Tenant Must Pay Back Rent and Taxes

Facts: The owner of a movie theater entered into a lease with Capitol Industries. Capitol then assigned the lease to Regal Cinema. After Regal Cinema defaulted, an addendum was added to the lease. The addendum stated that Regal Cinema had paid the owner the amounts past due, plus $260,000 as security for Capitol's performance under the lease. More than $2,600 of that security would be credited to Capitol Industries each month that Capitol was not in default.

In January 2007, Capitol failed to reimburse the owner for more than $14,000 in real estate taxes due on the property. In that month Capitol also sent a letter to the owner stating it could no longer pay the rent, and enclosed partial payment for that month. The owner sent Capitol written notice of default and sued Capitol for breaching the lease.

Decision: The U.S. District Court for the Eastern District of Virginia, Norfolk Division, granted the owner's motion for a judgment without a trial and ordered Capitol to pay the owner a substantial amount in delinquent rent and real estate taxes.

Reasoning: To file a claim for breach of a lease agreement under Virginia law, the defendant must have been the first party to default on the lease. Capitol argued that the owner was the first party to default because the owner failed to pay Capitol the monthly $2,626.26 it was owed under the addendum. The court rejected the argument, stating that the addendum entitled Capitol to that amount every month only after Capitol had made its monthly payment.

The court further rejected Capitol's argument that the owner couldn't sue for breach of contract because it failed to mitigate damages—that is, the owner did not attempt to lessen the extent of the damages caused by Capitol's default. The court based this decision on the fact that none of the Virginia cases dealing with commercial leases is directly applicable to this case.

• Laskin Road Associates v. Capitol Industries, June 2007