Many times, landlords in Pennsylvania face a situation where their tenants vacate from the leased premises and they are left to decide whether to initiate eviction proceedings or merely take back exclusive possession of the leased premises.
A recent unpublished decision handed down by the Superior Court of Pennsylvania in York Development Limited Partnership v. Atlantic Wireless Group, 20017 Pa. Super. Unpub. LEXIS 3672 (Oct. 2, 2017) sheds light on what a commercial landlord in Pennsylvania can and should do under these circumstances.
In York Development, the landlord, York Development Limited Partnership, owned the Northwest Plaza Shopping Center in York County, Pennsylvania, the opinion said.
In 2004, York Development leased a portion of the shopping center to Atlantic Wireless Group, Inc. by way of a commercial lease entered into by the parties, the opinion said.
The commercial lease required that Atlantic use the “premises solely for the purposes of conducting the business of wireless communication sales and services and related products and service,” the opinion said.
Under the commercial lease, Atlantic was prohibited from opening or operating another store that had a similar or competing business, within a three-mile radius of the shopping center, the opinion said.
The term of the commercial lease was for a period of 10 years and expired in the summer of 2014, the opinion said.
The commercial lease specified remedies for York Development, if Atlantic defaulted upon its terms and conditions: “if [York Development] reentered the premises, the lease was to terminate” and nonetheless Atlantic “remained obligated to pay the rent and other charges, but [Atlantic], though, was specifically entitled to credit for rent received for [York Development] re-renting the premises.”
Toward the end of the lease term, Atlantic elected to move its store location from the shopping center to a new one two miles down the road, the opinion said.
In July of 2012, Atlantic removed most of its inventory, equipment and fixtures from the shopping center to its new location, so that the new store could open for business by Aug. 1, 2012, the opinion said.
Atlantic even had employees affix signs to the windows of the premises that advertised the store’s new location, the opinion said.
All the while, Atlantic never notified York Development of its election to move its store location, the opinion said.
Furthermore, Atlantic did not pay the rent which remained due for the month of August 2012 under the commercial lease, the opinion said.
On Sept. 4, 2012, York Development then sent a letter to Atlantic stating that Atlantic was in default under the terms and conditions of the commercial lease for its abandonment of the premises, failure to pay the rent due for the month of August 2012, and causing competition with a new store down the road from the premises, the opinion said.
York Development subsequently filed a lawsuit against Atlantic in the York County Court of Common Pleas.
After a bench trial, the trial court ultimately “found that Atlantic breached the lease by failing to use the premises for the purposes as required by the lease, failed to remain open for business, failed to pay rent, moving the business to a location within three miles of the lease premises, advertising the new location on the premises of the leased premises at Northwest Plaza” and Atlantic “vacated the property without any prior notice of” York Development.
A judgment in the amount of $110,719.99 was subsequently entered in favor of York Development and against Atlantic.
The parties soon thereafter appealed the trial court’s ruling to the Superior Court.
The Superior Court first addressed Atlantic’s argument that the trial court erred in finding that it abandoned the premises when it was actually evicted by York Development.
Citing to Ferrick v. Bianchini, 69 A.3d 642, 656 (Pa. Super. Ct. 2013), the Superior Court noted that, “in order to prove abandonment, the landlord bears the burden of demonstrating: an intention on the part of the tenant to abandon; and conduct by which the intention is carried into effect.”
The Superior Court in York Development concluded that the trial court did not err in determining that Atlantic had abandoned the premises.
Rather, the Superior Court pointed out that, during the term of the commercial lease, Atlantic improperly secured a lease with a different landlord to lease at another location for purposes of moving the store to that other location and, when the new location opened for business, Atlantic simply ceased its business operations at the store.
The Superior Court then addressed Atlantic’s assertion that the trial court erred in failing to find that York Development evicted it from the premises.
In making this assertion, Atlantic argued that York Development locked Atlantic out of the premises a day after Atlantic moved inventory and other items from the premises, even though Atlantic was current on its rent and while Atlantic’s fixtures remained in the premises.
Quoting the Supreme Court of Pennsylvania’s ruling in Kahn v. Bancamerica—Blair, 193 A. 905 (Pa. 1937), “[f]or the landlord’s acts to constitute an ‘eviction’ of the tenant, they must amount to an actual ‘interference with the tenant’s beneficial enjoyment of the demised premises.”
However, as recognized by the Superior Court in York Development, the Supreme Court in Kahn emphasized that no eviction can take place if the tenant first abandons the premises.
Since, the Superior Court’s estimation, the evidence supported the conclusion that Atlantic abandoned the premises, the Superior Court reasoned that the fact that York Development resumed possession and secured the premises cannot be construed as an eviction.
In York Development, the Superior Court also delved as to whether York Development was required under common law or the terms and conditions of the commercial lease to mitigate its damages by finding a replacement tenant once it obtained exclusive possession of the premises from Atlantic.
Citing to Stonehedge Square v. Movie Merchants, 685 A.2d 1019 (Pa. Super. Ct. 1996) and its progeny, the Superior Court agreed that, in the commercial context, “the law holds that where a tenant abandons property, a non-breaching landlord has no duty to mitigate damages.”
Since the Superior Court held that Atlantic had so abandoned the premises, it concluded that York Development had no duty to so mitigate its damages under the common law.
The Superior Court then determined whether the trial court erred in finding that the commercial lease contractually obligated York Development to mitigate its damages by finding a replacement tenant for the premises when it took exclusive possession of the premises from Atlantic.
In Pennsylvania, parties to a commercial lease may contractually alter the general rule by requiring the landlord to mitigate its damages by securing a replacement tenant when it takes exclusive possession of leased premises.
After reviewing the portion of the commercial lease regarding available remedies to York Development if Atlantic committed a material breach of the commercial lease, the Superior Court concluded that York Development had no such contractual duty to mitigate its damages under the circumstances.
Rather, the Superior Court noted that the commercial lease merely provided that, if York Development did re-let the premises after obtaining exclusive possession of the leased premises due to a material breach of the commercial lease committed by Atlantic, that any rent collected from the new tenant would offset the debt owed by the previous tenant, Atlantic.
In doing so, the Superior Court reiterated that the commercial lease merely prohibited York Development from receiving double recovery from payments made by Atlantic under the commercial lease and payments made by a new tenant for the same time period.
The Superior Court’s ruling in York Development should serve as a roadmap of sorts for landlords in Pennsylvania when electing how and when to obtain exclusive possession of the premises.
At the outset, every commercial landlord in Pennsylvania should review its written lease to find out whether the lease contains a contractual duty for the commercial landlord to mitigate its damages by securing a replacement tenant once it obtains exclusive possession of the premises.
Regardless, landlords in Pennsylvania should tread carefully prior to retaking exclusive possession of the premises by its own means rather than through eviction proceedings.
In York Development, the Superior Court agreed with the trial court’s determination that Atlantic, indeed, abandoned the premises and, thus, no illegal eviction occurred under the circumstances. However, if such an illegal eviction did occur, York Development could not only have waived the rent which otherwise would have been due under the commercial lease, but it could have been on the hook for any damages sustained by Atlantic due to the interruption of its business operations.