Leases; Election of Remedies 

Gamesa Energy USA v. Ten Penn Center Assocs. L.P., 181 A.3d 1188 (Pa. Super. 2018), allocatur granted Aug. 20, 2018, appeal docket 28 EAP 2018

Gamesa leased approximately 35,000 square feet of office space from Ten Penn Center (TenPC) in 2008.  Relevant terms of the lease included:

  • The lease ran until September 1, 2018.
  • A credit to Gamesa for improvements to construct office space.
  • Gamesa could sublease with TenPC’s prior approval, which approval TenPC could not unreasonably withhold, condition, or delay.
  • Gamesa could not vacate the premises during the term of the lease; vacating the premises was an event of default.

In 2011, TenPC approved a sublease of a portion of the premises.  Thereafter, Gamesa gave one month’s notice and vacated the premises in May 2012.  Gamesa’s sublessee remained on the premises.  Gamesa paid its June 2012 rent late but continued to make rent payments after it vacated the premises.  The sublessee remained on the premises.

In June 2012, Gamesa requested permission for a second sublease for a portion of the premises.  TenPC informed Gamesa that it had defaulted on the lease when it vacated the premises and made a late payment, which absolved TenPC of the responsibility to entertain requests for subleases.  Nevertheless, TenPC requested additional information concerning proposed sublessee’s financials to evaluate the sublease request.  On July 5, 2012, Gamesa responded, denying default, requesting approval of the sublease, and providing the requested information.  TenPC responded, reiterating its position that it did not have to entertain the sublease request, and proposing that Gamesa waive its remaining credit for improvements in exchange for approval of the sublease.  Then negotiations stalled.

On March 23, 2013, Gamesa filed a complaint, asserting TenPC breached the leased by failing to reject or accept the sublease within 30 days.  Gamesa sought damages and a declaration that the lease was terminated when TenPC failed to accept or reject the sublease.  Gamesa also made an unjust enrichment claim for the return of rent paid following TenPC’s breach.

Following non-jury trial, the Philadelphia Court of Common Pleas ruled in favor of Gamesa.  The court found TenPC had materially breached the lease by advising Gamesa it was in default and by failing to approve or reject the proposed sublease within 30 days. Because of this breach, the court awarded Gamesa damages equal to the amount it would have received under the three-year sublease. The court also found TenPC’s material breach was sufficient to terminate the lease as of July 22, 2012. As a result, the court found TenPC was unjustly enriched in the amount of rent Gamesa paid to TenPC from that date through December 2015.

Superior Court reversed on the trial court’s finding that TenPC was the initial party to breach the lease.  It held that Gamesa had breached the lease first when it vacated the premises in 2012 because the trial court had erred in construing vacating the premises (giving up occupancy) as abandoning the premises (giving up with the intent of never again claiming a right or interest in), where the plain terms of the lease state as a term of default “vacate,” not “abandon.”  The court found that TenPC could have pursued legal remedies because of Gamesa’s breach of vacating the premises, but that TenPC waived those remedies because it did not terminate the lease or pursue damages.

Superior Court likewise reversed the trial court’s holding that TenPC failed to accept or reject the sublease within 30 days and thus breached the lease.  The court reasoned that TenPC’s last correspondence conditioning approval of the sublease on Gamesa waiving of the improvement credit was a timely counteroffer that equated to a rejection of the original sublease request.

Superior Court upheld the trial court’s holding that TenPC unreasonably conditioned approval of the sublease and therefore breached the lease.  The trial court held that Gamesa’s sublease request was a good faith and reasonable request based on a credibility determination of the evidence presented at trial.  Superior Court refused to challenge the trial court’s credibility determination and also upheld the trial court’s finding on damages to Gamesa due to this breach.

Finally, Superior Court reversed the trial court’s decision to terminate the lease based on TenPC’s breach and the trial court’s award of damages for unjust enrichment.  The court reasoned that Gamesa elected to continue under the terms of the lease by continuing to pay rent, continuing to receive rent from its initial sublease, and using the remaining improvement credit.  There was also evidence that Gamesa continued to search for sublessees up to the time of trial.  Thus, the court reasoned that Gamesa continued to benefit from the terms of the lease after breach at its election, and thus termination and award of damages for unjust enrichment against TenPC was improper.

The Supreme Court granted allocatur on the following issues, as Gamesa stated them:

(1) May a litigant simultaneously pursue inconsistent, alternative remedies in a civil action in Pennsylvania prior to the entry of final judgment?

(2) When one party to a contract breaches, should the non-breaching party be permitted to continue performance, if reasonable under the circumstances, and to maintain, in the alternative, causes of action for termination of the agreement if material, or if not material, for damages from the breach?

The Court denied TenPC’s Cross Petition for Allowance of Appeal.

For more information, contact Kevin McKeon or Dennis Whitaker.