842 F.3d 816
4th Cir.2016Background
- NCO leased ~106,267 rentable sq. ft. from Montgomery Park for a 12-year term beginning March 15, 2003; rent based on rentable square feet (usable × 1.12).
- Lease §1.05 gave NCO a one-time right to terminate after 8 years if it (a) gave written notice at least 10 months before the termination date and (b) paid a termination fee equal to 10 months’ rent in two equal installments (50% with notice; 50% at least 3 months before termination), "strict compliance" required.
- NCO timely gave notice (May 12, 2010) and paid the first 50% ($779,964.15). On Dec. 15, 2010 it paid the second 50% but deducted a $79,067.70 janitorial-credit offset, remitting $697,100.55.
- Montgomery Park treated the underpayment as failure to satisfy the condition for early termination; NCO vacated the premises May 31, 2011 and stopped paying rent; Montgomery Park sued for breach and NCO sued for (among other things) declaratory relief that it validly terminated and for overcharge (disputing usable sq. ft. under BOMA standards).
- The district court held the lease terminations provision required strict compliance but treated the payment amount as a non-material covenant so NCO validly terminated; the court later rejected NCO’s overcharge claim at bench trial, finding “usable” unambiguous and including the disputed areas; this appeal followed.
Issues
| Issue | Plaintiff's Argument (NCO) | Defendant's Argument (Montgomery Park) | Held |
|---|---|---|---|
| Whether NCO validly exercised §1.05 early-termination right though second installment was reduced by janitorial credit | NCO: payment shortfall was a breach of covenant, not a condition; equity permits termination despite imperfect payment | Montgomery Park: full, timely payment was an express condition precedent; failure to pay voids termination | Reversed district court: payment in full was an express condition; NCO did not satisfy §1.05 and did not terminate early |
| Whether Montgomery Park is barred by election of remedies from seeking rent after district court initially held termination valid | NCO: Montgomery Park pursued termination-fee balance after district court’s ruling, so it should be barred from later seeking rent | Montgomery Park: no inconsistent remedies existed when it pursued fee; it had no alternative remedy at that time | Rejected NCO’s election-of-remedies claim; doctrine inapplicable because no coexistent inconsistent remedies existed |
| Whether "usable square feet" in lease should be defined by BOMA standards, producing a ~5,467 sq. ft. overcharge | NCO: parol evidence shows parties intended BOMA measurement; disputed internal areas (restrooms, mechanical rooms, elevator lobby, 562 sq. ft. "Bridge") should be excluded | Montgomery Park: term "usable" is unambiguous; disputed areas were exclusively possessed/used by NCO and thus "usable" under ordinary meaning | Affirmed district court: "usable" unambiguous; inclusion of disputed areas proper; overcharge claim rejected |
| Whether NCO’s overcharge claim is time-barred under Maryland’s 3-year statute of limitations | NCO: (alternative) merits-based claim that BOMA applies; (district court also reached statute) | Montgomery Park: overcharge claim accrued earlier; claim barred by 3-year statute | Court affirmed rejection of overcharge claim (district court’s merits ruling affirmed); did not address statute-of-limitations ruling in detail here |
Key Cases Cited
- Beckenheimer’s Inc. v. Alameda Associates Limited Partnership, 611 A.2d 105 (Md. 1992) (distinguishing conditions from covenants and equitable relief when option exercise imperfect)
- Elderkin v. Carroll, 941 A.2d 1127 (Md. 2008) (three-part test for determining whether an option's exercise must exactly match offer terms)
- Chesapeake Bank of Md. v. Monro Muffler/Brake, Inc., 891 A.2d 384 (Md. Ct. Spec. App. 2006) (construction of conditions versus covenants depends on parties’ intent and language)
- Chirichella v. Erwin, 310 A.2d 555 (Md. 1973) (principles on whether contractual requirements are conditions or covenants)
- Sy-Lene of Wash., Inc. v. Starwood Urban Retail II, LLC, 829 A.2d 540 (Md. 2003) (parol evidence inadmissible to contradict an unambiguous contract term)
- Surratts Assocs. v. Prince George’s Cnty, 408 A.2d 1323 (Md. 1979) (doctrine of election of remedies is technical and narrowly applied)
- Shoreham Developers, Inc. v. Randolph Hills, Inc., 305 A.2d 465 (Md. 1973) (election of remedies requires coexistent, repugnant remedies)