landlord brought its suit within the four-year statute of limitations after the tenant’s breach in 2011, the Superior Court affirmed the trial court in holding that the landlord could pursue claims for the tenant’s failures to pay additional rent that occurred four years prior to the date of the suit.

Prima Facie Case

The tenant also argued that the landlord failed to establish a prima facie case of breach of contract for the alleged nonpayment of additional rent. In partially affirming the trial court, the Superior Court concluded that the landlord established a prima facie case with respect to the tenant’s failure to pay the increases in property taxes from 2011 to 2015, because the lease agreement expressly required the tenant to pay the excess taxes and the landlord presented sufficient evidence that the tenant failed to do so. However, the Superior Court overturned the trial court in holding that the landlord failed to establish its breach of contract claims for the other forms of additional rent because the conditions applicable to those obligations were not met, the tenant provided sufficient evidence that it paid the use and occupancy taxes as required under the lease agreement, and the 2003 lease agreement did not require the tenant to pay gas expenses.

Molding the Verdict Consistent With the Trial Evidence

Finally, the Superior Court evaluated the tenant’s claim that the trial court should have molded the jury’s award in accordance with the evidence presented at trial. The court agreed with the tenant and reduced the jury’s award to $19,523.90, representing the owed increases in property taxes from 2011 to 2015—the only form of additional rent to which the court determined the landlord was entitled.

Practice Tips

Even though the landlord in Tsung Tsin was able to recover the portion of the unpaid additional rent for the four-year period preceding the date of the lawsuit, the landlord could not recover the entirety of the unpaid amount due to its delay in filing suit. Attorneys representing commercial landlords should advise their clients to timely bring any claims for unpaid rent to preserve such claims and avoid a statute of limitations defense. On the tenant side, practitioners should consider negotiating a limitation on a landlord’s ability to recover stale unpaid additional rent if the landlord fails to bill a tenant after a certain period of time.

Igor Pleskov is an associate in Saul Ewing Arnstein & Lehr’s real estate, environmental and energy department focusing on all aspects of transactional real estate law. He can be reached at Igor.Pleskov@saul.com.

Ian M. Livaich is an associate in the firm’s real estate, environmental and energy department focusing on all aspects of transactional real estate law. He can be reached at Ian.Livaich@saul.com.