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Constructive Eviction of a Commercial Tenant

Posted on: December 20, 2013

Katz Deli v. Waterways Plaza, 3D12-3409 & 3D13-124 (Fla. 3d DCA 2013):

This appeal and cross-appeal contested the amount of damages awarded for a breach of contract that led to the constructive eviction and ultimate destruction of Katz Deli. Katz Deli expanded by leasing a space in the Waterways Plaza of Aventura. The lease required monthly rental payments of $25,000, contained lease renewals that could potentially extend until 2022, and required the landlord to make all necessary repairs to the structure and roof. The lease was negotiated before Waterways Plaza purchased the property. Hiring an experienced South Florida commercial real estate attorney for lease negotiations can help avoid disputes arising from complicated commercial leases.

During Waterways’ due diligence before purchasing the Plaza, Waterways became aware that the Katz Deli roof was beyond repair and needed to be replaced. Waterways did not replace the roof, but attempted minor repairs. Leaks created mold and a musty smell throughout the deli. The deli saw a decrease in business and its reputation. The location was deemed unfit for use as a restaurant. After Katz moved out, Waterways completely reroofed the building and found new tenants at a substantially higher rent payment.

Katz filed suit for breach of contract and constructive eviction. Katz alleged that it was willfully evicted from the premises because Waterways knew that it could take advantage of a new market-rate lease. The trial court found Katz had been constructively evicted due to Waterways’ gross negligence in failing to maintain the roof, and that Waterways had thereby breached the lease agreement. A separate hearing on damages found Katz was a successful, ongoing business until the actions of the landlord caused the business to decline. While Katz believed prospective lost profits was the proper measure of damages, Waterways argued for market value of the business.

The Third District held that lost profits was a proper measure of damages because Waterways’ long-term continuing breach of the contract allowed Katz to stay in business for a year. This slowly depreciated the market value of the business, thus rendering an award of market value damages insufficient to make Katz whole. The primary goal in a breach of contract case is to restore the plaintiff to the position it would have been in had the contract been properly performed.

The Third District agreed that prospective lost profits was the correct measure of damages, and found no clear error with the trial court’s factual finding that awarding prospective lost profits beyond the initial lease term would be too speculative. When there is no jury, a trial judge’s findings are presumed to be correct on appeal. These findings will not be disturbed unless they are clearly erroneous. The Fort Lauderdale commercial real estate attorneys at Schecter Law can assist in real estate transactions with our meticulous attention to detail and superior negotiation skills.