Superior Court Takes Up Breach Of Lease Arrangement In ‘Tsung Tsin’

In Tsung Tsin Association v. Luen Fong Produce, 2019 Pa. Super. Unpub. LEXIS 1301 (Apr. 9, 2019), the Pennsylvania Superior Court dealt with the issue as to whether the statute of limitations or the doctrine of laches prevented a commercial landlord from collecting sums allegedly due since 2003 under its lease arrangement with a commercial tenant.

Since 1995, the Tsung Tsin Association leased the first floor of its building located in Chinatown, Philadelphia to Lueng Fong Produce, a wholesaler of produce, the opinion said.

Over the years, the parties have executed various written leases requiring the tenant to not only pay base rent, but also additional rent to the landlord for such items as property taxes, use and occupancy taxes, as well as for water and gas service.

During the course of their contractual relationship, the tenant paid the monthly base rent due under the written lease binding the parties over the years.

However, the tenant did not pay some of the additional rent allegedly due under their lease arrangement for such items, which alleged nonpayment spanned over the course of approximately 12 years.

In 2015, the landlord sued the tenant in the Philadelphia Municipal Court for nonpayment of the alleged additional rent due under their lease arrangement.

The landlord obtained a judgment in its favor and against the tenant at the Philadelphia Municipal Court-level.

The tenant appealed to the ruling issued at the Philadelphia Municipal Court-level to the Philadelphia County Court of Common Pleas.

In its complaint, the landlord reiterated its request for a judgment against the tenant equaling 12 years’ worth of additional rent allegedly due under their lease arrangement.

In response, the tenant raised the four-year statute of limitations for contract actions in Pennsylvania, claiming that the landlord could only collect such additional rent which was due and unpaid four years from the date on which the landlord filed its lawsuit against the tenant.

At trial, the landlord attempted to present evidence of the various forms of additional rent it claimed the tenant owed over the years, including the property taxes due under their lease arrangement from 2004 to 2011, water bills for the building from 2007 through 2016, gas usage from 2011 through 2016, and use and occupancy taxes for 2013, 2014 and 2015.

The trial court applied the statute of limitations and limited the landlord’s claims for additional rent to four years prior to the date the suit was filed, referring to this as the “four-year look-back” period.

After doing so, the jury returned a verdict in favor of the landlord and against the tenant, finding the tenant in breach of the lease arrangement and awarded the landlord $38,558 in damages.

The tenant then appealed the jury award to the Superior Court.

In deciding the appeal, the Superior Court, among other things, addressed whether the statute of limitations and the doctrine of laches barred any of the landlord’s claims for additional rent against the tenant.

On appeal, the tenant argued that the statute of limitations required the landlord to file suit by June 2007, four years after the first time the tenant breached their lease arrangement by failing to pay additional rent due thereunder.

In response, the landlord stated that the statute of limitations should not apply at all under the circumstances since the tenant committed a series of reoccurring breaches of its obligation to pay additional rent over the life of the lease.

The Superior Court pointed out Pennsylvania’s Landlord and Tenant Act of 1951, 68 P.S. Section 250.101 “mandates that actions to collect rent proceed under the common law of contracts.”

Citing to 42 Pa C.S. Section 5525(a)(8) and Packer Society Hill Travel Agency v. Presbyterian University of Pennsylvania Medical Center, 635 A.2d 649, 652 (Pa. Super. Ct. 1993), the Superior Court noted that, “generally, an action for breach of a contract has a four-year statute of limitations.”

Quoting to 42 Pa C.S. Section 5502, the Superior Court emphasized that “the time within which a matter must be commenced … shall be computed … from the time the cause of action accrued.”

Taking all of this into account, the Superior Court agreed that the trial court judge correctly applied Section 5525 to bar recovery of any damages flowing from alleged breaches prior to June 6, 2011—i.e., four years before the landlord filed suit.

According to the Superior Court, the written lease binding the parties at the time “dictated when each form of additional rent was due.”

In analyzing when the additional rent for property taxes was due, the Superior Court noted that the written lease provided that payment was due by the tenant to the landlord “on or before the first day of July of each and every year” of the lease term.

The Superior Court reasoned that every year the tenant did not pay this additional rent which was due on or before July 1 of each lease year constituted a new breach under their lease arrangement and, for purposes of Section 5502, since the landlord sued on June 6, 2015, the tenant’s failure to pay the 2010-2011 real estate taxes on July 2, 2011, was a timely claim for payment, but that any claims for such additional rent beforehand was barred by the statute of limitations.

The Superior Court held that the same was true for all other alleged breaches for additional rent which occurred on or before the landlord initiated the lawsuit against the tenant.

In other words, any claim for additional rent which was due before June 6, 2011, would be barred under the statute of limitations.

As a side note, the Superior Court refused to apply the tenant’s interpretation of the application of the statute of limitations.

To reiterate, the tenant argued that the landlord was required to commence judicial proceedings against it four years from the date of the initial breach allegedly committed by the tenant under their lease arrangement. Since that breach was allegedly committed in 2003, the tenant believed that the lawsuit had to be filed by 2007, four years from the date of such an alleged breach.

The Superior Court stated that such an interpretation of the application of the statute of limitations “would create the absurd and unjust result that the landlord could never collect any additional rent—past, present, or future.”

In dismissing the notion, the Superior Court “did not think that the Legislature intended for long-term tenants to occupy premises rent-free, when a landlord waits more than four years into a decade-long lease to sue” and “in fact, by applying the ‘four-year-look-back’ as the trial court did”, according to the Superior Court, “this tenant received an unforeseen windfall of occupying the premise without paying any additional rent from 2003 through 2011.”

The Superior Court also quickly dismissed the tenant’s claim that the trial court erred in not applying the doctrine of laches to bar the landlord’s claims for additional rent.

The tenant argued that “it suffered prejudice in defending this case, because of the landlord’s inordinate delay in filing suit.”

The Superior Court agreed with the trial court judge who refused to enforce the equitable doctrine of laches against the landlord’s contract action, since Pennsylvania’s Landlord and Tenant Act of 1951 “requires landlords to file an action at law to recover unpaid rent” and the doctrine of “laches is not a defense in a court of law.”

Lessons Learned

The factual circumstances of Tsung Tsin Association while slightly extreme are not uncommon.

In many circumstances, a commercial landlord may be willing to collect some, but not all, sums due under their lease arrangement with a commercial tenant, rationalizing something is better than nothing. What next typically happens is that the relationship between the parties sours to a point that the commercial landlord then seeks to collect every last penny that should have been paid under their lease arrangement.

The Superior Court’s ruling in Tsung Tsin Association reaffirms that a landlord must remain vigilant in the collection of any sums due under their lease arrangement with a tenant or risk losing the ability to collect it at a later date.

Reprinted with permission from the June 11, 2019 edition of The Legal Intelligencer © 2019 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com.