Appeal by defendant from order filed 11 February 2000 by Judge
Marcia H. Morey in Durham County District Court. Heard in the
Court of Appeals 27 March 2001.
Manning, Fulton & Skinner, P.A., by Michael S. Harrell, for
plaintiff-appellee.
William G. Goldston for defendant-appellant.
GREENE, Judge.
Triangle Laboratories, Inc. (Defendant) appeals a judgment
filed 11 February 2000 awarding summary judgment (the judgment) in
favor of ARE-100/800/801 Capitola, LLC (Plaintiff). Plaintiff
cross-assigns error to an order filed 6 April 2000 staying
execution of the judgment pending disposition of the appeal of the
judgment.
On 14 June 1995, Defendant, as tenant, entered into a lease
agreement with ATP Properties Limited Partnership, J. Allen Yager
and wife, Hilda Yager, as landlords (the Lease), to lease property
located at 801 Capitola Drive, Durham (the Property).
(See footnote 1)
The Lease
provided Defendant would use the Property for “general office,
laboratory, research and development purposes.”
Pursuant to the Lease, Defendant was to pay a monthly minimumrent on a square foot basis “without demand and w
ithout
counterclaim, deduction[,] or set-off, . . . payable on or before
the first day of each calendar month.” An “[e]vent of [d]efault”
under the Lease included Defendant's failure “to pay any rent
including additional rent within 3 business days after notice of
its failure to do so from [Plaintiff] provided [Plaintiff] shall
not be required to so notify [Defendant] for such failure more than
three times in any twelve month period.” Upon the occurrence of an
“[e]vent of [d]efault,” Plaintiff had the right, by written notice
to Defendant to: re-enter the Property and remove Defendant and its
belongings from the Property; terminate the Lease; or terminate
Defendant's possession of the Property. If the term of the Lease
was not specifically terminated in writing, the parties were to
assume Plaintiff had “elected to terminate possession only, without
terminating the term.” If Plaintiff chose to only terminate
possession of the Property, Defendant's “obligations to pay rent or
any other sums due for the remainder of the Lease” remained
unaffected.
The Lease obligated Plaintiff to: furnish the Property “hot
and cold water, electricity for normal general office use, [and]
removal of trash from site dumpsters”; maintain and repair “the
roof and structural portions” of the Property; replace “any
complete mechanical system” if the components could not be replaced
or repaired by Defendant; and “replace or to make any and all
repairs to any mechanical system.” If Plaintiff defaulted or
failed to perform its obligations under the Lease, Defendant was to
notify Plaintiff and give Plaintiff a reasonable opportunity tocure the default. If Plaintiff failed to cure the default,
Defendant had the option of expending reasonable sums to cure
Plaintiff's default and “offset such sums against the payment of
rent.”
The Lease was amended on 10 February 1997 to allow Defendant
an opportunity to correct a default for failure to pay rent. The
amendment to the Lease provided Defendant was to pay Plaintiff
$179,825.56 for failure to pay rent. In a letter dated 27 July
1999, Plaintiff informed Defendant that pursuant to the Lease,
Defendant was in default by failing to pay the monthly rent and
related charges. Plaintiff requested Defendant “remit immediate
payment in the amount of $59,705.54” and if payment was not
received in accordance with the Lease, Plaintiff would “immediately
initiate curative remedies under the Lease and the law.” In a
letter dated 13 October 1999, Plaintiff informed Defendant that
Plaintiff had not “received payment of rent obligations due under
the terms of the Lease for October 1999 and other rents dating back
over 150 days.” Plaintiff requested Defendant immediately cure the
default and remit payment in the amount of $178,950.90 or Plaintiff
would “immediately initiate curative remedies under the Lease and
the law.” In a letter dated 10 November 1999, Plaintiff again
informed Defendant that Plaintiff had “not received payment of rent
obligations due under the terms of the Lease for November 1999 and
other rents dating back over 150 days.” Plaintiff requested
Defendant remit payment in the amount of $236,172.80 or Plaintiff
would “immediately initiate curative remedies under the Lease and
the law.” On 30 November 1999, Plaintiff filed a complaint for summary
ejectment of Defendant. Plaintiff stated Defendant breached the
Lease by failing to “pay rent within three business days after
three demands” upon Defendant within one year. On 13 December
1999, a Durham County magistrate ordered Defendant be removed from
the Property and Plaintiff be put in possession of the Property.
On 23 December 1999, Defendant appealed de novo to the district
court for a jury trial. Plaintiff filed a motion for summary
judgment on 24 January 2000. In the sworn affidavit of J. Ronald
Hass (Hass), CEO and President of Defendant, Defendant admitted it
had not paid rent because Defendant felt it was being overcharged
and Plaintiff was not fulfilling its obligations under the Lease.
The trial court granted Plaintiff's motion for summary judgment on
11 February 2000, concluding the trial court had subject matter
jurisdiction over the summary ejectment and Plaintiff was entitled
to judgment as a matter of law.
On 10 March 2000, Defendant moved the trial court to stay
execution of the judgment pending disposition of appeal to this
Court. The trial court granted Defendant's motion to stay
execution of the judgment on 6 April 2000, and found as fact that
Defendant had made monthly rental payments to Plaintiff since 23
December 1999. The trial court imposed the following conditions on
Defendant pending disposition of appeal:
(1) that Defendant shall commit no waste upon
the [Property] . . . ; (2) that Defendant
shall continue to make monthly rental payments
to Plaintiff in the amount of $48,130.07, to
be paid to the Clerk of Durham County Superior
Court, on or before the 5th day of each month
henceforth through and including July[] 2000;(3) that between July 6, 2000 and August 1,
2000, Defendant shall obtain a surety for the
purpose of posting a bond equal to double the
sum of $240,000 which would be the amount of
rent due on the remainder of the [L]ease which
expires on December 31, 2000, or in the
alternative, Defendant may comply with this
condition by posting $240,000 with the Clerk
of Superior Court on or before August 1, 2000.
_____________________________
The issues are whether: (I) a district court has subject
matter jurisdiction with regard to the summary ejectment of a
commercial tenant; (II) genuine issues of material fact exist
concerning Defendant's failure to pay rent pursuant to the Lease;
and (III) Plaintiff's letter indicating it would “initiate curative
remedies” terminated Defendant's leasehold estate.
I
[1]Defendant argues the trial court erred in granting
Plaintiff's motion for summary judgment because Chapter 42, Article
3 of the North Carolina General Statutes applies to residential
tenants, and, thus, the trial court was without subject matter
jurisdiction. We disagree.
A trial court conducting a summary ejectment proceeding
obtains its jurisdiction from N.C. Gen. Stat. § 42-26 and in order
to have such jurisdiction, there must be a landlord-tenant
relationship and one of the three statutory violations in section
42-26 must have occurred.
Hayes v. Turner, 98 N.C. App. 451, 454,
391 S.E.2d 513, 515 (1990). Chapter 42, Article 2A of the North
Carolina General Statutes provides limitations on ejectment of
residential tenants.
See N.C.G.S. § 42-25.6 (1999). Article 3,
however, has been applied to summary ejectment of commercialtenants.
See Holly Farms Foods, Inc. v. Kuykendall, 114 N.C. App.
412, 414, 442 S.E.2d 94, 96 (1994);
see also Chrisalis Properties,
Inc. v. Separate Quarters, Inc., 101 N.C. App. 81, 84, 398 S.E.2d
628, 631-32 (1990),
disc. review denied, 328 N.C. 570, 403 S.E.2d
509 (1991).
In this case, the trial court had subject matter jurisdiction
over the summary ejectment proceedings. Defendant is a commercial
tenant and Plaintiff is the landlord. In addition, one of three
statutory violations listed in section 42-26 has occurred:
Defendant failed to pay rent. Accordingly, the trial court did not
err in exercising jurisdiction in this summary judgment action.
II
[2]Defendant next argues the trial court erred in granting
Plaintiff's motion for summary judgment because genuine issues of
fact existed concerning Plaintiff's overcharge for late fees,
damages to Defendant's business, and Plaintiff's constructive
eviction of Defendant. We disagree.
(See footnote 2)
A motion for summary judgment is properly granted “where there
is no genuine issue as to any material fact.”
Johnson v. Trustees
of Durham Technical Community College, 139 N.C. App. 676, 680, 535
S.E.2d 357, 361,
appeal dismissed and disc. review denied, 353 N.C.265, --- S.E.2d --- (2000).
Overcharge of late fees
In this case, the evidence viewed in the light most favorable
to Defendant,
see Wrenn v. Byrd, 120 N.C. App. 761, 763, 464 S.E.2d
89, 90 (1995) (must view evidence in light most favorable to non-
moving party on motion for summary judgment),
disc. review denied,
342 N.C. 666, 467 S.E.2d 738 (1996), reveals no genuine issue of
fact as to Defendant's failure to timely pay rent. Defendant
argues there is a dispute about the amount of the late charge
Plaintiff assessed Defendant; Defendant, however, does not deny it
has failed to pay rent. Indeed, Hass, in his affidavit, admits
Defendant had failed to pay rent. Accordingly, whether or not
Plaintiff has assessed Defendant an incorrect late fee goes to the
amount of money Defendant owes to Plaintiff and not to whether
Defendant has failed to pay rent.
Plaintiff's failure to make repairs
Additionally, Defendant argues Plaintiff's failure to make
repairs to the Property entitles Defendant to an offset on the
amount of rent. The Lease requires that in order for Defendant to
be entitled to an offset, Defendant must expend reasonable sums to
cure Plaintiff's default. In this case, Defendant has not shown it
expended any monies to repair the Property. In any event, even if
Defendant had expended monies to repair the property, this would
offset a portion of the rent and does not address Defendant's
failure to pay rent or to notify Plaintiff of the offset.
Accordingly, Plaintiff's failure to make certain repairs does notalleviate Defendant of its obligation to pay rent, thus, no genuine
issue of fact exists as to Defendant's default under the Lease.
(See footnote 3)
Constructive eviction
[3]Defendant next argues a genuine issue of fact exists as to
whether Plaintiff constructively evicted Defendant by Plaintiff's
failure to make repairs. A tenant, who seeks to establish
constructive eviction, “has the burden of showing . . . he
abandoned the premises within a reasonable time after the
landlord's wrongful act.”
K&S Enters. v. Kennedy Office Supply
Co., Inc., 135 N.C. App. 260, 266, 520 S.E.2d 122, 126 (1999),
affirmed, 351 N.C. 470, 527 S.E.2d 644 (2000). In this case,
Defendant has failed to show he abandoned the Property. Indeed,
Defendant sought to remain in possession of the Property pending
disposition of this case before this Court. Thus, as Defendant did
not abandon the Property, Defendant cannot withhold rental payments
and claim constructive eviction.
See Thompson v. Shoemaker, 7 N.C.
App. 687, 690, 173 S.E.2d 627, 630 (1970) (“it would be grossly
unjust to permit a tenant to continue in possession of premises and
shield himself from payment of rent by reason of alleged wrongful
acts of the landlord”),
superseded by statute on other grounds,
Miller v. C.W. Myers Trading Post, Inc., 85 N.C. App. 362, 368, 355
S.E.2d 189, 193 (1987). Accordingly, there are no genuine issues
of material fact concerning Defendant's failure to pay rent.
III
[4]Defendant finally argues that the trial court erred in
granting Plaintiff's motion for summary judgment because Plaintiff
failed to terminate Defendant's estate. We agree.
North Carolina General Statutes permit a landlord to seek
summary ejectment when “the tenant . . . has done or omitted any
act by which, according to the stipulations of the lease, his
estate has ceased.” N.C.G.S. § 42-26(2) (1999). Under section 42-
26(2), a breach of a lease cannot be made the basis for summary
ejectment unless the lease provides for termination upon such a
breach or reserves the right of reentry for such a breach.
Stanley
v. Harvey, 90 N.C. App. 535, 537, 369 S.E.2d 382, 384 (1988). When
the termination of a lease depends upon notice, “the notice must be
given in strict compliance with the contract as to both time and
contents.”
Id. at 539, 369 S.E.2d at 385.
In this case, the Lease provides that if Defendant defaulted,
Plaintiff had the option, by written notice to Defendant, to
re-enter the Property, terminate the Lease, or terminate
Defendant's possession of the property. Plaintiff's written
notices to Defendant merely indicate Plaintiff will “initiate
curative remedies under the Lease and the law.” None of
Plaintiff's three notices of default to Defendant state that
Plaintiff intends to re-enter the Property, terminate the Lease, or
terminate Defendant's possession of the Property as required by the
Lease. Also, Plaintiff's letters to Defendant did not provide
clear and unequivocal notice to Defendant that Plaintiff wasterminating Defendant's estate. Plaintiff, therefore, had no
authority under the Lease to proceed with the summary ejectment
proceeding without Defendant's estate ceasing. Accordingly, the
trial court erred in granting Defendant's motion for summary
judgment.
(See footnote 4)
[5]Plaintiff cross-assigns error to the trial court's order
staying execution of the judgment pending appeal. Plaintiff's
arguments concerning its cross-assignment of error are reasons the
trial court erred in staying execution of the judgment and those
reasons do not provide “an alternative basis in law for supporting”
the judgment. The proper method to raise these arguments would
have been a cross-appeal.
See Williams v. N.C. Dept. of Economic
and Community Development, 119 N.C. App. 535, 539, 458 S.E.2d 750,
753 (1995);
see also N.C.R. App. P. 10(d). Accordingly,
Plaintiff's failure to appeal the trial court's order waives this
Court's consideration of the matter on appeal.
Id.
Reversed.
Judge MCGEE concurs.
Judge CAMPBELL concurs in part and dissents in part with
separate opinion.
==============================
CAMPBELL, Judge, concurring in part and dissenting in part.
I respectfully dissent from the majority opinion on the issue
of whether plaintiff terminated defendant's leasehold estate,
thereby allowing plaintiff to bring an action for summary
ejectment.
With respect to Part III of the majority opinion, I agree that
under N.C. Gen. Stat. § 42-26(2), a breach of a lease cannot be
made the basis for summary ejectment unless the lease provides for
termination upon such a breach or reserves the right of re-entry
for such breach.
Morris v. Austraw, 269 N.C. 218, 222, 152 S.E.2d
155, 159 (1967). The majority concedes that the lease in the
instant case provides for the right to “terminate the Lease, or
terminate the Defendant's possession of the property.”
The majority holds in footnote 4 that because “Plaintiff's
notices did not indicate which option it was exercising,
Plaintiff's notices are insufficient to terminate Defendant's
estate.” I disagree.
The record in the instant case indicates that the parties
entered into a 32-page (plus 7 pages of exhibits) commercial lease
(“the Lease”) whereby defendant-Tenant (“defendant”) agreed to pay
plaintiff-Landlord (“plaintiff”) a monthly minimum rent on a square
foot basis (“base rent”) plus common area maintenance (“CAM”)
charges “without demand and without counterclaim, deduction or set-
off.” The Lease was entered into as of 14 June 1995. On 10
February 1997, the parties entered into a formal lease amendment
wherein they agreed that defendant was then in default for failureto pay rent but that defendant was given an opportunity to cure in
accordance with the terms and conditions outlined therein. The
parties agreed that the total amount owing at that time was
$179,825.56 which was to be paid in accordance with a payment
schedule attached to the lease amendment. Other than the changes
made by the amendment, all of the terms of the Lease were to remain
in full force and effect.
Section 26(a)(i) of the Lease made defendant's failure “to pay
rent including additional rent within 3 business days after notice
of its failure to do so from Landlord” an “Event of Default.” Upon
any such “Event of Default,” Section 26(b) of the Lease entitled
plaintiff, upon written notice to defendant, to:
(i) re-enter the Demised Premises and correct
or repair any condition which shall constitute
a failure on Tenant's part to perform or abide
by the terms of this Lease, . . . and (ii) re-
enter the Demised Premises and remove
therefrom Tenant and all property belonging to
or placed on the Demised Premises by, or at
the direction of, Tenant, and place or store
such Tenant property . . . and [Landlord]
shall be further entitled to either (x) to
terminate the term hereof or (y) to terminate
Tenant's right to possession or occupancy
only, without terminating the term of this
Lease Agreement.
Unless the term is
specifically terminated by notice in writing,
it shall be assumed that the Landlord has
elected to terminate possession only, without
terminating the term.
(Emphasis added). Pursuant to this provision, upon any “Event of
Default,” plaintiff had the following options: (1) terminate the
remainder of the Lease; (2) exercise its reserved right of re-entry
to terminate defendant's right to possession of the property; or
(3) ignore the default and do nothing. Further, the partiesagreed, as part of the Lease, that if plaintiff's written notice to
defendant under Section 26(b) did not specifically terminate the
Lease, then it was to be assumed that plaintiff had elected to
exercise its right of re-entry.
On three separate occasions
(See footnote 5)
in a three-and-a-half month span,
plaintiff sent defendant written notice informing defendant that it
was in default of the Lease pursuant to Section 3 (“Covenant to Pay
Rent”) and Section 26 (“Events of Default”). Each of these notices
demanded that defendant immediately cure default by payment of the
past due amount, and warned defendant that “[i]f payment is not
received in accordance with the Lease, the Landlord will
immediately initiate curative remedies under the Lease and the
law.”
There is no question that defendant's repeated failure to pay
rent after having been notified by plaintiff that it was past due
constitutes an “Event of Default” under Section 26(a)(i) of the
Lease. There is likewise no question that Section 26(b) of the
Lease gives the plaintiff the option either to terminate the Lease
upon an event of default (i.e. breach of the Lease), or to exerciseits reserved right of re-entry and to terminate defendant's right
to possession or occupancy, so long as defendant is given written
notice. The only question, and the issue on which I disagree with
the majority opinion, is whether plaintiff's warning that “[i]f
payment is not received in accordance with the Lease, the Landlord
will immediately initiate curative remedies under the Lease and the
law,” was sufficient to cause defendant's leasehold estate to have
“ceased” under G.S. § 42-26(2). I believe that it was.
The majority opinion relies on this Court's decision in
Stanley v. Harvey, 90 N.C. App. 535, 369 S.E.2d 382 (1988), to
support its conclusion that plaintiff's written notices to
defendant “did not provide clear and unequivocal notice to
Defendant that Plaintiff was terminating Defendant's estate.”
While I agree with the decision reached in
Stanley, I believe the
majority's reliance upon it in the instant case is misplaced for
the following reasons.
First, the lease in
Stanley did not provide for a right of re-
entry to terminate possession. The only way the lessor in
Stanley
could cause the lessee's estate to “cease” was to terminate the
lease altogether. The Court in
Stanley held that the notice to
vacate the premises was not a clear and unequivocal notice that the
lease was to be terminated, since the lessee could arguably refuse
such request to vacate because the lease did not provide for an
automatic right of re-entry. However, in the instant case
plaintiff did not attempt to terminate the Lease, instead choosing
to rely on the parties agreed upon assumption that its writtennotices constituted an election to exercise its reserved right of
re-entry to terminate defendant's possession. Since plaintiff was
not attempting to terminate the Lease, the holding in
Stanley is
not controlling.
Second, the lease in
Stanley was a residential lease, whereas
the parties in the instant case had entered into a commercial lease
with detailed provisions concerning the rights of the parties upon
default. It should be presumed that the parties who have entered
into a commercial lease have negotiated at arm's length and
understand the results of their negotiations as memorialized in
their written lease agreement. Thus, I do not believe the
defendant in the instant case misunderstood the notices it received
from plaintiff. Defendant must have understood the provision in
Section 26 of the Lease setting out the assumption that written
notice from plaintiff which did not specifically terminate the
Lease was an election by the plaintiff to terminate possession
only. Allowing the commercial lessor to go forward with summary
ejectment in a situation such as this is consistent with the
agreement that the parties had entered into. Thus, I believe
plaintiff met the required obligations for it to institute a
summary ejectment action.
For the foregoing reasons, although I concur with Parts I, II,
and that portion of Part III dealing with plaintiff's cross-
assignment of error, I respectfully dissent from that portion of
Part III of the majority opinion holding that plaintiff failed to
effectively terminate defendant's leasehold estate. I would,
therefore, affirm the trial court's grant of summary judgment forplaintiff.
Footnote: 1