Daily Development for Thursday, September 9,
Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
ASSIGNMENTS AND SUBLETS; LANDLORD'S CONSENT CLAUSE; "REASONABLENESS"
REQUIREMENT: A landlord is not "unreasonable" in refusing to consent
to a proposed lease assignment if the landlord conditions its consent on an
agreement by the present tenant or its assignee to be responsible for existing
leaking underground storage tanks installed by a predecessor to tenant but used
Wright v. RubaDub Car Wash, Inc., 1999 WL
605709 (Miss. 8/12/99)
One thing that makes this case interesting is
that the original Chancellor in this case awarded the tenants $50,000 for the
landlord's interference in the sale of their business by not assenting to the
assignment without the stated condition, and, following a reversal by the Court
of Appeals, this case was decided by a sharply divided Mississippi Supreme Court
with several diseents and partial concurrences.
The landlord leased to Vickery vacant
property on a ground lease under an instrument that provided that tenant could
construct a building on the property and "install various items of
machinery, equipment, appliances and fixtures therein;" . . . and it is
further agreed that all such machinery, equipment, appliances and fixtures (no
matter how attached to the realty) whall at all times remain and be the personal
property of Lessee and Lessee shal have full right to remove same from the
demised premises at the end of the primary and/or renewal term."
The tenant built a car wash on the property
and installed several underground petroleum storage tanks from which it
dispensed gasoline in connection with its car wash business. The tanks were
installed without the landlord's consent but with the landlord's knowledge. The
court does not say whether the tanks were installed "in" the building,
but clearly deems the above language to be applicable to these tanks.
Two years after entering into the lease,
Vickery assigned the lease to Turner, apparently in connection with the sale of
the business. Landlord approved the assignment. (The Chancellor's findings use
the terms "sublease" and "assign" apparently
interchangeably, but the appeals court treats this event as an assignment.)
The assignment and sale of business,
apparently, were silent as to the tanks. The Chancellor characterized the tanks
as "abandoned" at this point. The Supreme Court characterized them as
covered by the lease language quoted above, and therefore owned by Turner, as
Thirteen years later, landlord and Turner
entered into a new lease that contained the same language with respect to
ownership of the improvements to the property.
All during the time of Turner's occupancy,
she dispensed gasoline from the tanks. The record shows that there was some
spillage or leakage from the tanks, but it is not clear whether this occurred
during Vickery's occupancy or Turner's.
Two years after entering into the new lease,
Turner entered into a sale of business agreement with Langdon, whereby Langdon
agreed to acquire the business, but specifically refused to take ownership of
the tanks. The landlord consented to the assignment of the lease in connection
with the sale of business to Langdon, but specifically noted that it was not the
owner of the tanks, either.
Langdon continued to use the tanks to
Four years later, Langdon attempted to
"sublease" [assign?] the property again in connection with a sale of
the business. It was at this point that the landlord noted its requirement that
either Langdon or the new proposed assignee take responsibility for the tanks.
The Chancellor, as noted, ruled both that the
landlord owned the tanks, and could not recover for leakage from them, and that
that the landlord's requirements on assignment were unreasonable, and imposed a
$50,000 damages judgment upon landlord for interfering with the sale of the
business. The Court of Appeals reversed, finding that the requirements were
reasonable. It remanded on the counterclaim issue, as it determined that there
was an inadequate basis upon which to reach a conclusion as to the ownership of
the tanks, an issue relevant to the question of whether the landlord or tenant
was liable for the existing damage.
On appeal from the Court of Appeals: held:
Reversed. The Supreme Court agreed with the Court of Appeals that the issue of
ownership should be remanded, but it also concluded that the question of
ownership was central to the question of whether the conditions on assignment
were reasonable. Therefore, it ruled that the Court of Appeals improperly
rendered a judgment for the defendant landlord on that issue. It remanded the
issue of damages as well as the issue of ownership.
The Supreme Court concurred that the record
was incomplete with regard to the issue of ownership of the tanks.
Although the Court of Appeals had viewed the
issue of who owned the tanks to be irrelevant to the question of whether the
assignment requirements were reasonable, the Supreme Court concluded that the
question was, in fact relevant. Mississippi law would impose liability on the
landlord for spillage from the tanks if it owned them. Since the assignment
conditions dealt with assumption of for spillage and for removal of the tanks,
if necessary, the reasonableness of the conditions depended upon whether the
landlord potentially would be liable for that spillage, and this question in
turn depended upon ownership. In the view of the court, if indeed the landlord
was liable under the statutes for the spillage from the tanks, and the current
tenant was not, then the landlord would have been unreasonable in attempting to
impose liability on the tenant or its assignee at the time of assignment.
The court stated that "it would be a
valid argument that it not be commercially unreasonable for [landlord], the
owners of the property to take steps to assure that the tenants or proposed
tenants operate and maintain the underground storage tanks so as not to commit
waste, something the tenants would be responsible for absent an agreement to the
The court doesn't really say so, but
apparently concluded that the landlord's requirements on assignment in fact went
beyond merely assuring that the tenant and assignees would properly maintain the
tanks. Rather, it attempted to seek indemnification against and protection from
liability for spillage that had already occurred and may not have been caused by
the present tenant.
Several strong dissents took the view that
the present record supported the conclusion that the landlords were attempting
to write a new lease as a condition of the assignment something that clearly was
Comment 1: The majority opinion,
particularly, is quite dense and difficult to penetrate. As indicated above, the
Court makes much of the clause in the lease purporting to establish that the
landlord did not own the tanks, even though the clause is a bit ambiguous on the
point unless the tanks could be regarded as the "building" or were
within the "building," and both these propositions are unlikely. But
let us assume that indeed the lease did establish that the tenant, and not the
landlord, owned the tanks.
Comment 2: If the lease said that the tenant
owns the tanks, and the terms of the assignment provide that the tenant does not
own the tanks, who owns them? Did the landlord, in approving the assignment
generally, specifically approve the language of assignee's nonownership? It
appears that the landlord likely knew of the issue, because it apparently
insisted that the bill of sale from Turner to RubaDub, that stated the tanks
were not transferred, also provide a statement that e landlord claimed not to
own the tanks. This would have left the tanks in e ownership of Turner, who, in
any event, indemnified RubaDub for any preexisting leakage and gave RubaDub
permission to continue to use the tanks.
Because the court is remanding on the issue
of ultimate ownership, we cannot assume at this juncture any conclusion as to
whether RubaDub owned the tanks, any more than we can conclude that the landlord
did not own them, even though the facts suggest strongly that the latter is the
Comment 3: The landlord's mistake was in
permitting the assignment to RubaDub without dealing with the tanks issue at
that time. Had it insisted on provisions of tenant liability at the time of the
Turner/RubaDub assignment, it's case would have been far stronger. The landlord
ought be able to require a tenant who has liability for potential waste in the
form pollution to acknowledge liability prior to being given permission to
assign. After the assignment, the assigning tenant will be gone, and rhaps
beyond the reach of the landlord when the liability "comes to roost."
Comment 4: The landlord also would have been
within its rights requiring RubaDub to acknowledge liability for spillage that
occurred while RubaDub operated the tanks, whether or not RubaDub owned them.
But the landlord's demand went beyond this.
If the case has any lesson to be gained,
aside from the presentation of an interesting issue, it is that a landlord
cannot impose new requirements on tenants as a condition for approving an
assignment when the landlord has a duty to be reasonable. A further lesson is
that a ground lessor should insist that the lease provide clearly that
underground tanks belong to the tenant and the landlord should never permit an
assignee to disclaim ownership of those tanks..
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