Delaware Supreme Court upholds Iron Hill decision

Delaware’s Supreme Court has upheld a lower court ruling entitling Iron Hill Brewery in Rehoboth Beach to $115,000 in reimbursements from its landlord for site work Iron Hill performed to prepare its brewpub for opening.

In a one-page order released Nov. 2, a three-justice panel that included Justices Gary Traynor and Karen Valihura, and Chief Justice Collins Seitz, affirmed the judgment of Delaware Superior Court that Iron Hill was entitled to the reimbursements.

Iron Hill attorney Adam Balick said, “This lawsuit could have been avoided.  It should have been avoided. There was never any doubt that Coastal Station owed Iron Hill Brewery this money for the work that Iron Hill did to complete the building it occupies in Rehoboth Beach. My client is grateful that the Delaware Superior Court and the Delaware Supreme Court have now ruled in their favor, and that Iron Hill can now finally put this behind them.” 

Charles Brown, attorney for Coastal Station, did not respond to a request for comment. 

The dispute dates back to December 2018 when Iron Hill filed a breach-of-contract suit against Coastal Station over interpretation of the 15-year lease agreement both had signed.

As part of the lease agreement, Coastal Station agreed to provide Iron Hill with a shell building, and Iron Hill would build out the interior space. Iron Hill was given a tenant improvement allowance of $1.6 million, to be paid in three installments. 

However, problems arose during construction. Iron Hill changed architects after the lease was signed, and the new architect proposed changes to the construction plans, including installing a concrete slab, storefront, walls, insulation, drywall, plumbing, a boiler room and a kitchen. The improvements increased the costs of the project, which Iron Hill agreed to pay for with the understanding that it would be reimbursed later. 

The first installment of the improvement payments was for $414,000, to be paid 90 days after Iron Hill took over the property. The second payment, again for $414,000, was payable 120 days after Iron Hill took over. The final installment of $828,000 was to be paid after Iron Hill opened.

Iron Hill opened the brewery on May 24, 2018; on June 15, Iron Hill delivered an invoice for the third improvement payment, due on July 15. Iron Hill claimed in court filings that it only received a partial payment of $549,000 for the third installment.

On Dec. 7, 2018, Iron Hill filed suit in New Castle County seeking the remainder of what it was owed, as well as reimbursement for $72,000 worth of work that was Coastal Station’s obligation under the lease but was performed by Iron Hill, and credit for $115,000 of work Iron Hill did on the concrete slab and storefront. 

Coastal Station then filed a counterclaim, arguing it was entitled to offsets for money the developer spent on building permits, review fees, concept changes and design changes. Coastal Station did not contest that Iron Hill was entitled to the remainder of the $828,000 in improvement payments or reimbursement for the $72,000 worth of work Iron Hill did that Coastal Station was supposed to do. In turn, Iron Hill did not dispute that Coastal Station was entitled to offsets of $6,000 for building permits and $12,000 for plan review, among other fees. 

The two sides disagreed on who was responsible for paying equivalent dwelling unit fees, or EDUs, which are assessed by counties and municipalities – Sussex County in this case – for the impact new construction will have on existing infrastructure. Coastal Station argued that the lease obligated it to pay EDU fees associated with the building while Iron Hill would pay EDU fees associated with the fit-out. Iron Hill argued that the lease required Coastal Station to pay all the EDU fees. 

Superior Court Judge Mary Johnston agreed with Coastal Station and granted it an offset of $94,000 in EDU fees related to the building fit-out. 

 The two sides also disagreed with Coastal Station’s general contractor applying a 15 percent markup on invoices for permit and plan review fees. Coastal Station argued it was entitled to such a markup because the company used its contractor’s resources in obtaining the permits and reviewing plans. Iron Hill countered by saying there was nothing in the lease agreement justifying a 15 percent markup. Johnston ruled with Iron Hill on this point, saying the lease contained no language that either side agreed to any markups.

Finally, there was disagreement on who was liable for the concept and design changes to the brewpub. Coastal Station sought an offset of $37,000 in architect design changes; Iron Hill agreed to a $34,000 offset. However, Coastal Station sought an additional $202,000 in offsets related to costs associated with building changes, including costs for steel, exterior finishes, carpentry and delay damages. 

Johnston ruled in favor of Iron Hill on this point, saying Coastal Station provided no documentation proving it was entitled to offsets for the building’s construction. While Johnston did not award either party a definitive victory in the case, she did award Iron Hill attorneys’ fees after she found Coastal Station did not produce supporting documents related to this particular claim.