The Leasing Hotline

The trial court held that the attempted cure payment by Metropolitan prior to the landlord's possession of the Inn was proper and that the landlord wrongfully took possession of the Inn. However, it did not award Metropolitan the Inn's gross revenues. It held that Metropolitan had taken only a security interest in certain aspects of the Inn, which did not include the Inn's revenues. It held that Metropolitan would be entitled to revenues only if they were identifiable proceeds from a final disposition of the collateral. In this case, the landlord did not dispose of the revenue, but reinvested it in the Inn so that the Inn could be maintained for guests. The appellate court affirmed the denial of gross revenues and attorney fees to Metropolitan, but remanded for further consideration of the reasons for the court's denial of other costs to Metropolitan.

UNPAID RENT

A landlord is entitled to recover damages for unpaid rent where the landlord did not wrongfully evict the tenant or convert the tenant's property. Opal Covey v. Natural Foods, Court of Appeals No. L-03-1111, Court of Appeals of Ohio, Sixth Appellate District, Lucas County, March 19, 2004.

Covey and Natural Foods entered into a commercial lease for a period of 6 months. Covey then failed to pay rent, and Natural Foods locked the premises but offered Covey the opportunity to claim her personal items. Thereafter, Covey filed a complaint against Natural Foods for wrongful eviction, conversion and fraud in the inducement. Natural Foods counterclaimed for past due rent and breach of contract.

The trial court held that there was no wrongful eviction, no conversion and no breach of contract. It held that Covey was liable for past due rent, and Covey appealed. The appellate court affirmed. It held that there was no fraud in the inducement because there was no material misrepresentation by Natural Foods at the time the lease was signed. The facts presented showed that Covey consented to an “as-is” clause in the lease and that the parties negotiated the lease on several occasions. Furthermore, there was no wrongful eviction because Covey failed to perform her obligations under the lease, including the payment of rent. With regard to Covey's personal property, the court concluded there was no conversion because the facts presented showed that Covey voluntarily abandoned her property. Finally, the damages awarded were proper because Covey owed unpaid rent to Natural Foods under the lease agreement.

ASSIGNMENT OF LEASE

A successor company may assume responsibility for all of the obligations under a lease by its conduct, and a landlord may impliedly acquiesce to a lease assignment and release the original lessor. Bird Hill Farms v. U.S. Cargo & Courier Service, No. 1512 MDA 2002, Superior Court of Pennsylvania, March 16, 2004.

Bird Hill leased a building to Courier for a period of 36 months. Thereafter, Courier executed an asset purchase agreement with U.S. Cargo and ceased its operations. As part of the purchase agreement, Courier agreed to obtain Bird Hill's consent to assign its rights and obligations under the lease to U.S. Cargo. Courier failed to obtain Bird Hill's consent and U.S. Cargo and Bird Hill failed to negotiate their own lease. However, U.S. Cargo continued to pay the monthly rent and utility obligations for almost 1 year until it abandoned the site and relocated.

Thereafter, Bird Hill filed a complaint against U.S. Cargo seeking accelerated rent, repairs and maintenance. U.S. Cargo claimed it was not bound by the lease and also filed a joinder complaint against Courier. Each party filed a motion for summary judgment, and the court granted the motions in favor of Bird Hill and Courier and against U.S. Cargo for breach of contract. It held that under Pennsylvania law, U.S. Cargo was a successor company responsible for performance of the lease because it impliedly agreed to assume the obligations under the lease through its occupation of the premises for almost 1 year and its payment of rent and utilities. It further considered that Bird Hill acquiesced to the assignment and impliedly released Courier from all rent obligations because Bird Hill ceased all contact and correspondence with Courier and only contacted U.S. Cargo with regard to all lease obligations.

PERSONAL PROPERTY

A tenant that abandons property used for a dental office in a rented space where he defaulted on the rent no longer has an ownership interest in the property to sell to a third party; the landlord becomes owner of the property. Milanovich v. Dwyer, No. 02-347, Supreme Court of Montana, April 13, 2004.

O'Brien, a dentist, leased space from Dwyer. O'Brien and Dwyer invested significant funds in converting the leased space from a free-standing space into a functional dental office. O'Brien then defaulted on his rent payments and his mortgage payments to the bank. Dwyer changed the locks on the dental office after O'Brien removed certain personal effects. Thereafter, Dwyer showed the space to another dentist, Milanovich. Milanovich tendered a check for $1300, which Dwyer cashed. Milanovich believed he had rented the dental office property from Dwyer. Meanwhile, Dwyer sought to recoup monies from O'Brien, and O'Brien failed to respond to any notices or to make any attempt to assert ownership over the property. However, O'Brien met with Milanovich and offered to sell his interest in the dental office property remaining in the office for $10,000. Milanovich accepted and tendered a check to O'Brien.

Milanovich then met with Dwyer, who informed him that Dwyer, and not O'Brien, owned the dental office property remaining in the office. Dwyer proceeded to remove the dental office property from the office space and rented the vacant office to another tenant.

Milanovich filed a claim against Dwyer for possession of the property. After a trial, the court held that O'Brien had abandoned his property and that Milanovich had no interest in the property. The appellate court affirmed. It held that O'Brien's actions indicated his intent to abandon the dental office property and that the landlord had the right to assert ownership over the property. In addition, the court held that O'Brien could not assign his rights in the dental office property because that property was subject to the bank's security interest.

PERSONAL GUARANTY

A tenant may be liable pursuant to a prior personal guaranty where the tenant executes a lease amendment and extension retroactive to the expiration of the original lease and receives an individual benefit from the execution of the new lease, even if the tenant's business fails at a later date. The Sherwin-Williams Company v. ASBN, No. COIA03-676, Court of Appeals of North Carolina, April 6, 2004.

Sherwin-Williams leased commercial space to ASBN's predecessor in interest. On Sept. 26, 1988, Nathan and Betty Alberty, Jandera and Zahradnicek and ASBN signed a personal guaranty of the lease terms. The lease was scheduled to expire on Dec. 30, 1994. The lease also authorized a year-to-year tenancy if the tenant remained in possession of the premises after the expiration of the lease. ASBN remained on the premises after the expiration of the lease. On Feb. 28, 1997, Sherwin-Williams and ASBN entered into a lease amendment and extension that bound ASBN to the lease retroactive from Jan. 1, 1995 through Dec. 30, 1999. There was no personal guaranty executed in connection with the lease amendment and extension. Nathan Alberty was the sole signatory of the lease amendment and extension in his capacity as vice president of ASBN. ASBN then defaulted on the lease in September 1998.

As a result of the default, Sherwin-Williams commenced an action against ABSN and sought to hold Nathan Alberty liable under the personal guaranty. The trial court granted summary judgment in favor of Sherwin-Williams, and the appellate court affirmed. It held that Nathan Alberty was estopped from denying his personal guaranty on the lease amendment and extension. It held that Nathan Alberty had authority to sign the new lease and that at the time that the lease was signed, he received an individual benefit from the new lease, even though the business failed at a later time.

SECURITY INTEREST

A lender may not be entitled to the gross revenues generated from the operation of a hotel after a default. U.S. Bank Trust National Association et al. v. Venice MD LLC et al., NO. 02-2340, No. 02-2368, U.S. Court of Appeals for the Fourth Circuit, March 18, 2004.

Nielsen purchased the Venice Inn. To finance the purchase, the landlord advanced Nielsen $2.5 million and then leased the Inn back to Nielsen under a 98-year unsubordinated Ground Lease. Metropolitan loaned Nielsen another $5.9 million. Thereafter, Nielsen defaulted on its loan payments to Metropolitan and also on its monthly payments to the landlord. The landlord issued a default notice to Nielsen and sent a copy to Metropolitan. Metropolitan sent a cure payment to the landlord, who rejected it. The landlord then took possession of the Inn and, after discovering that Nielsen had neglected to pay several tax bills and license fees, invested more than $70,000 to bring the Inn into compliance. Metropolitan then sued the landlord for wrongful possession of the Inn's property under its contract with Nielsen and also sought to obtain the gross revenues of the Inn.

The trial court held that the attempted cure payment by Metropolitan prior to the landlord's possession of the Inn was proper and that the landlord wrongfully took possession of the Inn. However, it did not award Metropolitan the Inn's gross revenues. It held that Metropolitan had taken only a security interest in certain aspects of the Inn, which did not include the Inn's revenues. It held that Metropolitan would be entitled to revenues only if they were identifiable proceeds from a final disposition of the collateral. In this case, the landlord did not dispose of the revenue, but reinvested it in the Inn so that the Inn could be maintained for guests. The appellate court affirmed the denial of gross revenues and attorney fees to Metropolitan, but remanded for further consideration of the reasons for the court's denial of other costs to Metropolitan.

UNPAID RENT

A landlord is entitled to recover damages for unpaid rent where the landlord did not wrongfully evict the tenant or convert the tenant's property. Opal Covey v. Natural Foods, Court of Appeals No. L-03-1111, Court of Appeals of Ohio, Sixth Appellate District, Lucas County, March 19, 2004.

Covey and Natural Foods entered into a commercial lease for a period of 6 months. Covey then failed to pay rent, and Natural Foods locked the premises but offered Covey the opportunity to claim her personal items. Thereafter, Covey filed a complaint against Natural Foods for wrongful eviction, conversion and fraud in the inducement. Natural Foods counterclaimed for past due rent and breach of contract.

The trial court held that there was no wrongful eviction, no conversion and no breach of contract. It held that Covey was liable for past due rent, and Covey appealed. The appellate court affirmed. It held that there was no fraud in the inducement because there was no material misrepresentation by Natural Foods at the time the lease was signed. The facts presented showed that Covey consented to an “as-is” clause in the lease and that the parties negotiated the lease on several occasions. Furthermore, there was no wrongful eviction because Covey failed to perform her obligations under the lease, including the payment of rent. With regard to Covey's personal property, the court concluded there was no conversion because the facts presented showed that Covey voluntarily abandoned her property. Finally, the damages awarded were proper because Covey owed unpaid rent to Natural Foods under the lease agreement.

ASSIGNMENT OF LEASE

A successor company may assume responsibility for all of the obligations under a lease by its conduct, and a landlord may impliedly acquiesce to a lease assignment and release the original lessor. Bird Hill Farms v. U.S. Cargo & Courier Service, No. 1512 MDA 2002, Superior Court of Pennsylvania, March 16, 2004.

Bird Hill leased a building to Courier for a period of 36 months. Thereafter, Courier executed an asset purchase agreement with U.S. Cargo and ceased its operations. As part of the purchase agreement, Courier agreed to obtain Bird Hill's consent to assign its rights and obligations under the lease to U.S. Cargo. Courier failed to obtain Bird Hill's consent and U.S. Cargo and Bird Hill failed to negotiate their own lease. However, U.S. Cargo continued to pay the monthly rent and utility obligations for almost 1 year until it abandoned the site and relocated.

Thereafter, Bird Hill filed a complaint against U.S. Cargo seeking accelerated rent, repairs and maintenance. U.S. Cargo claimed it was not bound by the lease and also filed a joinder complaint against Courier. Each party filed a motion for summary judgment, and the court granted the motions in favor of Bird Hill and Courier and against U.S. Cargo for breach of contract. It held that under Pennsylvania law, U.S. Cargo was a successor company responsible for performance of the lease because it impliedly agreed to assume the obligations under the lease through its occupation of the premises for almost 1 year and its payment of rent and utilities. It further considered that Bird Hill acquiesced to the assignment and impliedly released Courier from all rent obligations because Bird Hill ceased all contact and correspondence with Courier and only contacted U.S. Cargo with regard to all lease obligations.

PERSONAL PROPERTY

A tenant that abandons property used for a dental office in a rented space where he defaulted on the rent no longer has an ownership interest in the property to sell to a third party; the landlord becomes owner of the property. Milanovich v. Dwyer, No. 02-347, Supreme Court of Montana, April 13, 2004.

O'Brien, a dentist, leased space from Dwyer. O'Brien and Dwyer invested significant funds in converting the leased space from a free-standing space into a functional dental office. O'Brien then defaulted on his rent payments and his mortgage payments to the bank. Dwyer changed the locks on the dental office after O'Brien removed certain personal effects. Thereafter, Dwyer showed the space to another dentist, Milanovich. Milanovich tendered a check for $1300, which Dwyer cashed. Milanovich believed he had rented the dental office property from Dwyer. Meanwhile, Dwyer sought to recoup monies from O'Brien, and O'Brien failed to respond to any notices or to make any attempt to assert ownership over the property. However, O'Brien met with Milanovich and offered to sell his interest in the dental office property remaining in the office for $10,000. Milanovich accepted and tendered a check to O'Brien.

Milanovich then met with Dwyer, who informed him that Dwyer, and not O'Brien, owned the dental office property remaining in the office. Dwyer proceeded to remove the dental office property from the office space and rented the vacant office to another tenant.

Milanovich filed a claim against Dwyer for possession of the property. After a trial, the court held that O'Brien had abandoned his property and that Milanovich had no interest in the property. The appellate court affirmed. It held that O'Brien's actions indicated his intent to abandon the dental office property and that the landlord had the right to assert ownership over the property. In addition, the court held that O'Brien could not assign his rights in the dental office property because that property was subject to the bank's security interest.

PERSONAL GUARANTY

A tenant may be liable pursuant to a prior personal guaranty where the tenant executes a lease amendment and extension retroactive to the expiration of the original lease and receives an individual benefit from the execution of the new lease, even if the tenant's business fails at a later date. The Sherwin-Williams Company v. ASBN, No. COIA03-676, Court of Appeals of North Carolina, April 6, 2004.

Sherwin-Williams leased commercial space to ASBN's predecessor in interest. On Sept. 26, 1988, Nathan and Betty Alberty, Jandera and Zahradnicek and ASBN signed a personal guaranty of the lease terms. The lease was scheduled to expire on Dec. 30, 1994. The lease also authorized a year-to-year tenancy if the tenant remained in possession of the premises after the expiration of the lease. ASBN remained on the premises after the expiration of the lease. On Feb. 28, 1997, Sherwin-Williams and ASBN entered into a lease amendment and extension that bound ASBN to the lease retroactive from Jan. 1, 1995 through Dec. 30, 1999. There was no personal guaranty executed in connection with the lease amendment and extension. Nathan Alberty was the sole signatory of the lease amendment and extension in his capacity as vice president of ASBN. ASBN then defaulted on the lease in September 1998.

As a result of the default, Sherwin-Williams commenced an action against ABSN and sought to hold Nathan Alberty liable under the personal guaranty. The trial court granted summary judgment in favor of Sherwin-Williams, and the appellate court affirmed. It held that Nathan Alberty was estopped from denying his personal guaranty on the lease amendment and extension. It held that Nathan Alberty had authority to sign the new lease and that at the time that the lease was signed, he received an individual benefit from the new lease, even though the business failed at a later time.