Daily Development for Thursday, December 7, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

LANDLORD/TENANT; SURRENDER; CONDITION OF PREMISES: Where a tenant makes improvements to the premises consistent with the purpose of the lease or with landlord's permission, the tenant has no obligation to remove such improvements at the end of the lease.

U.P.C., Inc. v. R.O.A. General, Inc., 990 P.2d 945 (Utah App. 1999).

The case involves footings for a billboard that remained on the premises after the lease had ended and the tenant billboard owner relocated to another site. The lease gave the tenant the right to remove improvements when the lease ended. The landlord at first had desired that the footings remain, as it perceived that they might provide support to other improvements on the property, but later, before the lease ended, changed its mind. When the parties went to war about the fact that tenant had relocated so near to landlord's premises that the landlord could not rent to another billboard operator due to Utah's billboard spacing requirements, one of landlord's initiatives was to demand that the footings be removed.

The Utah court cites a 1930's Texas intermediate court of appeals decision holding that a oil lease operator need not remove drill casings when the lease does not so require. That case cites turn of the century authority holding that the tenant has no duty to remove improvements built with landlord's express or implied consent even when the tenant has the obligation under the lease to restore the premises to its original condition.

The court noted that the court will not make a contract for a party better than the one that party negotiated. Here, where the parties had included language stating that the tenant had the option to remove the improvements, and did not say that the tenant had the obligation to do so, the court found no duty to remove.

Comment 1: This is one of those situations where two policy objectives are at work. First, we want clarity of the "default rule." So long as the law is clear, obviously parties to a commercial lease can bargain and allocate the responsibility for removal of improvements. This objective is satisfied when the court simply follows established precedent and the rule is clear.

But we also want interpretive approaches that accord with the probable expectations of parties dealing generally in a similar context. Courts shouldn't have to inquire into the individual expectations of the parties in every case, but should apply rules that are consistent with the general understandings of the parties. Not everyone checks the law every time, and too many surprises resulting from rules inconsistent with established practice also undercuts confidence in the law and inhibits bargaining.

Where the parties have addressed the issue, such as in the instant case, and have given the tenant the option to remove improvements, it would seem safe to conclude that the default rule ought to favor the tenant, for the reasons expressed by the court in this case.

Comment 2: What about, however, the situation where the only thing that the parties have said is that the tenant has the obligation to restore the premises to "reasonable" or "original" condition. Is the shoe now on the other foot? Have the parties addressed the issue of removal and implicitly given the tenant the burden to remove improvements?

Is it really the "ordinary" view of parties that tenants are free to leave improvements in place when they leave even when the lease requires that the tenant restore the premises to good condition? Or is this the kind of situation that necessarily ought to be considered case by case, notwithstanding the negative impact on predictability that such approach engenders? This issue is considered at some length in Friedman on Leases, which cites a number of cases in Section 18.1, notes 7 through 17 and accompanying text, and again in Section 24.2 (involving primarily fixtures). Friedman cites cases on both sides of the issue.

To the editor, this is a very close issue, but one resolved in favor of a standard rule favoring the tenant by taking into account that the tenant cannot leave improvements on the property when they so inhibit the usefulness of the property as to amount to affirmative waste.

Comment 3: On appeal, the landlord in this case also attempted to invoke the implied duty of the tenant not to commit waste on the property. Conceivably, this might have led the court in a different direction, but the court concluded that the landlord did not properly present this issue in the trial court and refused to consider it upon appeal.

BILLBOARDS; SPACING REQUIREMENTS; DUTIES TO EXISTING LANDLORDS: Where billboard lessee and landlord are unable to agree on new terms for billboard lease, billboard tenant is not guilty of tortious interference when it negotiates a new lease so close to existing premises that landlord, due to spacing requirements of local zoning, is unable to lease its site to a new tenant.

U.P.C., Inc. v. R.O.A. General, Inc., 990 P.2d 945 (Utah App. 1999).

The court noted that tortious interference claims require either an unlawful purpose or an unlawful motive. It concluded that in the billboard environment it is a common and acceptable practice for billboard operators to so locate their billboards so as to suppress competition from others because of spacing requirements. Such practices, of course, enhance the value of the first billboard.

Here, the tenant negotiated in good faith with its existing landlord and, only when it was clear that it was unable to reach agreement at that location, it elected to "steal a march" on the landlord's ability to relet the billboard site by relocating nearby. The court saw nothing wrong with this approach.

Comment: The editor wonders whether the court would see this differently if, indeed, the landlord was able to make out a case that the billboard owner was negotiating with the old landlord simply to keep that landlord from thinking about what might happen if the tenant left that location, even while all the time the billboard owner was planning to leave and negotiating a new location that would "freeze" the old landlord's ability to lease to a competitor.

Many Civil Law codes hold that negotiating without the intent to reach agreement is itself bad faith, but the common law cases are not so clear.

RECORDING ACTS; NOTICE; INQUIRY: Even though a party purchasing property subject to a lease has no actual notice of that lease, if there are facts and circumstances sufficient to elicit attention that there might be a leasehold interest in the property, the purchaser is on constructive notice of everything to which such inquiry might have led.

U.P.C., Inc. v. R.O.A. General, Inc., 990 P.2d 945 (Utah App. 1999).

Plaintiff purchased property that had a sign on it belonging to the defendant. The parties then tried to negotiate a new lease for the sign. Unable to come to terms, plaintiff informed defendant that at the expiration of the current lease the defendant would have to remove his sign and the foundation on which it stood.

The defendant then entered into a new agreement for a sign on an adjacent property which was less than five hundred feet away from the plaintiff's property line. Because Utah law requires 500 foot spacing between outdoor signs, plaintiff could not contract with any competitors to place a sign on his property. Plaintiff then filed suit alleging trespass, unlawful detainer, intentional interference with potential economic relations and punitive damages.

Plaintiff maintained that he was not bound by the lease between his predecessorininterest because he did not have record notice or actual notice of the lease when he bought the property; therefore, the defendant was trespassing. The court determined that the plaintiff did not have actual knowledge because the defendant did not record the lease until two years after the plaintiff purchased the property. However, it was undisputed that the plaintiff was aware of the sign and therefore had a duty to inquire as to its nature. Consequently, the plaintiff was bound by the lease.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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