Daily Development for Tuesday, March 1, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu

LANDLORD/TENANT; ASSIGNMENT AND SUBLETS; UNAUTHORIZED ASSIGNMENTS:  Lessor's eviction of an unpermitted assignee and reacquisition of the property does not necessarily terminate tenant's obligation to pay rent under the lease.

RAL Automotive Group, Inc. v. Edwards, 861 A.2d 795 ( NH. 2004).

In July 1999, Landlord Edwards and Tenant RAL entered into a lease for the operation of a car dealership.  RAL defaulted under the Lease and Edwards brought legal action resulting in a settlement agreement, which provided that so long as there was no change in the Toyota Dealership or principal of RAL, Edwards would be entitled to invest $132,090, then held in escrow, into a certificate of deposit ("CD") as security under the Lease, but, if Toyota approved a new dealer, RAL would be required to purchase an irrevocable letter of credit in an amount equal to the CD.  In September 2001, RAL sold the dealership to Minato Auto, LLC ("Minato").  Edwards, however, refused to consent to the assignment of Lease to Minato and held RAL in default under the Lease.

In November, RAL brought an equitable action to determine the parties rights and obligations under the Lease.  The Superior Court held that Edwards acted reasonably in refusing to consent to the assignment of Lease, that RAL remained the tenant under the Lease and that Minota was a tenant at will.  Further the Superior Court held that because the Toyota dealer changed from RAL to Minota, Edwards was no longer entitled to invest the escrow funds in a CD, however, RAL was required to purchase an irrevocable letter of credit under the terms of the settlement statement.  Subsequently, Edwards filed a motion to compel RAL to post the irrevocable letter of credit.  The Superior Court denied Edwards motion, holding that the requirement of the letter of credit was to protect Edwards in the event that he suffered a loss of future rent and, because he had elected to evict the current tenant [Minota], he was the cause of any loss of rent he would suffer.  The Superior Court reasoned th!

 at no
rent loss or damage could be caused by a tenant who was no longer in possession of the property.

Edwards appealed the denial of his motion to compel to the Supreme Court of New Hampshire.  The court held that the Superior Court's order was based upon "reasons clearly untenable" because it failed to make any factual finding that Edwards intended to terminate RAL's liability under the Lease.  The court reasoned that only if a landlord intends to accept a tenant's surrender under a lease, is the tenant no longer liable for rent under such lease.  The court held that without such intent, Edward's reacquisition of the property would not terminate RAL's obligation to pay rent.  The court thus vacated the Superior Court's order and remanded the case for a determination of whether the Lease was ongoing, in which case equitable relief would be available, or whether the Lease had been breached or terminated, in which case an action for damages would be appropriate.

Next, RAL argued that the Superior Court's order was supported by the doctrines of mitigation of damages and avoidable consequences.  The court, however, dismissed this argument, holding that for the doctrine of mitigation of damages to apply, Edwards must be seeking damages.  Because Edwards was only seeking equitable relief, the doctrine did not apply.  Accordingly, the court held that the doctrine of avoidable consequences, a specific type of mitigation, did not apply in a case of equitable relief..

Comment: There is something of a conundrum here, not identified by the court.  The purported assignee was occupying under a license from the tenant.  If the landlord terminates that licenseeís possession, is it not terminating the possessory rights it has granted to the tenant?  And, if so, isnít the landlordís action thereafter in damages, rather than for the rent?

The court didnít necessarily find otherwise here.  It remanded to the trial court as follows:

ďWhile representations were made at oral argument about the status of the property after the eviction of Minato, there is no evidence in the record regarding these representations. No factual findings have been made as to whether the lease is ongoing, is in breach, or has been terminated. Because such findings are crucial to a determination of whether enforcement of the obligation to post a letter of credit would be both available and equitable, we vacate [the trial courtís orders.]

But it is clear that the appeals court entertained the possibility that the landlord could have evicted the tenantís licensee yet still claimed the lease remained in effect.  A few jurisdictions might permit this if such a remedy is clearly set forth in the lease, but most would not, and there is no evidence of such language in the lease here.  Normally, if the landlord terminates the tenantís possessory rights, the lease is at an end and the landlordís claim is in damages.

One way to resolve the conundrum is to treat the tenant has having abandoned, and the landlord retaking possession in order to relet to mitigate damages.  Thatís possible, but the court really doesnít discuss that, and in any event the evidence of abandonment on these facts is pretty sketchy.

Items reported here and in the ABA publications
are for general information purposes only and
should not be relied upon in the course of
representation or in the forming of decisions in
legal matters.  The same is true of all
commentary provided by contributors to the DIRT
list.  Accuracy of data and opinions expressed
are the sole responsibility of the DIRT editor
and are in no sense the publication of the ABA.


 

Parties posting messages to DIRT are posting to a
source that is readily accessible by members of
the general public, and should take that fact
into account in evaluating confidentiality
issues.

ABOUT DIRT:

DIRT is an internet discussion group for serious
real estate professionals. Message volume varies,
but commonly runs 5  15 messages per work day.

Daily Developments are posted every work day.  To
subscribe, send the message

subscribe Dirt [your name]

to

listserv@listserv.umkc.edu

To cancel your subscription, send the message
signoff DIRT to the address:

listserv@listserv.umkc.edu
for information on other commands, send the message
Help to the listserv address.

DIRT has an alternate, more extensive coverage that includes not only
commercial and general real estate matters but also focuses specifically upon
residential real estate matters.  Because real estate brokers generally find
this service more valuable, it is named ďBrokerDIRT.Ē  But residential
specialist attorneys, title insurers, lenders and others interested in the
residential market will want to subscribe to this alternative list.  If you
subscribe to BrokerDIRT, it is not necessary also to subscribe to DIRT, as
BrokerDIRT carries all DIRT traffic in addition to the residential discussions.

To subscribe to BrokerDIRT, send the message

subscribe BrokerDIRT [your name]

to

listserv@listserv.umkc.edu

To cancel your subscription to BrokerDIRT, send the message
signoff BrokerDIRT to the address:

listserv@listserv.umkc.edu

DIRT is a service of the American Bar Association
Section on Real Property, Probate & Trust Law and
the University of Missouri, Kansas City, School
of Law.  Daily Developments are copyrighted by
Patrick A. Randolph, Jr., Professor of Law, UMKC
School of Law, but Professor Randolph grants
permission for copying or distribution of Daily
Developments for educational purposes, including
professional continuing education, provided that
no charge is imposed for such distribution and
that appropriate credit is given to Professor
Randolph, DIRT, and its sponsors.

DIRT has a WebPage at:
http://cctr.umkc.edu/dept/dirt/

*************************************

Your e-mail address will only be used within the ABA and its entities. We do not sell or rent e-mail addresses to anyone outside the ABA.

To change your e-mail address or remove your name from any future general distribution e-mails you can call us at 1-800-285-2221, or write to: American Bar Association, Service Center, 321 N Clark Street, Floor 16, Chicago, IL 60610

If you are an ABA member, log in to the ABA Web site at http://www.abanet.org/abanet/common/MyABA/home.cfm to edit your member profile. Otherwise, complete the form located at https://www.abanet.org/members/join/coa2.html

To review our privacy statement, go to http://www.abanet.org/privacy_statement.html.

If you have any problems, please contact the list owner at
dirt-dd-request@mail.abanet.org.