Stern's Gallery of Gifts, Inc. v. Corporate Property Investors, Inc.

• Citation: 337 S.E.2d 29,176 Ga.App. 586
• Decision Date: 08 October 1985
• Docket Number: 70732,Nos. 70346,s. 70346
• Parties: STERN'S GALLERY OF GIFTS, INC. v. CORPORATE PROPERTY INVESTORS, INC.; CORPORATE PROPERTY INVESTORS, INC. v. STERN'S GALLERY OF GIFTS, INC.
• Court: United States Court of Appeals (Georgia)

Page 29

337 S.E.2d 29

176 Ga.App. 586

STERN'S GALLERY OF GIFTS, INC. v. CORPORATE PROPERTY INVESTORS, INC.;

CORPORATE PROPERTY INVESTORS, INC. v. STERN'S GALLERY OF GIFTS, INC.

Nos. 70346, 70732.

Court of Appeals of Georgia.

Oct. 8, 1985.

Rehearing Denied Oct. 29, 1985.

Certiorari Denied Jan. 8, 1986.

Hugh W. Gibert, James W. McKenzie, Atlanta, for appellant.

Malcolm P. Smith, Atlanta, for appellee.

DEEN, Presiding Judge.

For nearly ten years appellant Edwin Stern, then incorporated as E.H. Stern, Inc., operated a successful card and gift shop in a neighborhood shopping center on West Paces Ferry Road in Atlanta. In 1974 he was approached by a leasing agent of Lenox Square, Inc. (Lenox), relative to opening a similar store at the Lenox Square regional mall. Stern agreed to do so, phased out the operation at his original location, and opened for business at Lenox in October of that year, closing the original store approximately three months thereafter. ¹

The ten-year lease with Lenox provided, inter alia, that he would pay in monthly installments a certain annual rental at a specified rate for his mall-level retail space and at a lower specified rate for a smaller plaza-level area which he would utilize for storage and for his mail-order catalog business; that when his retail sales (excluding those of the mail-order business) reached a certain volume his rental would increase by a fixed percentage of sales; that he would not sublet any of his space without the landlord's written consent; and that such consent could not be unreasonably withheld. The lease further provided for partial or total abatement of rent in certain circumstances wherein Stern's business might be partially or totally interrupted. Additionally, there was an arrangement whereby, for the first several years of his tenancy, Stern would actually pay each month less than the rental stated in the lease, the difference in the two amounts being treated as a loan (referred to as "deferred rental") which would become payable in subsequent years, after the business had presumably become well established and had amortized its start-up costs. According to the testimony of the person who was Lenox' manager at the time the lease was negotiated, Lenox had this arrangement with several tenants whose business it wished to encourage, with a view to their becoming high-paying tenants under the percentage-of-sales provision recited, supra. Stern's new business was incorporated as Stern's Gallery of Gifts, Inc.

Stern expended a considerable sum of money on remodeling and refixturing his new location. His patrons included not only former customers who followed him to his new store but also mall shoppers who passed his desirable location in great numbers, and, according to sales tax returns and other relevant documents, he enjoyed good sales from the commencement of the Lenox operation. In 1976 he spent approximately $82,000 on advertising, the greatest portion going to the production of an elaborate catalog designed to promote both mail-order sales and the new location of the retail operation. On October 15, 1976, ownership of Lenox Square passed from Lenox Square, Inc., to Corporate Property Investors, Inc., and its management subsidiary, Pembrook, Inc. (hereinafter collectively referred to as CPI).

Prior to moving into the new premises in the Fall of 1974, Stern had pointed out to Lenox' leasing agent evidence of leaks in the ceiling area and was assured that although there had been leaks, they had been repaired. In December 1976, at about the same time that roofers hired by the new management began installing a new roof, leaks began to occur with considerable regularity, causing damage to merchandise and to the store's interior. Each time there was a leak, CPI was promptly notified, and each time personnel came to clean up the premises and patch the ceiling, apparently stopping the leaks; but each time either the same leak recurred or a new one appeared. In January of 1977 there occurred leaks of such severity that large volumes of water (so great as to require that a fifty-five-gallon drum placed to catch the water be emptied several times daily) flooded the store, soaking the carpet, streaking the walls and ceiling, and damaging merchandise and fixtures in both the mall-level retail space and the plaza-level space. On the occasion of the last leak, which occurred January 27, the ceiling collapsed, producing extensive damage. After each leak parts of the store had had to be cordoned off or the store temporarily closed until necessary clean-up measures could be taken and merchandise displays rearranged. Customers desiring to use the restroom had to be provided an umbrella to shield them from falling water. A plastic sheet was placed across the store to divide the usable front area from the larger, now unusable, remainder of the retail space; this plastic sheet remained in place through the following August. Stern's meanwhile offered the damaged merchandise for sale at greatly reduced prices.

The record indicates that the former Lenox management had been aware for some time of the need for a new roof on the building in which Stern's was located, but had delayed having it replaced because of the pendency of the sale of the shopping center; and that, moreover, the urgency of the need for a new roof had been conveyed to the prospective new management both orally and in at least two letters. Approximately one month after new management took over, a contract for reroofing was let to Tip-Top Roofers. The reroofing method contracted for did not require removal of the old roof but only, after some preparatory work, the application of a new "membrane" over the existing roof. Work did not actually begin until about mid-December, and because of holidays and winter rains, was not completed until some time in February. It was while the reroofing was in process that the January series of catastrophic leaks occurred. During this time the mall's assistant manager at least twice urged the roofers to proceed more expeditiously, going so far as to suggest that work be done on Sundays and holidays to make up for the days lost to rain. Other stores in the same building sustained lesser water damage during this period, but the position of Stern's store relative to the slant of the roof and to certain old but currently unused openings in the roof caused the Stern store to receive the lion's share of the leakage and the ensuing damage.

After the January catastrophes Stern conferred almost daily with the shopping center's manager. He prepared a list of the merchandise which was damaged in December and January and had to be discarded or sold at reduced prices, and also listed certain out-of-pocket expenses such as having the carpet shampooed and paying his staff for extra work necessitated by the incursion of water. He employed a consultant to prepare an itemized proposal for repair or replacement of damaged ceiling, walls, floors, fixtures, etc., together with an estimate of the time and costs required to implement the proposal and restock the store for business. According to Stern's testimony, the shopping center manager repeatedly acknowledged liability and urged Stern to formulate and submit his claim to CPI's insurer; the manager, however, denies that such conversations took place.

April passed, and no insurance payment had been made. The premises remained in disrepair, with the merchandise displayed in makeshift fashion. In the meanwhile, according to Stern's testimony, he either approached or was approached by at least two merchants (one already a Lenox Square tenant) regarding the possibility of subletting his space at a rate which would produce a profit for him. When Stern, pursuant to the lease provisions cited supra, approached the mall's manager to ask for his consent to a sublease to one or another of these prospects, the latter replied that it was contrary to CPI's policy to sublease but that if Stern would submit a written proposal from one or more of the would-be subletters, he would consider terminating Stern's lease and allowing one of them to rent directly from CPI. Because such an arrangement would yield Stern no financial relief, he pursued the subletting idea no further. ² Also in the meanwhile, both immediately prior to and during the period when Stern was attempting either to collect funds from CPI's insurer to finance the necessary remodeling or to arrange for a sublease, Stern was preparing, in accordance with a stipulation in his lease, to open a branch store in another location; according to Stern, this endeavor drained the funds which he might otherwise have advanced for the repair and remodeling of the Lenox Square store.

Ultimately, in response to Stern's almost daily inquiries, the mall's manager informed him that the insurer was of the opinion that his claim (based largely on the consultant's proposal, together with contractors' estimates for repair and redecorating and Stern's own list of his damaged merchandise and his out-of-pocket costs) was too high. In response to Stern's inquiry, however, the manager declined to specify which particular items were too high. The record indicates that CPI's insurer subsequently offered to settle for $25,000 Stern's claim of more than $50,000, and that Stern rejected the offer and ultimately filed an action against CPI/Pembrook and also against Tip-Top Roofers and their respective insurers. The suit against the insurers was later dismissed without prejudice.

Stern's complaint alleged negligence against Tip-Top; and against CPI/Pembrook, negligence, breach of the leasing contract to maintain or repair the premises, and breach of the landlord's statutory duty of repair. Stern sought damages for each of these alleged wrongs and also for lost profits, loss of the value of the leasehold, and loss of the value of a going business. At the end of August 1977, approximately six weeks after filing the...