JH PROPERTIES, INCORPORATED v. JPL MANAGEMENT, INCORPORATED
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RENDERED: DECEMBER 23, 1999; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1998-CA-002705-MR
JH PROPERTIES, INCORPORATED
v.
APPELLANT
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE JOHN W. POTTER, JUDGE
ACTION NO. 96-CI-005830
JPL MANAGEMENT, INCORPORATED
and JAMES E. SCHORY
APPELLEES
OPINION
REVERSING
* * * * * * * * * *
BEFORE:
BUCKINGHAM, GUIDUGLI and KNOPF, Judges.
BUCKINGHAM, JUDGE.
JH Properties appeals from a judgment of the
Jefferson Circuit Court rendered in favor of JPL Management,
Inc., and James E. Schory after a bench trial.
Having reviewed
the record, the applicable law, and the arguments of counsel, we
reverse.
JH Properties is a subsidiary of Jewish Hospital
Healthcare Services, Inc., and is organized to manage the leases
executed by Jewish Hospital.
In 1986, Jewish Hospital instructed
JH Properties to locate a fast food franchise to lease space
inside the Jewish Hospital Outpatient Care Center.
Schory, the
president of JPL, a company which owned three Burger King
restaurants, contacted Ron Greenburg, senior vice-president of
Jewish Hospital, and lease negotiations began.
The parties executed a lease on September 29, 1986, for
an initial term of three years with the option to renew for a
second term of two years, a third term of five years, a fourth
term of five years, and a fifth term of five years.
Section 1.3
of the lease provided that JPL could renew the initial term of
the lease for a period of two years “provided that Tenant shall
give and deliver a written renewal notice to Landlord not sooner
than one (1) year and not later than one hundred eighty (180)
days prior to the expiration of the original term of this Lease.”
Section 1.4 of the lease granted JPL the option to renew the
lease for three additional five-year periods under the same terms
and conditions that were applicable to the first renewal term.
That section of the lease also stated that the renewal options
for the additional terms “shall be subject to the same written
notice provisions from Tenant to Landlord . . . as set forth in
Section 1.3 of this Lease Agreement.”
Section 2.1 of the lease provided that the commencement
date of the lease was to be the earlier of (a) 60 days following
the opening of the restaurant to the public, or (b) 150 days
after the execution of the lease agreement.
The restaurant did
not open until June 12, 1987; therefore, according to the lease
agreement, the commencement date of the lease was 150 days after
the execution of the lease agreement.
Under section 3.1, rent
was due beginning on the commencement date, and under section
11.1, JH Properties’ contribution for the improvements to the
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leased space was also due on the commencement date.
JH
Properties did not pay its contribution for improvements until
after June 12, 1987, and the initial rent invoice from JH
Properties was dated July 27, 1987.
After the initial invoice
was received, JPL and JH Properties agreed that rent would be due
60 days after June 12, 1987, the date the restaurant opened.
In 1990, JPL renewed the lease for an additional twoyear term.
Although no written notice was given by JPL, JH
Properties accepted the renewal.
In 1992, JPL again renewed the
lease, this time for a five-year term.
As with the first
renewal, this second renewal was given and accepted without
written notice as required by the lease.
In 1995, JH Properties and JPL agreed to make
renovations to the restaurant to keep pace with the modern
renovations Jewish Hospital had made to its facilities.
During
the discussions concerning renovation, Schory informed Greenburg
that JPL wanted to continue at the hospital location for another
term.
The renovations took place in 1995-1996.
Jewish Hospital
spent approximately $75,000 on the renovations and paid Burger
King’s personnel costs as well as abated the rent during the
renovation period.
JPL spent $43,000 to renovate and lost
approximately $10,000 to $12,000 in revenue.
On April 16, 1996,
Schory stated in a correspondence to JH Properties that “we truly
want to continue this strong relationship.”
As the second renewal of the lease was coming to an
end, JPL failed to give timely written notice of renewal as
required by section 1.4 of the lease.
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Under the terms of the
lease, JPL should have given written notice of its intent to
renew for another five-year term no sooner than February 27,
1996, and no later than August 30, 1996.
On September 1, 1996,
JH Properties sent correspondence to JPL informing JPL that the
lease would expire as of February 26, 1997.
After Schory
received and read the correspondence, he instructed his attorney
to send a letter to JH Properties indicating that JPL intended to
renew the lease.
JPL’s formal written notice of its intent to
renew was given on September 9, 1996.
Nevertheless, JH
Properties refused to accept JPL’s renewal because written notice
was not given within the time period allowed by the lease.
In October 1996, JPL and Schory filed a complaint in
the circuit court for a declaration of rights under the lease.
In June 1997, the circuit court conducted a bench trial and
rendered an opinion and order in July 1998 which held that JPL
had renewed the lease for an additional five-year term.
The
court specifically found that
under the peculiar facts of this case (Jewish
Hospital silently waiting for the time period
to expire in the hopes that Mr. Schory would
forget to renew; the possible confusion about
the commencement date caused by Jewish
commencing rent collection late; the past
oral extensions), the Court finds that Mr.
Schory validly exercised his option to
renew.1
After JH Properties’ motion to alter, amend, or vacate the
judgment was denied, its appeal followed.
1
The court cited no authority which would allow equitable
relief.
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JH Properties argues that the trial court erred in
disregarding the express terms of Sections 1.3 and 1.4 of the
lease which required JPL to give a written notice within a
certain time frame of its intent to renew the lease.
It argues
that Kentucky courts have consistently required strict compliance
with notice requirements for the renewal of leases.
See Bryant
v. Fowler-Comer Co., 252 Ky. 466, 67 S.W.2d 700 (1934), and Pieck
v. Carran, 271 Ky. 32, 111 S.W.2d 444 (1937).
These cases
generally hold that where a lease provision requires notice to
the landlord of an option to renew or extend the lease, “the
terms of the lease must be complied with by the tenant in order
to bind the landlord, and the notice must be given in the manner
provided . . . .”
Bryant, 252 Ky. at 469, 67 S.W.2d at 707.
More specifically, JH Properties argues that the trial
court erred by allowing the lease to be renewed on equitable
grounds based on “the peculiar facts of this case.”
JH
Properties relies on Woodrum v. Pulliam, Ky., 453 S.W.2d 263
(1970), in support of its argument.
In Woodrum, the lessee
claimed that she should not be bound by the strict written notice
requirement of the lease since her failure to give the required
notice was because she “plain, plumb forgot” to exercise the
option.
The trial court held:
We perceive no accident, fraud, surprise,
mistake or any other special circumstances
requiring equitable relief.
. . . .
. . . This case does not involve forfeiture,
but is a failure to exercise an option within
the required time; hence we fail to see any
equitable issues.
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. . . .
We conclude that time is of the essence in
the prime lease at law as well as in equity.
This is not a matter of forfeiture or
penalty; hence no equitable issue is
involved.
Woodrum, supra at 265-65.
JH Properties reads Woodrum to mean
that equitable relief is not available in these situations, but
JPL reads Woodrum to mean that equitable relief may be available
in these situations where “special circumstances” exist.
We
agree with JH Properties’ reading of the Woodrum case.
JPL cites a number of cases from other jurisdictions
which have allowed equitable relief to excuse a lessee’s failure
to give timely notice of the exercise of a renewal option in a
lease agreement.
In fact, William B. Johnson, the author of the
annotation Circumstances Excusing Lessee’s Failure to Give Timely
Notice of Exercise of Option to Renew or Extend Lease,
27 A.L.R. 4th 266 (1984), stated that “it appears that all courts
which have dealt with the issue in recent years have recognized
that there can be special circumstances which may warrant
equitable relief from a lessee’s failure or delay in giving
notice to renew an option in its lease.”
Id. at 270.
Despite
how other jurisdictions may have dealt with this issue, we are
compelled to follow Woodrum and hold that equitable relief is not
available in these situations.
See Supreme Court Rule
1.030(8)(a), which provides that “[t]he Court of Appeals is bound
by and shall follow applicable precedents established in the
opinions of the Supreme Court and its predecessor court.”
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JPL also argues that JH Properties waived the written
notice requirement by its past course of dealing, by not warning
JPL that written notice was required, and by requiring JPL to
spend over $40,000 on renovations shortly before the end of the
lease term.
It cites Deane v. Mitchell, 312 Ky. 389, 227 S.W.2d
893 (1950), and Khourie Bros. v. Jonakin, 222 Ky. 277, 300 S.W.
612 (1927), in support of its argument.
In these cases, the
court found that the landlord waived a requirement for a written
notice of renewal.
While waiver of such a lease provision may be held to
have occurred in some situations, section 18.2 of the lease in
the case sub judice provided in part as follows:
Non-Waiver. The failure to Landlord or
Tenant to insist in any one or more cases
upon the strict performance of any of the
terms, covenants, conditions, provisions or
agreements of this Lease or to exercise any
option herein contained shall not be
construed as a waiver or a relinquishment for
the future of any such term, covenant,
condition, provision, agreement or option.
. . . [T]he acceptance of performance of
anything required by this Lease to be
performed, with knowledge of the breach of
any term, covenant, condition, provision or
agreement of this Lease, shall not be deemed
a waiver of such breach, . . . and no waiver
by Landlord or Tenant of any term, covenant,
condition, provision or agreement of this
Lease shall be deemed to have been made
unless expressed in writing and signed by
Landlord or Tenant, whichever the case may
be.
We conclude that this provision in the lease precludes any
previous waiver or course of dealing from controlling.
Indian
Refining Co. v. Baker, 284 Ky. 423, 428, 145 S.W.2d 72, 75
(1940).
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As JPL was not entitled to renew the lease due to its
failure to comply with a written notice requirement and further
was not entitled to equitable relief, the opinion and order of
the Jefferson Circuit Court is reversed.
GUIDUGLI, JUDGE, CONCURS.
KNOPF, JUDGE, CONCURS IN RESULT ONLY.
BRIEFS AND ORAL ARGUMENTS
FOR APPELLANT:
BRIEF AND ORAL ARGUMENT
FOR APPELLEE:
Charles H. Cassis
Jan M. West
Louisville, KY
W. David Kiser
Louisville, KY
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