Many out of home leases require lease payments annually in advance. Is prepaid rent recoverable if a lease terminates early? Not unless you have a refund clause. That’s the lesson of Eujoy Realty v Wagner Communications. Here are the facts:
- In 2000 Van Wagner Outdoor signed a 15 year lease with Eujoy Realty Corp in to place a billboard on a rooftop in Queens. The rent of $96,243/year was due annually in advance. The lease stated “Should this Lease be terminated for any reason prior to its expiration Van Wagner shall not be entitled the return of any basic rent paid in advance..” The lease went on, however, to say that prepaid rent would be prorated and refunded if the lease was terminated due to fire, condemnation or passage of a law making billboards illegal.
- A rider to the lease gave Van Wagner the right to terminate the lease if the buildings view was obstructed, but the lease was silent as to whether prepaid rent would be refunded due to termination associated with obstruction.
- In January 2007 Van Wagner gave Eujoy a check for $96,243 for 2007 rent. Van Wagner then stopped payment of the check, reissued a check for $2,103 to Eujoy, and notified Eujoy that it was terminating the lease effective January 8, 2007 due to an obstruction of the view of the billboard.
- Eujoy sued Van Wagner for $96,243 for rent for 2007.
- The New York Court of Appeals awarded Eujoy the $96,243 plus legal costs. The court found that when a lease sets a due date for rent, that date is the date on which the debt accrues and rent paid in advance is unrecoverable if the lease is terminated unless the language of the lease direct otherwise. The courts refused to accept Van Wagner’s assertions that the terms of the lease had been modified by oral agreement.
Insider’s take: Three things to learn from this case.
- Obey your lease termination language. If Van Wagner terminated the lease and removed the billboard by December 31, 2006 it would not have been liable for 2007 rent.
- Never agree to prepay unless your lease specifies that prepaid rent will be refunded if a lease is terminated early.
- Get it in writing. Written agreements almost always trump oral agreements.
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