Daily Development for Wednesday, April 3, 2002
By: Patrick A.
Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu
LANDLORD/TENANT; POSSESSION; CONTRACT OF SALE:
Where a landlord/tenant relationship was established between
vendor and vendee in furtherance of closing an asset sale agreement, the
landlord/tenant relationship does not merge into the vendor/vendee relationship
upon the collapse the sale transaction.
Wulf v. Colf, 730 N.Y.S.2d 644 (A.D. 4 Dept. 2001).
In anticipation of the closing of an asset sale, vendor and
vendee entered into an operating agreement under which vendee entered into
possession of vendor's real property and commenced business operations. The asset sale agreement provided that when
the sale of the assets closed, vendee would be a tenant of vendor on the
premises and would have a one year option to purchase. Apparently, prior to closing, the parties
also intended the creation of a landlord tenant relationship. Vendee, as tenant, took possession. The asset sale transaction failed to close. Vendor claimed that the landlord/tenant
relationship had existed. Vendor sought to bring a summary eviction
proceeding including a claim for rent.
Vendee responded that there was no lease agreement, and that
the rights of the parties were regulated entirely by the sale agreement, which
in New York cannot support a claim for rent for use and occupancy unless an
independent landlord/tenant relationship exists.
The court rejected vendee's argument, based upon the common
rule under the merger doctrine, that execution of a contract of sale between
landlord and tenant serves to merge the landlord/tenant relationship into the
vendor/vendee relationship and terminate the former. The court noted that merger would not apply because the subject
contract concerned the assets of the business and not solely real property.
The court distinguished a prior New York case, Barbarita v.
Shilling, 489 N.Y.S. 2d 86 (N.Y. App. Div. 1985), where a landlord and tenant
entered into a sale agreement for the property, which failed to close. The landlord in that case was unable to
collect rent because the preexisting lease was merged into the sale contract
when the sale contract was executed.
Comment 1: The editor included this case more for a
discussion of the Barbarita rule than for an analysis of the instant case. It is difficult to see what Barbarita has to
do with this case, however. There is no
indication in the present recitation of facts that there was a preexisting
lease arrangement between vendor and vendee.
Without that, any discussion of merger would be pointless. The Wulf case doesn't bother to tell us
whether the parties to the sale agreement and related "operating
agreement" provided that rent would be payable for periods of occupancy
prior to closing. If they did so agree,
then this would seem to form the basis of a landlord tenant relationship
separately agreed to by the parties, and therefore Barbarita would not
apply. If they didn't so agree, it is
difficult to know what basis the lower court used for finding an award of rent
(which later was vacated by the County court, which appealed to the instant
panel.) But whatever basis was used, it
would seem to be unaffected by any concept of merger, Barbarita or not.
Comment 2: Now let's turn to Barbarita, where the court
invoked what it said was the New York rule that where landlord and tenant agree
upon a sale, and tenant remains in occupancy following execution of the sale
agreement and prior to closing, the tenant is not liable for rent unless the
parties expressly waive the potential merger or otherwise create a separate
landlord/tenant relationship.
To be polite, the editor sees no rationale basis for such a
rule. The only possible foundation for
a finding of merger is that destruction of one relationship when a second is
formed is consistent with the probable intent of the parties. Most sale agreements do not transfer
possession until closing, and the amount paid in consideration takes into
account that possession will not pass until that moment. Why should the
situation be different when the parties to the sale agreement are landlord and
tenant? They are fully aware,
presumably, that there are risks that the deal will not close, and there is no
reason to believe that the "typical" deal is that if it does not
close there will be no subsisting landlord/tenant relationship. Rather, in the editor's view, the
"typical" deal would be the opposite. The lease would subsist and rent would remain payable. If the parties' view is otherwise, then the
rule ought to require them to make their intent explicit.
As indicated, however, since the recitation of the facts of the instant case does not tell us that the parties started out as landlord and tenant, all of the discussion, and the discussion of the merger rule in the case itself, would seem to be irrelevant.
Readers are urged to respond, comment, and
argue with the daily development or the editor's comments about it.
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