Opinion ID: 3015576
Heading Depth: 2
Heading Rank: 1

Heading: Loss of Use as a Measure of Damages

Text: As a threshold matter, we must determine whether New Jersey law recognizes loss of use as a measure of damages for breach of lease resulting in uncertainty impairing the marketability of real property. Jaasma contends that the District Court erred as a legal matter in holding that, under New Jersey law, the only two measures of damages for breach of lease are diminution in value and cost of repair or remediation. It is clear, however, that New Jersey recognizes lost rental income as a standard measure of damages for breach of a lease. See McGuire v. City of Jersey City, 593 A.2d 309, 315 (N.J. 1991); River Road Assocs v. Chesapeake 13 Display & Packaging Co., 104 F. Supp. 2d 418, 425 (D.N.J. 2000) (“Under New Jersey law, a commercial landlord may recover for lost rental income resulting from a tenant’s breach of a lease.”). Moreover, in both T&E Indus., Inc. v. Safety Light Corp., 587 A.2d 1249, 1263 (N.J. 1991), and Silgato v. State, 632 A.2d 837, 842 (N.J. Super. Ct. App. Div. 1993), New Jersey courts recognized that loss of use is one of several possible measures of damages for tortious harm to real property. This comports with the common law of property, which includes loss of use or lost rental value as a proper measure of damages when land is temporarily unusable, but then later returned to its original state. Thompson on Real Property states: Loss of rental value may be the appropriate measure of damages, if the property itself is not harmed but its usefulness has been impaired . . . . If temporary damages are recovered for harm to property, those damages are measured by the loss of the rental value or loss of use value of the property as a result of or during the continuance of the nuisance. 8 Thompson on Real Property § 67.06(a)(2), at 119-20 (David A. Thomas ed. 1994); see also 9 Powell on Real Property § 64.07[3], at 64-42 (Michael Allan Wolf ed., Matthew Bender) (“When the harm caused by a nuisance is only temporary and can be abated, the measure of damages normally is the depreciation in the rental or use value of the affected property.”). The more difficult question, presented here, is whether damages for loss of use are available during the period of uncertainty which may occur after the clean-up is physically completed, but before the property has been certified as compliant with all environmental regulations. Jaasma argues that, even if the property did not in fact require any further environmental remediation after the termination of the lease, she suffered damages so long as the cloud of uncertainty from the prior contamination lingered. We are satisfied that New Jersey law does recognize damages for the uncertainty that follows in the wake of environmental contamination. More specifically, Bahrle v. Exxon Corp., 652 A.2d 178 (N.J. Super. Ct. App. Div.1994), supports the 14 proposition that New Jersey law recognizes an injury due to the temporary uncertainty surrounding the environmental status of property created by NJDEP investigation. In Bahrle, adjoining landowners sued the proprietors of a gasoline service station under a nuisance theory for groundwater contamination due to alleged spills from the station’s underground storage tanks. The trial judge had dismissed the claims of seventeen plaintiffs whose water never registered as contaminated, but who lived within the “redlined” area where NJDEP prohibited new wells. The Appellate Division reversed, finding that even though these landowners’ wells were not contaminated in fact, there was foreseeable damage caused by the redlining itself, including plaintiffs’ hesitancy to use the water for drinking or showering during the pendency of the investigation. Id. at 194. NRC Corp. v. Amoco Oil Co., 205 F.3d 1007 (7th Cir. 2000), is also instructive. Amoco had leased land from NRC for a gasoline station. At the end of the lease period, it was discovered that the underground storage tanks were leaking and had contaminated the property. NRC sued Amoco for the loss of the use of the property during the remediation period, and the district court awarded the full fair rental value from the time of the termination of the lease until the Indiana Department of Environmental Management approved the corrective action plan and remediation was completed. Id. at 1013. Amoco claimed that NRC could have used the property during the remediation and argued that NRC had voluntarily declined to market the property. The Seventh Circuit disagreed, concluding that the evidence established that “until the corrective action plan was approved . . . the property was unmarketable. After that time, while the property was undergoing remediation, uncertainty remained. Testimony demonstrated that lenders would be reluctant to get behind the property without guarantees that remediation was working.” Id. We find this case persuasive. We conclude that the District Court erred by limiting its assessment of damages to diminution of value or cost of remediation and thereby ignoring damages for temporary loss of use. Moreover, in light of Bahrle, we find that, even in the absence of actual pollution, a claim is cognizable under New Jersey law for the period of uncertainty following a pollution incident, particularly where that uncertainty is due to ongoing 15 investigation by the state environmental agency.8