United States District Court, D. Maryland
L. Russell, III United States District Judge.
MATTER is before the Court on Defendant’s, Experient,
Inc. (“Experient”),  Motion for Partial
Summary Judgment (ECF No. 54) and Plaintiffs’, Expo
Properties, LLC (“Expo Properties”) and Merchants
Properties, LLC (“Merchants Properties”), Motion
for Partial Summary Judgment (ECF No. 62). This case
concerns a landlord-tenant dispute associated with the Galaxy
Building, a large commercial property in Frederick, Maryland.
Principally at issue are how the parties’ lease
agreement should be construed as a matter of law and whether
the parties amended their lease agreement to make Experient
responsible for paying the entire cost of all repairs.
reviewed the Motions and supporting documents, the Court
finds no hearing necessary. See Local Rule 105.6 (D.Md.
2016). For the reasons outlined below, the Court will deny
Expo Properties’s Motion and grant in part and deny
without prejudice in part Experient’s Motion.
The Lease Agreement
March 17, 1994, John Laughlin, the Galaxy Building’s
original owner, executed a Lease Agreement with Galaxy
Registration, Inc. (“Galaxy”). Galaxy agreed to
rent approximately 25, 000 square-feet of office and
warehouse space in the Galaxy Building (the “Leased
Premises”) for an initial term of five years.
Lease Agreement assigns financial responsibility for repairs,
maintenance, and capital improvements. Article 4D(2) provides
that Galaxy “agrees to pay the costs and expenses paid
or incurred by or on behalf of Landlord for managing,
operating, maintaining and repairing the Leased
Premises.” (Def.’s Mot. for Partial Summ. J. Ex.
1A [“Lease Agreement”], at 4, ECF No. 54-2).
Article 4D(3) then states that capital improvements shall be
included in “Landlord expenses and charged to the
Tenant as additional rent.” (Id. at 5).
Article 6C provides that Galaxy is responsible for paying all
repair and maintenance costs associated with the
“exterior and interior of the Leased Premises, together
with all windows and glass, electrical, plumbing, heating,
air conditioning and other mechanical equipment.”
(Id. at 8). Galaxy’s exclusive financial
responsibility for all repairs and maintenance, however, is
subject to an exception. The final clause of Article 6C (the
“Article 6 Cost-Sharing Provision”) stipulates
that landlord and tenant shall each pay fifty percent of the
cost of a repair or replacement when it “(i) is not
made necessary in whole or in part as a result of
Tenant’s negligence, (ii) is Five Thousand Dollars ($5,
000.00) or more in amount, and (iii) has an actual economic
life in excess of the term of the Lease then in
8 governs structural repairs and maintenance. It provides
that “Tenant shall be responsible to make all necessary
repairs during the term of this Lease to the roof of the
building to which the Leased Premises are a part and all
necessary structural repairs to the exterior walls,
foundations, sidewalks, parking lots, and driveways.”
(Id. at 11). Article 8 specifies that
“Landlord is under no obligation to perform any repairs
and/or maintenance with respect to the Leased
Premises.” (Id.). Nevertheless, Article
8’s penultimate clause (the “Article 8
Cost-Sharing Provision”) provides an exception to the
tenant’s sole financial responsibility for structural
repairs and maintenance. Like the Article 6 Cost-Sharing
Provision, the Article 8 Cost-Sharing Provision stipulates
that landlord and tenant shall each pay fifty percent of the
cost if: “(i) the structural repair or maintenance is
not made necessary in whole or in part as a result of
Tenant’s negligence, (ii) the cost of an item of
structural repair or maintenance is Five Thousand Dollars
($5, 000.00) or more, and (iii) the actual economic life of
such structural repairs or maintenance is in excess of the
term of the Lease then in effect.” (Id. at
Lease Agreement also addresses the condition in which the
tenant must return the Leased Premises at the end of the
term. Article 6C makes Galaxy responsible for returning
“the exterior and interior of the Leased Premises . . .
in the same good order in which they are received.”
(Id. at 8). And, Article 24 provides that the tenant
must “return the Leased Premises and all equipment and
fixtures of Landlord therein to Landlord in as good condition
as when Tenant originally took possession, ordinary wear . .
. excepted.” (Id. at 22).
Lease Amendments, the May 1998 Letter, and the Estoppel
parties amended the Lease Agreement on several occasions. In
the “Amendment to Lease” (“First
Amendment”) executed on April 21, 1997, Laughlin agreed
to construct a two-story, 25, 700 square-foot addition to the
Leased Premises, which Galaxy would occupy beginning in
January 1998. (Id. Ex. 1B, ECF No. 54-2). Following
a change in Galaxy’s ownership structure, Expo
Exchange, LLC (“Expo Exchange”) became the tenant
under the Lease Agreement in October 1997. In the
“Second Amendment to Lease Agreement, ”
(“Second Amendment”) executed on January 12,
1998, the parties agreed to increased rent to account for
Galaxymoving into the addition and adjusted
the start date of the five-year lease to February 1, 1998.
(Id. Ex. 1C, ECF No. 54-2).
1, 1998, Laughlin wrote a letter to Michael Goodwin, the
President and Chief Executive Officer of Galaxy (the
“May 1998 Letter”). (Id. Ex. 4, ECF No.
54-5). The apparent purpose of the May 1998 Letter was to
resolve what Laughlin perceived as confusion regarding who
the Lease Agreement requires to pay for repairs, maintenance,
and capital improvements. Laughlin explained that “our
lease makes it clear that all costs for repairs, maintenance,
and capital improvements will be borne by Galaxy.”
(Id.). Laughlin went on to further emphasize this
point, stating that “in all cases where we agree that
work needs to be done, Galaxy pays the bill.”
(Id.). Laughlin did not address the Articles 6 and 8
Cost-Sharing Provisions in the May 1998 Letter.
“Third Amendment to Lease, ” (“Third
Amendment”) executed on March 29, 2002, Expo Exchange
exercised its option to extend the lease for an additional
five-year term commencing on February 1, 2003 and terminating
on January 31, 2008. (Id. Ex. 1D, ECF No. 54-2). In
the “Fourth Amendment to Lease Agreement, ”
(“Fourth Amendment”) executed on August 30, 2005,
Expo Exchange agreed to rent 11, 150 square-feet of space in
the property adjacent to the Galaxy Building. (Id.
Ex. 1E, ECF No. 54-2).
October 2004, Laughlin transferred his interest in the Lease
Agreement to Expo Properties, LLC (“Expo
Properties”). Then, in 2006, Merchants Properties, with
a loan from Mercantile Safe Deposit and Trust Company
(“Mercantile”), acquired the Leased Premises when
it acquired all membership interests in Expo Properties. In
accordance with the obligation in Article 26 of the Lease
Agreement, Expo Exchange executed an Estoppel Certificate on
July 18, 2006. (Id. Ex. 5, ECF No. 54-6). In the
Estoppel Certificate, Experient represents that it is the
tenant under the Lease Agreement and it is not in default of
any of its obligations. (Id.). The Estoppel
Certificate also provides that the Lease Agreement had been
amended by the First through Fourth Amendments and the May
1998 Letter. (Id.).
8 of the Estoppel Certificate addresses Expo Exchange’s
financial responsibility for repairs, maintenance, and
capital improvements. It begins by reciting the first
sentence of Article 8 of the Lease Agreement, which provides
that the tenant shall be responsible for all structural
repairs and maintenance. (Id. at 3). Paragraph 8
then states that “[t]his provision and provisions of
Article 4D(2) and 4D(3) are clarified in the May 1998
Letter.” (Id.). Finally, Paragraph 8 provides
that “Tenant acknowledges that all repairs to the
Building and the Leased Premises of which the Building are a
part are the responsibility of Tenant, including capital
improvements.” Like the May 1998 Letter, Paragraph 8
does not mention the Articles 6 and 8 Cost-Sharing
November 14, 2011, Expo Properties and Experient, Expo
Exchange’s successor in interest, executed a
“Fifth Amendment to Lease” (“Fifth
Amendment”) to extend the lease termination date to
July 31, 2013. (Id. Ex. 1F [“Fifth
Amendment”], ECF No. 54-2). The Fifth Amendment defines
the “existing Lease” as the Lease Agreement plus
the First through Fourth Amendments and the Estoppel
Preparation for Lease Expiration
2012, approximately one year before the Lease Agreement was
due to expire, Expo Properties requested that Experient
provide inspection reports for the roof and the heating,
ventilation, and air conditioning (“HVAC”)
systems. Experient responded in January 2013 with one-page
summaries. On January 30, 2013, Harry Halpert, President of
Expo Properties, wrote a letter to Mark Alspaw, Vice
President of Real Estate for Maritz Holding, Inc.,
Experient’s parent company, explaining that the
one-page summaries were insufficient. Halpert stated that
Expo Properties fully expected Experient to promptly make the
repairs recommended in the one-page summaries and that Expo
Properties would send its own inspector to complete a survey
of the entire Leased Premises. Halpert then added that if
Expo Properties’s inspector determined that any
additional repairs or replacements were necessary, Experient
would have to complete them, in their entirety, before the
Lease Agreement expired.
also used his January 30, 2013 Letter as an opportunity to
further clarify what he considered Experient’s
responsibilities for repairs and replacements under the Lease
Agreement. Halpert asserts that the Fifth Amendment to the
Lease Agreement expressly incorporated by reference the
Estoppel Certificate and May 1998 Letter. As such, he
contends, the Leased Premises “are to be surrendered by
Experient to [Expo Properties] with all the necessary repairs
and replacements having been made by Experient, and in the
condition otherwise required under the Lease, on or before
July 31, 2013.” (Id. Ex. 8, at 2, ECF No.
Properties sent KCI Technologies, Inc. (“KCI”) to
inspect the Leased Premises on March 19, 2013. That
inspection resulted in a Building Assessment Report dated May
30, 2013 (“KCI’s Initial Report”).
(Id. Ex. 9, ECF No. 54-10). KCI’s Initial
Report includes three-and-a-half pages of recommended repairs
and replacements estimated to cost approximately $1 million.
May 30, 2013, Douglas Hoffberger, the President of Keystone
Realty, with whom Expo Properties had contracted to manage
the Leased Premises, sent an email to Alspaw (the
“Hoffberger Email”). (Id. Ex. 10, ECF
No. 54-11). Hoffberger attached KCI’s Initial Report
and directed Experient to perform all the work that KCI
identified before the end of the lease term. (Id.).
Hoffberger also directed Experient to remove walls that did
not reach the ceiling (“half-walls”), replace the
carpeting that had been removed under the footprint of the
half-walls, and remove and replace “[a]ll carpeting
that is damaged or worn.” (Id. at 2).
early July 2013, Experient began to vacate the Leased
Premises by moving its employees, furniture, fixtures, and
equipment. Around this same time, Experient sent a letter to
Expo Properties stating that Experient disagreed with
numerous items in KCI’s Initial Report. (Id.
Ex. 17, ECF No. 54-18). Experient explained that
“[s]everal items in [KCI’s Initial] Report are
‘should’ or ‘could’ repairs, not
deemed ‘necessary.’” (Id. at 2).
Experient also asserted that the May 1998 Letter did not
modify the Lease and, as such, the Articles 6 and 8
Cost-Sharing Provisions were still operative. (Id.).
Experient listed all the repairs and replacements recommended
in the Hoffberger Email and KCI’s Initial Report and
identified those which it would and would not perform.
(Id. at 3-17). Experient agreed to remove all the
half-walls it installed, but only “as a courtesy”
to Expo Properties. (Alspaw Dep. 174:7-10, May 12, 2015, ECF
No. 54-19). Experient did not agree to fill in with new
carpet the voids under the half-walls, replace old HVAC units
remaining from the original construction of the Galaxy
Building, replace original thermostats with programmable
thermostats, replace carpeting that was damaged or worn
throughout the Leased Premises, or perform several types of
roof repairs. (Def.’s Mot. for Partial Summ. J. Ex. 17,
ECF No. 54-18).
vacated the Leased Premises on or about the lease expiration
date of July 31, 2013. Experient has made some, but not all,
of the repairs and replacements identified in the Hoffberger
Email and KCI’s Initial Report.
Notice of Default
Expo Properties’s request, re-inspected the premises on
August 8, 2013 and prepared a Re-Inspection Report dated
August 27, 2013 (“KCI’s Re-Inspection
Report”). (Id. Ex. 14, ECF No. 54-15).
KCI’s Re-Inspection Report identified all of the
repairs and recommendations in KCI’s Initial Report
that Experient did not complete and also highlighted
additional repairs that KCI considered necessary in light of
the re-inspection. (Id.).
October 2, 2013, Expo Properties sent Experient a formal
notice of default advising Experient that its “failure
to properly maintain, repair, and restore” the Leased
Premises violated Articles 6 and 8 of the Lease Agreement,
the Estoppel Certificate, and the May 1998 Letter.
(Id. at 1). Expo Properties then asserted that
Experient was responsible for making all repairs specified in
KCI’s Initial and Re-Inspection Reports.
(Id.). Expo Properties also contended that prior to
vacating the Leased Premises, Experient “was required
to remove certain interior walls” and replace the
carpet “damaged by the addition and removal of such
walls.” (Id. at 2). Expo Properties attached a
floor plan that identified all the floor-to-ceiling walls
that it wanted removed and estimated that the cost to remove
the walls and replace the carpet would be $240, 504.
(Id. at 2-4). Finally, Expo Properties concluded the
letter by demanding that Experient cure the purported
defaults by paying Expo Properties $1, 145, 669.
(Id. at 2).
Properties initiated this suit on March 10, 2014, raising
four claims: (1) breach of contract (Count I); (2) promissory
estoppel (Count II); negligence (Count III); and (4)
declaratory judgment (Count IV). (ECF No. 1). The Complaint
alleges that “Experient failed to perform its
maintenance and repair obligations, and left the [Leased
Premises] in poor condition and disrepair when it
vacated.” (Compl. ¶ 2, ECF No. 1). The Complaint
specifies that Experient failed to remove certain interior
walls, restore carpeting, and repair the roof, asphalt,
sidewalk, HVAC units, and certain other structural areas.
(Id. ¶¶ 21, 22).
Properties filed a First Amended Complaint on May 13, 2014,
increasing the amount of damages from $1, 900, 000 to $2,
389, 000. (ECF No. 17). The $2, 389, 000 figure includes $1,
419, 000 in holdover rent that Expo Properties calculated
pursuant to Article 28 of the Lease Agreement.
(Id.). On September 29, 2014, the Court issued a
Letter Order dismissing Expo Properties’s negligence
claim. (ECF No. 37). Experient filed a Motion for Partial
Summary Judgment on September 11, 2015. (ECF No. 54). Expo
Properties filed a cross Motion for Partial Summary Judgment
and Opposition to Experient’s Motion on October 20,
2015. (ECF Nos. 62, 62-1). Experient then submitted a
Response to Expo Properties’s Motion and a Reply in
support of its Motion on December 4, 2015. (ECF No. 65).
Finally, Expo Properties filed a Reply in Support of its
Motion for Partial Summary Judgment on January 8, 2016. (ECF
No. 68). The Motions are ripe for disposition.
Standard of Review