Landlord and Tenant--lease agreement--termination--option to purchase
The trial court erred in an action for breach and/or anticipatory breach of contract, unjust
enrichment, and unfair and deceptive trade practices by concluding as a matter of law that
defendants had properly terminated the parties' lease agreement based on plaintiff's failure to pay
the 1996 real property taxes in a timely manner and that plaintiff could no longer exercise the
option to purchase provided in the agreement, because: (1) the lease contains no provision for
termination of the lease upon the occurrence of any breach; (2) the lease does not indicate that
the parties clearly intended for plaintiff's obligation to pay taxes to be regarded as part of
plaintiff's rental obligation, and thus plaintiff's covenant to pay taxes was not "rent" within the
meaning of N.C.G.S. § 42-3; and (3) N.C.G.S. § 42-27, which causes a tenant to forfeit his right
of possession for neglecting or refusing to perform the terms of the contract, does not apply since
the lease was entered into on 12 March 1996, the property that is the subject of the lease is
located in New Hanover County, and New Hanover County was added to the statute after the
date the lease was entered.
Ryals, Robinson & Saffo, P.C., by Mark F. Carter, for
plaintiff-appellant.
Stephen E. Culbreth for defendant-appellees.
CAMPBELL, Judge.
On 12 March 1996 plaintiff-tenant ("plaintiff") entered into
a lease agreement ("the lease") with defendants-landlord
("defendants") whereby plaintiff agreed to lease the property
located at 1209 Market Street, Wilmington, North Carolina, for a
term beginning 1 February 1996 and ending 1 September 2005.
Plaintiff agreed to pay rent at the rate of $1600 per month from 1
July 1996 through 31 December 1996, and $2000 per month for the
remainder of the lease term. In addition to the obligation to paymonthly rent, the lease held plaintiff responsible for payment of
all real and personal property taxes assessed against the property,
as well as property insurance. Further, the lease granted
plaintiff an option to purchase the property, which could be
exercised by giving defendants sixty-days written notice.
On 13 January 1998, defendants' attorney sent plaintiff a
letter purporting to terminate the lease for plaintiff's failure to
pay the 1996 real property taxes (“1996 taxes”) and the property
insurance premiums in a timely manner. In addition, defendants'
attorney sent plaintiff a new lease agreement for him to execute.
At this time, plaintiff was current on his rent and insurance
payments, but had not yet paid any of the 1996 taxes. The parties
were in dispute as to the amount of plaintiff's liability for the
1996 taxes, which plaintiff expected to be prorated between him and
defendants. Plaintiff refused to sign the new lease agreement and
continued paying rent. On 25 March 1998, plaintiff sent defendants
a check for the full amount of the 1996 taxes plus interest. On 20
April 1998, defendants' attorney again wrote plaintiff contending
that the lease was void and demanding that he surrender the
premises by 31 May 1998 or execute the previously proposed new
lease, which had a higher monthly rent and did not include an
option to purchase. In response, by letter dated 24 April 1998,
plaintiff notified defendants that he was exercising the option to
purchase contained in the lease, and that he was ready, willing and
able to close the transaction on 24 June 1998. However, defendants
refused to convey the property to plaintiff.
On 16 June 1998, plaintiff brought this action in New HanoverCounty Superior Court, alleging breach and/or anticipa
tory breach
of contract, unjust enrichment (for the value of improvements
plaintiff had allegedly made to the property) and unfair and
deceptive trade practices. Plaintiff also sought specific
performance of the option to purchase, as well as a preliminary
injunction ordering defendants to immediately convey the property
to plaintiff. In addition, plaintiff filed a notice of lis pendens
as to the property. Defendants filed their answer on 20 July 1998,
along with a counterclaim seeking removal of the cloud on title
allegedly created by plaintiff's earlier recording of the lease,
together with his written notification to defendants that he was
exercising the option to purchase. On 31 July 1998, plaintiff
filed a notice of cancellation of the lis pendens when the parties
agreed to sell the property to a third party and place the proceeds
of the sale in an escrow account. After a bench trial, the trial
court made detailed findings of fact and concluded, as a matter of
law, that defendants were justified in declaring the lease to be
void, and that plaintiff had no rights under the lease. On 19
January 2000, plaintiff filed a motion to amend the judgment
pursuant to N.C. R. Civ. P. 52(b) (“Rule 52(b)”).
(See footnote 1)
On 17 February2000, the trial court entered an amended judgment, again
concluding, as a matter of law, that “the defendants were justified
in declaring the lease contract to be void,” that “the plaintiff
has no rights under the lease” and that “the option [is] not
binding on the defendants.” Based on its conclusions of law, the
trial court ordered that plaintiff recover nothing on his first,
third, fifth and sixth causes of action, and that defendants were
entitled to the proceeds from the sale of the property, which were
being held in escrow. The court's amended judgment further
provided that “this is a final judgment as to the Plaintiff's
First, Third, Fifth and Sixth Causes of Action and there is no just
reason for delay in entering this order” pursuant to N.C. R. Civ.
P. 54(b) (“Rule 54(b)”). Plaintiff appeals, arguing that the trial
court's conclusions of law are not supported by its findings of
fact, and that the trial court failed to make conclusions of law as
to plaintiff's claims of waiver and estoppel.
We first note that plaintiff appeals from an interlocutory
order, as the trial court's judgment fails to resolve plaintiff's
second and fourth causes of action, and defendants' counterclaim.
See Hudson-Cole Dev. Corp. v. Beemer, 132 N.C. App. 341, 344, 511
S.E.2d 309, 311 (1999) (“Where, as here, an order entered by the
trial court does not dispose of the entire controversy between all
parties, it is interlocutory.”). “As a general rule, a party is
not entitled to immediately appeal an interlocutory order.” Id.
However, where the order represents a final judgment as to one ormore but fewer than all of the claims presented in an action, an
immediate appeal may be had if the trial court certifies that there
is “no just reason for delay” in entering final judgment as to
those claims. N.C.R. Civ. P. 54(b) (1999). In the instant case,
the trial court's judgment operates as a final judgment as to
plaintiff's first, third, fifth and sixth causes of action, and it
contains the trial court's certification pursuant to Rule 54(b).
Therefore, plaintiff's appeal is properly before us.
By his first three assignments of error, plaintiff argues that
the trial court committed reversible error in concluding as a
matter of law that defendants had validly terminated the lease and
that plaintiff had no right to exercise the option to purchase. We
agree, and hold that the trial court's findings of fact do not
support its conclusions of law.
When the trial court sits as a fact-finder, its findings of
fact are conclusive on appeal if supported by competent evidence,
even if there is evidence which would support alternative findings.
K&S Enters. v. Kennedy Office Supply Co., 135 N.C. App. 260, 264,
520 S.E.2d 122, 125 (1999), aff'd, 351 N.C. 470, 527 S.E.2d 644
(2000). Here, plaintiff only challenges the trial court's
conclusions of law. Where no exceptions are taken to findings of
fact, such findings are binding on appeal. Schloss v. Jamison, 258
N.C. 271, 275, 128 S.E.2d 590, 593 (1962). What remains for us to
determine is whether the trial court's conclusions of law are
supported by its findings of fact. Conclusions of law are entirely
reviewable on appeal. Scott v. Scott, 336 N.C. 284, 291, 442S.E.2d 493, 497 (1994).
“'An option in a lease, which gives the lessee the right to
purchase the leased premises at any time before the expiration of
the lease, is a continuing offer to sell on the terms set forth in
the option, and may not be withdrawn by the lessor within the time
limited. The lease is a sufficient consideration to support
specific performance of the option to purchase granted therein.'”
Reynolds v. Earley, 241 N.C. 521, 526, 85 S.E.2d 904, 907-08 (1955)
(quoting Crotts v. Thomas, 226 N.C. 385, 387, 38 S.E.2d 158, 159
(1946)). It follows from this rule that termination of the lease
terminates the option to purchase, but, where the lease is still in
effect, the option to purchase is still valid. Indeed, the lease
in the instant case indicates that the option is valid “during the
term of the lease.” Thus, we must determine whether the lease was
still valid when plaintiff attempted to exercise his option to
purchase by letter dated 24 April 1998.
Absent an express provision for termination or forfeiture of
a lease, a breach of a covenant in a lease does not terminate the
lease. Morris v. Austraw, 269 N.C. 218, 222, 152 S.E.2d 155, 159
(1967); Couch v. ADC Realty Corp., 48 N.C. App. 108, 113, 268
S.E.2d 237, 241 (1980). Here, the lease in question contains no
provision for termination of the lease upon the occurrence of any
breach. However, N.C. Gen. Stat. § 42-3 provides that in all
leases with a fixed time for the payment of rent,
there shall be implied a forfeiture of the
term upon failure to pay the rent within 10
days after a demand is made by the lessor or
his agent on said lessee for all past-duerent, and the lessor may forthwith enter and
dispossess the tenant without having declared
such forfeiture or reserved the right of
reentry in the lease.
N.C. Gen. Stat. § 42-3 (1999).
Either the letter dated 13 January 1998 or the letter dated 20
April 1998 from defendants' attorney to plaintiff could be
considered a demand for past-due rent under N.C.G.S. § 42-3, but
the question remains as to whether plaintiff in fact owed past-due
rent at the time these payment demands were made. The trial court
found as fact that “[a]t the time of the [13 January 1998]
notification, plaintiff was current on his rent and insurance but
had not yet paid 1996 taxes on the property.” Therefore, the
dispositive issue is whether plaintiff's responsibility to pay
taxes was part of his rental obligation, or a separate covenant
between the parties.
As a general rule, a tenant's covenant to pay taxes is not the
same as a covenant to pay rent, and such taxes are not regarded as
part of the rent in the absence of a clear intention of the parties
to that effect expressed in the lease. 49 Am. Jur. 2d Landlord and
Tenant § 452 (1995). Whether taxes are part of the rental depends
on the contract between the parties and its construction. Id. In
the instant case, the lease identifies the monthly payment as
“monthly rental,” while insurance payments are identified as
“additional rental.” In regards to the payment of taxes, Section
5 of the lease reads as follows:
lessee shall be liable for payment of all real
and personal property taxes assessed against
the property, payment for all repairs andalterations to the property or the buildings
on the property, and payment for all utility
services used in the operation of its business
on the premises.
Unlike the provision of the lease identifying insurance as
“additional rental,” Section 5 does not indicate that the parties
clearly intended for plaintiff's obligation to pay taxes to be
regarded as part of plaintiff's rental obligation. Absent such
clear intention, we believe the parties intended for plaintiff's
obligation to pay taxes to be considered a separate covenant.
Therefore, we conclude that plaintiff's covenant to pay taxes was
not “rent” within the meaning of N.C.G.S. § 42-3, and, thus,
defendants cannot rely on the statute as a basis for terminating
plaintiff's lease. Further, since the lease lacked an express
provision for termination upon breach of a covenant, defendants had
no legal authority to cause plaintiff to forfeit his rights under
the lease. Consequently, the lease was still valid on 24 April
1998, and plaintiff's notification to defendants that he was
exercising the option to purchase was valid.
Defendants contend that the lease is also governed by N.C.
Gen. Stat. § 42-27, which causes a tenant to forfeit his right of
possession for “neglect[ing] or refus[ing] to perform the terms of
his contract [for the rental of land] without just cause. . . .”
N.C. Gen. Stat. § 42-27 (1999). N.C.G.S. § 42-27 applies only to
those counties specifically listed in that section. New Hanover
County was added to N.C.G.S. § 42-27 by 1995 N.C. Sess. Laws ch.
566, which was ratified on 19 June 1996. N.C. Sess. Laws ch. 566,
§ 3 provides that “[t]his act is effective upon ratification and
applies to contracts entered into on or after that date.” 1995N.C. Sess. Laws ch. 566, § 3. While the property that is the
subject of the lease is located in New Hanover County, the lease
was entered into on 12 March 1996, and thus N.C.G.S. § 42-27 does
not apply.
Having found in favor of plaintiff on his first three
assignments of error, we need not address his remaining assignments
of error.
Based on the foregoing, we hold that the trial court erred in
concluding as a matter of law that defendants had properly
terminated the lease and that plaintiff could no longer exercise
the option to purchase. Therefore, the trial court's judgment is
reversed, and the cause is remanded to the trial court with
instructions to enter judgment in favor of plaintiff in his action
for specific performance, and order disbursement of the funds being
held in escrow in a manner consistent with this opinion and the
escrow agreement.
Reversed and remanded.
Judges WYNN and BIGGS concur.
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