Daily Development for Thursday, August 1, 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; TENANT PROPERTY: Where lease provides that tenant has the right to make structural and non-structural alterations to existing finished premises, and that tenant may, at lease end, remove all alterations and additions provided there is no damage to "structural elements," Tenant cannot remove such improvements to the extent that the functionality of the premises existing at lease inception is adversely affected.

Durnelco, Inc. v. Double James, L.L.C., 2002 Tenn. App. Lexis 450 (Tenn. App. 6/26/02)

The dispute related to the interpretation of a clause in the lease that provided that Tenant could remove"any alteration and addition," over and above any "trade fixtures," so long as the removal does not effect [sic] the structural element of the Demised Premises." (A separate paragraph gave Tenant the right to remove trade fixtures.

The tenant had received an operating restaurant, albeit not to the Tenant's liking. The tenant had drafted the language above and the landlord had agreed to include it in the lease. Tenant's manager conceded that he proposed to remove everything "short of pulling the wiring out and removing the plumbing pipes." This included taking out tongue and groove flooring, non-bearing walls, decking, wall covering, and various other elements installed by the tenant. Tenant proposed to cover everything with low grade plywood. It argued that so long as the building would remain standing "so long as the building would be allowed to remain to standing and structurally sound."

Landlord apparently argued that the tenant could remove virtually nothing because it had delivered a functioning premises to the tenant and was entitled to receive one back at surrender.

The court noted that the landlord claimed that it would cost $100,000 to restore the premises to the condition at the time of the lease, but did not conclude that these were the damages. It held simply that the lease did not permit tenant to remove the improvements, since the current removal plan did not contemplate restoration to the original condition.

.

The court concluded that there was no fixed meaning to the term "structural element" and that the language in question therefore was ambiguous. It noted that Tennessee law provided that ambiguous contract language is to be construed against the drafter. Tenant had inserted the language in question, and therefore the court construed against the tenant. It concluded that the tenant had no right to remove the improvements. If the tenant had desired the right to remove the flooring, wall covering, etc., the court commented, the tenant should have provided item by item.

The court then denied unjust enrichment relief to the tenant on the grounds that the parties had clearly addressed the issues with contract language, and that therefore equity could not intervene.

Comment 1: Although the editor is unfamiliar with Tennessee law on this subject, there is little doubt in the editors's ming that the vast majority of the improvements in this case would have been by the court as removable under the separate "fixtures clause." Generally speaking, the concept of tenant fixtures is extremely broad, and a question of common law, not contract interpretation. Courts in other jurisdictions, at least, have construed special flooring and wall covering as fixtures. Even so, if the tenant had been permitted to remove them, and they replaced existing improvements, some courts might conclude that the tenant had the duty to restore the premises.

The tenant might have had more success arguing that a lot of this stuff indeed fit within the fixtures clause of the lease.

Comment 2: Here's yet another example of a rule that the editor finds quite abhorrent in modern commercial practice - the notion that in a negotiated lease the party who proposes certain language is penalized if the court later finds that such language is ambiguous. In fact, both parties agree on every element of the contract - the drafting is a joint undertaking. Here, for instance, the landlord might have concluded that the ambiguity of the concept was quite to its liking and precluded forcing the landlord to spend bargaining capital seeking more clarity. Why should the landlord get a "free ride" here?

Whoops - the editor concedes one reason for the rule that is understandable - since the problem is that the language is ambiguous, the court needs some basis for interpretation. Here is a "bright line" that is at least more predictable than a coin flip. But the editor still urges that the rule be invoked only when the court concludes that other evidence normally admissible to construe ambiguous language does not lead to a useful analysis.

LANDLORD/TENANT; LANDLORD'S REMEDIES; HOLDOVER: Tenant that refuses to permit landlord access to property following termination of lease because of dispute over Tenant's rights to remove Tenant-installed improvements is liable for rent for the holdover period, even where Tenant has terminated operations and removed fixtures.

Durnelco, Inc. v. Double James, L.L.C., 2002 Tenn. App. Lexis 450 (Tenn. App. 6/26/02)

The facts of this case are reported under the heading: "Landlord/Tenant; Tenant Property."

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

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