Jury Allowed To Consider Testimony On Oral Modification Of Lease
Written by: Alan Nochumson
In most leases, the landlord and tenant are specifically prohibited from orally modifying the lease. The purpose of such a prohibition is to protect them against a “he said, she said” scenario.
A decision recently handed down by the U.S. District Court for the Middle District of Pennsylvania in Sabatini v. Its Amore Corp., however, illustrates how such a provision may be waived through the conduct of the parties.
According to the opinion, in the mid-1990s, Gino Sabatini purchased a parcel of land in South Abington Township. Sabatini subsequently constructed a restaurant on the property and opened the restaurant soon thereafter. Sabatini also entered into a leasing arrangement with the adjacent property owner to use the parking lot adjoining his property for the benefit of the restaurant. Sabatini closed the restaurant in early 2004.
Soon thereafter, Sabatini entered into an agreement with Alex Tarapchak and his company for the sale of the restaurant. The agreement did not cover the parking lot property, according to the opinion.
The parties then amended the agreement, in that the sale was contingent upon the assignment of the lease relating to the parking lot, the opinion said. Moreover, under the terms of the amendment to the agreement, if Sabatini purchased the parking lot and sold the parking lot to Tarapchak, the sales price to Tarapchak would equal the amount for which Sabatini purchased the parking lot, the opinion said.
After Sabatini sold the restaurant, he entered into a lease with Tarapchak for the parking lot. The lease granted Tarapchak the option of purchasing the parking lot. This option, however, was conditioned upon Tarapchak not committing any breaches of the lease.
Among other things, the lease provided that Tarapchak was required to maintain the parking lot in its existing condition.
The lease also provided that no modification could be made to the lease unless the parties specifically agreed to do so in writing.
When Tarapchak attempted to exercise his option to purchase the parking lot from Sabatini, Sabatini refused to sell the parking lot to him because of his alleged breaches of the lease. Sabatini claimed that Tarapchak breached the lease “by removing landscaped islands in the parking lot, by filling in the detention basin on the southerly side of the parking lot and by removing crown vetch from the front embankment of the parking lot,” the opinion said.
After Tarapchak failed to cure these alleged breaches of the lease, Sabatini then terminated the lease and instituted an ejectment lawsuit against Tarapchak in federal court.
Tarapchak also instituted a suit for specific performance in state court. In that suit, Tarapchak sought the entry of an order compelling Sabatini to sell the parking lot to him.
In the state court action, Tarapchak denied that he was in breach of the lease for the parking lot. Rather, he alleged that Sabatini had authorized the changes to the parking lot during a conversation that took place between the parties prior to the commencement of the work.
Sabatini specifically denied having had such a conversation with Tarapchak. As a result, Sabatini believed that, since Tarapchak’s right to purchase the parking lot was specifically conditioned upon there existing no event of default by Tarapchak and on the continued existence of the lease, and because these conditions were not satisfied, he justifiably refused to sell the parking lot to Tarapchak.
The state court action was removed to federal court and the cases were consolidated.
The cases were tried before a jury. At the conclusion of the trial, the federal district court submitted special interrogatories to the jury. Based upon the jury’s answers, the federal district court entered judgment for Tarapchak on Sabatini’s ejectment claim and for Tarapchak on his claim for specific performance to purchase the parking lot.
Sabatini then filed a post-trial motion for judgment as a matter of law or, in the alternative, for a new trial.
In a memorandum opinion, the federal district court focused most of its attention on whether the Statute of Frauds and the lease itself precluded the jury from considering evidence at trial concerning whether Tarapchak was given permission to make changes to the parking lot.
In Pennsylvania, the Statute of Frauds requires all terms and conditions of a lease to be in writing. The purpose of the Statute of Frauds “is to prevent the assertion of verbal understandings in the creation of interests or estates in land and to obviate the opportunity for fraud and perjury,'” the opinion said, citing the state Supreme Court’s 1987 ruling in Kurland v. Stolker. As such, it “is not a mere rule of evidence, but a declaration of public policy.'”
However, Tarapchak argued that “the law in Pennsylvania has long held that the parties to a written agreement, which contains provisions prohibiting oral modifications, may waive such a provision,'” citing the state Supreme Court’s 1955 decision in Warner v. MacMullen.
Tarapchak, quoting from the 1994 Superior Court case of Accu-Weather v. Prospect Communications, noted: “An agreement prohibiting non-written modification may be modified by a subsequent oral agreement if the parties[] conduct clearly shows an intent to waive the requirements that amendments be in writing.'”
After reviewing the evidence presented at trial, the federal district court in Sabatini concluded that Sabatini had, indeed, waived the “non-modification” provision when he failed to object to the changes being made to the parking lot at the time the building permits were issued and when the work commenced.
At trial, Tarapchak testified to the conversation he had with Sabatini, which was prompted by Sabatini’s observation of changes being done to the parking. During the conversation, according to Tarapchak, Sabatini expressed concerns as to whether the work was being performed with governmental approval. According to the opinion, Tarapchak testified that these concerns were laid to rest when Tarapchak assured Sabatini that he did receive such governmental approval.
Tarapchak concluded, and the federal district court agreed, that this exchange of information showed that Sabatini had no objection to the work being done on the parking lot.
Tarapchak also pointed to the existence of an e-mail exchange between Sabatini and his brother. Sabatini’s brother took a photograph of the parking lot within the first few days of the work being performed and Sabatini and his brother discussed the photograph and their concerns about the parking lot over the course of several e-mails, the opinion said. Tarapchak emphasized that Sabatini nevertheless made no complaint to Tarapchak until the work was almost complete.
Through it all, the federal district court ultimately held that the jury should have been allowed to consider whether the lease was modified through the conduct of the parties and the evidence introduced at trial was thus not barred by the Statute of Frauds.
LESSONS LEARNED
The federal district court’s ruling in Sabatini is a cautionary tale for landlords across the commonwealth. Although the lease in Sabatini contained a provision disallowing any changes to be made to the parking lot by the tenant, the landlord’s passiveness or indecisiveness was clearly used against him.
If the landlord in Sabatini did not wish for any changes to be made to the parking lot, the landlord should have stated so, orally and in writing. Rather, the landlord waited until the work was almost complete before expressing his displeasure with the situation. That, in essence, created an issue of fact as to whether the lease was breached, which the jury believed was not the case.
Reprinted with permission from the August 17, 2010 edition of The Legal Intelligencer © 2010 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.
