B & G Properties Ltd. Partnership v. Office Max, Inc.
2013 Ohio 5255
Ohio Ct. App.2013Background
- Lease originated 1994, term 20 years starting 1995; OfficeMax never occupied, assigned lease to Planet Music (1996) and then Borders (2005); Borders filed Chapter 11 in Feb 2011 and later liquidation; bankruptcy trustee rejected the lease, prompting landlord (B&G) to seek rents; trial court granted summary judgment for B&G; issues included mitigation duties and the 5% late-charge provision.
- Lease termination hinges on Section 7.2(a) (bankruptcy rejection) and whether it applies to Borders or OfficeMax as assignor; Section 8.2 makes OfficeMax jointly liable despite assignments; Section 7.1(iv) purports to preserve rents for duration of term despite termination; court held the clause applies to the tenant in possession (Borders) but assigns OfficeMax remains a surety.
- The court also addressed whether B&G’s duty to mitigate was waived by contract (Section 7.1) and whether the 5% late fee (Section 2.1(d)) is a enforceable liquidated damages provision rather than an unenforceable penalty.
- Dissent argues Section 7.1 does not plainly waive mitigation and remand to determine reasonableness of mitigation duties.
- Judgment affirmed; OfficeMax remains liable for rent for the full term despite reletting; 5% late-charge deemed enforceable as liquidated damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bankruptcy termination cancels the lease as to OfficeMax | B&G says Borders’ bankruptcy rejection terminates lease; OfficeMax argues no. | OfficeMax contends Section 7.2(a) applies to Borders, terminating the lease | Bankruptcy termination applies to Borders (tenant in possession); OfficeMax remains jointly liable as a surety. |
| Whether Section 7.1(iv) waives the landlord's duty to mitigate | B&G argues waiver of mitigation by Section 7.1(iv). | OfficeMax contends waiver of mitigation is express. | Majority held waiver of mitigation exists; OfficeMax liable for rent for duration; dissent would require remand for mitigation review. |
| Whether the October 3, 2012 entry properly reflected waiver of mitigation | B&G sought to confirm waiver; OfficeMax sought partial clarification. | OfficeMax argued only reletting waiver, not mitigation. | Court affirmed waiver of mitigation; no abuse in denying amendment. |
| Whether the 5% late charge is an enforceable liquidated damages provision | B&G contends the clause is a reasonable liquidated-damages provision. | OfficeMax argues it is an unenforceable penalty. | 5% late charge upheld as reasonable liquidated damages under Samson Sales standard. |
Key Cases Cited
- Dennis v. Morgan, 89 Ohio St.3d 417 (2000) (landlord liability for rents after breach survives termination)
- Pinnacle Mgt. v. Bell, — (2012) (joint and several liability after valid assignment)
- Frenchtown Square Partnership v. Lemstone, Inc., 99 Ohio St.3d 254 (2003) (duty to mitigate damages may be modified by contract)
- Samson Sales, Inc. v. Honeywell, Inc., 12 Ohio St.3d 27 (1984) (tests for enforceability of liquidated damages clauses)
- Lake Ridge Academy v. Carney, 66 Ohio St.3d 376 (1993) (reasonableness and proportionality of liquidated damages)
- Westfield Franklin Park Mall L.L.C. v. Vanity Shop of Grand Forks, Inc., — (2008) (not included due to absence of official reporter)