Owner Not Allowed to Profit from Wrongdoing

Facts: An owner of a Miami, Fla., office building that was still under construction signed a 10-year lease with a tenant under which the tenant would move in 90 days after completion of the building. The lease was signed by one of the owner's employees and the tenant's president and vice president. However, there were no witnesses to any of the signatures. As the building neared completion, the owner repudiated—that is, rejected—the lease because the signatures had not been witnessed. The tenant sued the owner for “specific performance”—that is, a court order to compel it to carry out the lease—and for damages for fraud and breach of contract. The owner asked the trial court for a judgment without a trial in its favor on both claims.

The trial court granted the owner's request, ruling that specific performance of the lease was not appropriate and that the tenant was not entitled to damages. The tenant appealed.

Decision: The appeals court upheld the trial court's judgment without a trial in the owner's favor as to specific performance of the lease, and reversed it as to damages.

Reasoning: On appeal, the owner argued that to be valid under Florida statutes a lease for more than one year must be signed by the owner or his representative in the presence of two witnesses. The tenant maintained that the lease was valid even though the owner sent no witnesses on his behalf to the lease signing. It claimed that an exception to the two-witness rule applied because the owner is a corporation. However, the tenant was incorrect; the owner is a limited liability company.

The appeals court agreed with the trial court that the lease was unenforceable because of the lack of witness signatures on it. It noted that in Florida a limited liability company leasing commercial real estate, like the owner in this case, must have two witnesses to a lease signing. Otherwise, the lease is not valid and binding upon the company.

According to the appeals court, the owner should not be stopped, or barred, from relying on the two-witness rule simply because it drafted the lease, failed to provide lines for its witness's signatures, and failed to have the witnesses attend the lease signing. “The bare failure of the owner to have his signature witnessed does not give rise to an estoppel, because for an estoppel to operate, the tenant must have changed its position in more than an insubstantial way,” said the appeals court. The appeals court determined that that was not the case here, so it agreed with the trial court that specific performance was not appropriate.

However, the tenant was entitled to damages because the lease itself was valid according to its terms, but failed because it lacked the witness signatures required by state law. The appeals court noted that even if a lease otherwise complied with the law, a tenant still could pursue fraud and breach of contract claims if the lease was defective as a result of noncompliance with the two-witness requirement. The owner could have cured the deficiency at any time, but failed to do so, instead relying on the absence of witness signatures to disavow the contract. The appeals court concluded that an owner will not be allowed to profit from its own wrong.

• Skylake Insurance Agency, Inc. v. NMB Plaza, LLC, October 2009