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Landlords Can't Sleep on Their Rights to Collect Rent

Ely v. Sci. Applications Int'l Corp., Civil Action No. AW-08-3104 (U.S. District Court for the District of Maryland, June 2, 2010) available at http://www.mdd.uscourts.gov/Opinions/Opinions/PlasterersvPerry06cv338.pdf

The United States District Court for the District of Maryland granted Defendant's Motion for Partial Summary Judgment and denied Plaintiff's Cross-Motion for Partial Summary Judgment because there was no genuine dispute regarding the material facts.

In February 1999, Plaintiff Joseph Ely ("Plaintiff") leased 5,000 square feet of commercial office space to a business named Applied Ordnance Technology, Inc. ("AOT"). AOT paid Plaintiff $5,000 each month to lease the space. In June 2000, AOT began leasing 10,000 square feet of space from Plaintiff for $10,000 a month.

AOT began defaulting on its rent in April 2002, paying only $5,000 each month until October 2003. The next month, AOT made a monthly payment of $7,250 and continued paying that amount each month through January 2006. While Plaintiff was aware of AOT's default, Plaintiff chose to enter into a new lease agreement with AOT. In July 2006, Defendant Science Applications International ("SAIC") acquired AOT, thereby assuming liability for AOT's arrears. Plaintiff did not sue for all the back rent until November 2008, seeking $170,000 in rent, $23,000 in late fees, and $19,800 in repair costs from Defendant.

After denying Defendant's Motion to Dismiss, the Court considered Defendant's Motion for Partial Summary Judgment and Plaintiff's Cross-Motion for Summary Judgment. Judge Williams found no genuine dispute of fact existed regarding Plaintiff's untimely claims for the rent owed between April 2002 and November 2005. Section 5-101 of the Courts and Judicial Proceedings Article governed the dispute, imposing a three-year statute of limitations on claims for rent.

While Maryland law permits Plaintiff and SAIC to contract to waive any applicable statute of limitations, the Court found neither party intended to create a specialty that would waive the statute of limitations. In Maryland, a specialty is defined as a "promissory note, or other instrument under seal; bond, except a public officer's bond; judgment; contract under seal." Md. Code, Cts. & Jud. Proc. 5-102. A contract under seal is a type of specialty that would sufficiently waive the statute of limitations, but only if the parties also indicated their intent to do so in the body of the contract. See Md. Code, Cts. & Jud. Proc. 5-102.

The lease contained the word "SEAL" in parentheses after the signature lines, but no mention of waiver was mentioned in the body of the lease. Relying on Tipton v. Partners Mgmt. Co., 773 A.2d 488 at 490 n.3, Judge Williams found the three-year statute of limitations applied since the parties' contract lacked any agreement to create a specialty to waive the statute of limitations. Even though the word "SEAL" appeared in the contract, neither party affixed a corporate seal to the document, and no other extrinsic evidence of intent to create a specialty existed.

After concluding the parties did not waive the statute of limitations, the Court then determined when the statute of limitations began tolling. The Court held Defendant did not have an ongoing obligation to pay rent since a fiduciary duty did not exist on behalf of either party. See Dual Inc., v. Lockheed Martin Corp., 857 A.2d 1095 at 1107. Moreover, even if a fiduciary duty had existed, the statute of limitations still tolls when an injured party becomes aware of a contract breach. Because Plaintiff was fully aware that AOT began defaulting in April 2002, Plaintiff could only sue for the rent owed until April 2005.

Reasoning that monthly rent payments were analogous to installment payments, the Court interpreted Avery v. Weitz, 407 A.2d 769, at 771 to hold that a new statute of limitations began tolling each time Plaintiff did not receive his rent payment. Since Plaintiff did not file suit until November 2008, he could only sue for the rent owed him between November 2005 and November 2008. Because Plaintiff allowed the time to expire on his right to collect the arrears that began accruing in 2002, the Court granted Defendant's Motion for Partial Summary Judgment, holding that the three-year statute of limitations bars Plaintiff's claims for rent accruing before November 2005.


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