Case Notes

On appeal, the tenant cited to Morsches Lumber Inc. v. Probst, 180 Ind. App. 202 (Ind. Ct. App. 1979), in which a landowner contracted to have a barn built on his property, with the contract providing that the landowner would obtain insurance to cover any losses caused by wind damage while the barn was under construction. A windstorm later demolished the under-construction barn and the landowner's insurance covered only 75% of the loss. Consequently, he sought to recover the remainder from the builder, claiming the builder's negligence caused the barn's destruction. The court sided with the builder, finding that “an agreement to insure is an agreement to provide both parties with the benefits of insurance. Individuals understand that insurance will protect them against the consequences of their own negligence and more than likely assume that if one who is a party to a contract agrees as part of his or its duties to provide insurance, that the insurance will protect both of them regardless of the cause of the loss (excepting, of course, wanton and willful acts). If that were not their intent, each would provide his or its own insurance protection and there would be no need for the contract to place the duty on one of them.”

The court here found Morsches Lumber analogous to the case before it, as the parties had contracted to allocate risk of damage to the building to the landlord and its insurer. “And just like the landowner in Morsches Lumber,” the court stated, “Landlord is limited in its recovery to the insurance proceeds. And because CIC stands in the shoes of Landlord and takes no rights other than those that Landlord had, CIC has no subrogation rights against Tenant.” The appeals court therefore reversed and remanded with instructions for the trial court to grant the tenant's motion.

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Lacking Specifics, Lease Term Is Unenforceable

Because a lease term left too many things in question, it was unenforceable and the Court of Appeals of Kentucky found the trial court erred in attempting to interpret and enforce it. Blue Stallion Brewing LLC v. Strecker, 2018 Ky. App. Unpub. LEXIS 951 (2018).

The plaintiff owns a property that she leased to the defendants, who planned to repurpose the underperforming building into a brewery and taphouse. However, in order to put the building to such a purpose, the Lexington-Fayette Urban County Government (LFUCG) required the landlord and tenant to provide for parking for the business, which could not be accommodated on the leased premises alone. Therefore, the landlord and tenant included in their lease a provision concerning the parking problem. It stated:

The parking lot located on the Leased Premises shall be available to Lessee and its customers on an exclusive basis, other parking on Lessor's leased adjacent property across the street shall be pursuant to a sub-lease agreement between the parties to include eighteen (18) spaces at a cost of $1,100.00 per month or thirty (30) spaces at a cost of $1,600.00 per month. In the event Lessor cannot obtain a prime lease from the owner of that lot to allow for the sub-lease contemplated herein, then, in that event, the Lessee may terminate this Lease at its option.

The parking spaces across the street from the proposed brewery had not yet been contracted for, but the LFUCG was satisfied with this agreement to obtain parking and it gave the project the official go-ahead. The parties therefore signed the lease and the tenant then spent six months setting up the new business in the leased premises.

To satisfy the LFUCG, however, the tenant could not open the business until the parking annex was actually obtained. To complete this requirement, the landlord determined that it would lease enough land for 18 parking spaces and would build them, and sent an email to the tenant stating this. The tenant, however, replied that it had opted to have the alternative option of 30 parking spaces created. Nothing in the lease explained which party had the option of selecting between the two parking space options contained therein, and they could not agree on this. Further, other parking lot lease issues were not contemplated in the lease language. Among these were: the beginning date of the parking lot rent; whether the lot would be reserved only for the tenant's use or if others could use it; which party would build the parking lot; which party would maintain the parking lot; which party would police the parking lot; and which party would insure the parking lot for damage and liability.

The parties sued and countersued one another, the tenants contending the landlord had failed to obtain the sublease for the parking in the time and manner to which she had agreed, causing damage to the tenant's business, and the landlord asserting that she'd done all she could and had ultimately succeeded, but that she now wanted the tenant evicted from the leased premises and from the parking lot property.

The trial court determined that the landlord had been in default for failing to provide the additional parking spaces in time for the opening of the brewery, but that she had soon cured the breach so that the contract remained in effect. Because the tenant had continued to pay rent and had met its obligations under the lease, the court concluded it could remain in the brewery premises, but evicted it from the parking lot the landlord had sublet. (The brewery tenant also had obtained parking on its own at another nearby location, so even without access to the landlord's leased parking lot across the street, it remained in compliance with the LFUCG's requirement that the business have off-site parking available to customers and other business invitees.) The parties appealed.

The trial court had treated the parking sublease provision as enforceable and then determined the outcome of the case in accordance with that assumption. The Court of Appeals of Kentucky found, however, that the parking sublease provision was too nebulous to enforce because of the numerous unanswered questions such as which party would build the lot, which would maintain the lot, etc. “Where an agreement leaves the resolution of material terms to future negotiations, the agreement is generally unenforceable for indefiniteness unless a standard is supplied from which the court can supplant the open terms should negotiations fail,” the court stated. No such standard could be cited by either party in this case. Therefore, the agreement was “essentially too indefinite for the court to view it as an enforceable contract” and the trial court's determinations must be reversed. The case was remanded with instructions to dismiss the parties' petitions and counterclaims.