Cushman & Wakefield v. DRV Greentec

Cushman & Wakefield of Maryland, Inc., et al. v. DRV Greentec, LLC, No. 42, September Term (2018) Petitioners, commercial real estate brokers, procured a tenant for the subject property. The lease was for five years with a renewal option for an additional five years. The lease required the owner to pay the brokers’ commissions for the initial lease and for any renewal term. The property was mortgaged.

The mortgage and accompanying assignment of lease contained a clause making clear that the mortgagee/assignee was not liable for the performance of any of the covenants or provisions of any lease. Shortly after the lease took effect, the owner defaulted on the mortgage and the property was sold at foreclosure sale. The lender was the successful bidder and eventually sold the property to respondent subject to the lease. When the tenant later renewed the lease, petitioners demanded that respondent pay the commissions due on the renewal and, when respondent declined, sued respondent, claiming that petitioners had a right to recover from respondent as third-party beneficiaries and because respondent, as a successor to the former owner, had accepted all the covenants of the original lease.

The Circuit Court entered judgment for respondent, and the Court of Special Appeals affirmed. Both held that the covenant to pay commissions was a personal one that did not run with the land and, as neither respondent nor its assignors ever signed the lease, respondent was not liable on that personal covenant. The Court of Appeals AFFIRMED, holding that even if petitioners qualified as third-party beneficiaries, that only gave them the right to sue whomever was liable. Agreeing with the lower courts that the covenant was a personal one that did not run with the land, however, the Court held that (1) because respondent was not a party to the lease (2) its assignors also were not parties, and, (3) in the assignment of the lease the assignors had expressly rejected any obligations of the lease, respondent was not liable.

Circuit Court for Montgomery County IN THE COURT OF APPEALS Case No. 419686V Argued: January 7, 2019 OF MARYLAND No. 42 September Term, 2018 CUSHMAN & WAKEFIELD OF MARYLAND, INC., ET AL. v. DRV GREENTEC, LLC Barbera, C.J. Greene McDonald Watts Hotten Getty Wilner, Alan M. (Senior Judge, Specially Assigned) Opinion by Wilner, J. Filed: March 4, 2019 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. 2019-08-20 09:57-04:00 Suzanne C. Johnson, Clerk Petitioners, Cushman & Wakefield of Maryland, Inc. (Cushman) and Sloan Street Advisors, Inc. (Sloan) sued DRV Greentec, LLC (DRV) in the Circuit Court for Montgomery County to collect real estate brokerage commissions allegedly due after the tenant of the property exercised its option to renew a lease that Cushman and Sloan had procured for a prior owner. Finding no liability on the part of DRV, the court granted summary judgment in its favor, and, in an unreported Opinion, the Court of Special Appeals affirmed that judgment. We granted certiorari to determine whether the two lower courts were correct.

We shall conclude that those courts were correct and affirm the Court of Special Appeals’ judgment. BACKGROUND The property in question is located at 7700 Hubble Drive in Greenbelt, Maryland. It consists of two buildings, with an adjoining lobby, comprising 120,000 square feet. The property was purchased by MGP Greentec IV, LLC (MGP) in 2005 and mortgaged initially to Bear Stearns but, through assignments ultimately to Bank of America (BOA). 1 As part of the security for the loan, MGP assigned to the lender all current and future leases.

The assignment clause in § 3.7 of the Deed of Trust provided that “[s]uch assignment to Lender shall not be construed to bind Lender to the performance of any of the covenants, 1 The conveyance to MGP was in the form of a 70-year ground lease. The parties regarded the ground lease as the “property” and MGP as the “owner,” and we shall do likewise. conditions, or provisions contained in any such Lease or otherwise impose any obligation upon Lender.” Supplementing that clause in the Deed of Trust was a separate Assignment of Leases and Rents, § 4.1 of which confirmed that the Assignment “shall not be construed to bind Lender to the performance of any of the covenants, conditions or provisions contained in any Lease or Lease Guaranty or otherwise impose any obligation upon Lender.” In 2009, the then-current tenant vacated the property, and MGP began searching for a replacement. To that end, it entered into a contract with Cushman, a commercial leasing agent, to find a new tenant. The agreement obligated “Owner,” identified in the Agreement as MGP, to pay a commission equal to three percent of the aggregate gross rental for the initial lease term and, if that term was renewed or extended, an additional commission equal to three percent of the aggregate gross rental for the renewal term.

Contemporaneously, the National Aeronautics and Space Administration (NASA) was looking for office space for its Joint Polar Satellite System and employed Sloan to assist it in that endeavor. NASA and Sloan decided to use a government contractor, TRAX International Corporation (TRAX), to act as the entity to lease and manage the space. Cushman and Sloan collaborated in their efforts, which led to a Deed of Lease for the Hubble Drive property being signed on July 15, 2010. MGP was the landlord and TRAX was the tenant.

The lease term was to commence when the leasehold improvements were complete, which was anticipated to be October 1, 2010, and to run for “approximately” 66 2 months. Subject to certain conditions, § 32 of the Lease gave TRAX an option to renew for one additional five-year term. Section 1.17 recognized Cushman as the Landlord’s broker and Sloan as the Tenant’s broker. Section 17 made the Landlord exclusively liable for brokers’ commissions, with respect to both the initial lease and any renewal of it.

In relevant part, it provided: “Landlord agrees to compensate the Real Estate Brokers referenced in Section 1.17 above in accordance with a separate agreement, and agrees to indemnify Tenant against any claims, damages, costs, expenses, attorneys’ fees or liability for compensation or changes which may be incurred by Tenant as a result of any claim of non-payment made by Real Estate Brokers. In no event shall Tenant have any liability for Real Estate Broker commissions. In addition, in the event Tenant exercises its Option to Renew pursuant to Section 32 below, Landlord shall pay Tenant’s Broker a fee of $617,928.50, and Landlord’s Broker a fee of $463,446.37.” Section 19 gave the Landlord the right to transfer any portion of its interest in the project and to assign the Lease to the transferee. The section continued that, following such a transfer, “Tenant shall look solely to Landlord’s transferee for the performance of Landlord’s obligations” and that,“[s]ubject to the rights of any lender holding a mortgage or deed of trust encumbering all or part of the Project, Tenant shall look solely to Landlord’s equity interest in the Project . . . for the collection of any judgment requiring payment of money by Landlord arising out of [ ] Landlord’s failure to perform its obligations under this Lease . . .” Section 31.8 provided that the Lease was binding on the parties and their successors and permitted assigns.

Section 23 of the Lease, however, stated that the Lease “shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the Project.” 3 Not long after the TRAX lease took effect, MGP defaulted on its mortgage, and, in January 2011, the property was sold at a foreclosure sale. BOA, the successor lender, was the successful bidder, took title to the property subject to the Lease, and employed Transwestern and C-III Realty Services, to market the property. An Offering Memorandum prepared by Transwestern noted that the tenant, TRAX, had a five-year renewal option and that “LL to pay TT Broker $617,928 and LL Broker $463,446.” In March 2012, BOA’s assignee sold the property to DRV. As part of the sale, which the court ratified, the seller transferred its interest in the TRAX Lease.

In that Assignment, DRV assumed and agreed to perform “all of the covenants, agreements and obligations under the Lease and Contracts binding on Assignor or the Real Property, Improvements, or Personal Property . . .” (Emphasis added). A similar commitment was made in an assignment of the Lease to DRV’s lender – that DRV would “observe and perform when due all the obligations imposed upon the lessor under the Leases and not [] do or permit to be done anything to impair the security thereof.” In July 2015, TRAX renewed its Lease for an additional five years which, in September, produced a demand by Cushman and Sloan that DRV pay the commissions provided for in the Lease ($463,446.37 and $617,928.50, respectively). When DRV rejected their demand, this lawsuit ensued. In the Circuit Court, cross motions for summary judgment were filed.

Cushman and Sloan argued that DRV was liable because