Bradley Operating Limited Partnership, Respondent, vs. Nathan Wattenhofer d/b/a Heart Alive, Appellant.

Bradley Operating Limited Partnership, Respondent, vs. Nathan Wattenhofer d/b/a Heart Alive, Appellant. A05-1075, Court of Appeals Unpublished, March 14, 2006.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A05-1075

 

Bradley Operating Limited Partnership,
Respondent,
 
vs.
 
Nathan Wattenhofer d/b/a Heart Alive,
Appellant.

 

Filed March 14, 2006

Affirmed

Minge, Judge

 

Hennepin County District Court

File No. 04-10687

 

 

Douglas B. Altman, Altman & Izek, 901 North Third Street, Suite 140, Minneapolis, MN 55401 (for respondent)

 

Lawrence H. Crosby, Jay D. Olson, Crosby & Associates, Roseville West, 2277 Highway 36, Suite 234E, St. Paul, MN 55113 (for appellant)

 

            Considered and decided by Minge, Presiding Judge; Randall, Judge; and Collins, Judge.*

 

U N P U B L I S H E D  O P I N I O N

 

MINGE, Judge

            Appellant challenges summary judgment holding him liable for rental payments and dismissing his counterclaim for unjust enrichment.  We affirm.

FACTS

            Appellant Nathan Wattenhofer entered into a lease agreement with respondent Bradley Operating Limited Partnership on January 8, 2002, which provided that Wattenhofer would rent a 19,300 square-foot building at Brookdale Square from Bradley for a period of ten years, with the option to renew for an additional five years.  Once various repairs and leasehold improvements were completed, Wattenhofer intended to use the space for an entertainment center.  The lease commenced on January 15, 2003.  In August 2003, Bradley commenced an eviction action for nonpayment of rent.  The parties entered into a settlement agreement to terminate Wattenhofer's occupation of the premises.  In December 2003, Wattenhofer moved out and the eviction action was dimissed.  

            In November 2004, Bradley started this action for rent, and Wattenhofer counterclaimed for unjust enrichment.  Bradley moved for summary judgment.  The district court granted Bradley's motion, dismissed Wattenhofer's counterclaim, and ultimately judgment was entered for Bradley in the amount of $254,725.15.  Wattenhofer appeals.           

D E C I S I O N

            On appeal from summary judgment, this court asks two questions: (1) whether there are any genuine issues of material fact; and (2) whether the district court erred in its application of the law.  Schafer v. JLC Food Sys., Inc., 695 N.W.2d 570, 573 (Minn. 2005); see also Minn. R. Civ. P. 56.03.  A material issue for trial must be based on substantial evidence, and the party opposing summary judgment must do more than rest on "mere averments."  DLH, Inc. v. Russ, 566 N.W.2d 60, 71 (Minn. 1997).  The evidence is viewed in the light most favorable to the nonmoving party.  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).  We review questions of law de novo.  Benigni v. County of St. Louis, 585 N.W.2d 51, 54 (Minn. 1998).

I.

            The first issue is whether the district court erred in granting summary judgment for the rent obligation.  Wattenhofer claims the district court improperly interpreted the language of the lease.  A lease is a contract which the court will construe according to the rules of interpretation to ascertain the parties' intent.  Amoco Oil Co. v. Jones, 467 N.W.2d 357, 360 (Minn. App. 1991).  Where "terms of the contract may be given their plain and ordinary meaning, construction of the contract is a matter for the court and summary judgment may be appropriate."  Bank Midwest, Minn., Iowa, N.A. v. Lipetzky, 674 N.W.2d 176, 179 (Minn. 2004) (citations omitted).  A contract provision is ambiguous if it is reasonably susceptible to more than one meaning.  Denelsbeck v. Wells Fargo & Co., 666 N.W.2d 339, 346 (Minn. 2003).  Unambiguous language "must be given its plain and ordinary meaning, and shall be enforced by courts even if the result is harsh."  Id. at 346-47.  Unless ambiguity exists, generally the construction and effect of contract language is a question of law.  Westphal v. Anderson, 347 N.W.2d 85, 87 (Minn. App. 1984).

            First, we consider whether Bradley, as the landlord, was responsible for structural repairs.  Wattenhofer argues that the district court interpreted the "as-is" clause too expansively when it found that Wattenhofer assumed the burden of making structural repairs.  Wattenhofer asserts that he spent $100,121 for structural repairs and requests reimbursement or a rental offset.  Minnesota does not require landlords to make structural repairs; rather that burden depends on the division of responsibility as detailed in the lease.  See Chris/Rob Realty v. Chrysler Realty Corp., 260 N.W.2d 456, 459 (Minn. 1977) ("It was appellants' burden to establish that the necessary repairs fell within the clause excepting ‘structural repairs' from the tenant's duties.").

            Furthermore, in the absence of an agreement, "there is no implied covenant on the part of the landlord to make repairs, [nor any warranty] that the premises are or will prove to be suitable for the tenant's use or business."  Dyrdal v. Golden Nuggets, Inc., 672 N.W.2d 578, 587 (Minn. App. 2003) (alteration in original) (citation omitted), aff'd, 689 N.W.2d 779 (Minn. 2004).[1]  In addition, Minnesota courts have not recognized an implied warranty of suitability for commercial leases.  See Meyer v. Parkin, 350 N.W.2d 435, 437 (Minn. App. 1984) ("At common law, in the absence of any covenant or agreement in the lease to repair, and where there is no fraud, misrepresentation, or concealment by the lessor, there was no implied warranty that the leased premises were fit for the purposes for which they were rented, or covenant to put them in repair or to keep them so."), review denied (Minn. Sept. 12, 1984).

            Here, the parties recognized that significant repairs and modifications were necessary to prepare the premises for Wattenhofer's occupancy.  Wattenhofer planned to establish an entertainment center in a building that had been used as a movie theater.  Remodeling was obviously necessary.  The lease divided the duties of each party to prepare the premises for occupancy.  For example, Bradley was to replace the roof and repair certain mechanical systems, such as the heating, ventilation and air conditioning (HVAC) and sprinkler systems.  The lease provided that after such repairs, Wattenhofer would receive possession "as-is."  In his affidavit opposing summary judgment, Wattenhofer contends that the HVAC and electrical system repairs were not properly completed by Bradley, and as a result the as-is clause was never triggered.  But, Wattenhofer's affidavit shows that the repairs were completed before both the commencement date of the lease and his receipt of the certificate of occupancy.  Thus, by the plain terms of the lease, the as-is clause was triggered.

            Another clause outlined Wattenhofer's extensive responsibilities: "[a]ll work not provided herein to be done by Landlord shall be performed by Tenant, at Tenant's expense, and deemed to be ‘Tenant's Work.'"  The parties further agreed that, "[A]ll construction work to be performed by Tenant hereunder shall be performed in a good and workmanlike manner in full compliance with all applicable laws, codes and building requirements of the local authorities."  Because Minnesota does not place responsibility for structural repairs on the landlord, and because the lease specifically allocated costs, the district court did not err in granting summary judgment.

            Wattenhofer further claims that summary judgment was inappropriate because the local governmental authorities required him to make substantial repairs to bring the premises into code compliance.  He points out that the case of Dennison v. Marlowe, 106 N.M. 433, 744 P.2d 906 (1987) recognized that landlords are liable for such repairs, and urges that we adopt that position.  In Dennison, after the lessee had taken possession of the premises, municipal officials notified the lessee that the premises needed significant structural changes to become code-compliant.  106 N.M. at 434, 744 P.2d at 908.  The New Mexico Supreme Court held: "the landlord instead of the tenant is liable for such alterations unless the terms of the covenant and the surrounding circumstances indicate the tenant's intention to assume such an obligation."  Dennison, 106 N.M. at 434, 744 P.2d at 907 (emphasis added).  "This rule is followed because the property owner is initially under the duty to comply with all laws and orders unless it is assumed by the lessee under the terms of the lease."  Id. at 435, 744 P.2d at 908 (citing 1 A.J. Casner, American Law of Property § 3.80, at 353-55 (1952)).[2]

            Dennison does not apply.  First, the plain language of the lease in our case provides that, once Bradley completed its repairs and Wattenhofer took possession of the property, Wattenhofer assumed the responsibility of meeting code requirements.  Given the change in use that Wattenhofer planned for the premises, code issues were foreseeable.  The court in Dennison expressly stated that the landlord would have the responsibility to meet code requirements unless the lease provided otherwise.  Dennison, 106 N.M. at 434, 744 P.2d at 908.  Second, in Dennison the building did not comply with code requirements for any permitted use.  Id. at 433, 744 P.2d at 907.  Here, there is nothing in the record indicating that public officials told Wattenhofer that he had to make certain repairs to comply with basic code requirements or that Bradley misled him about whether the building met code requirements.  Wattenhofer had a burden to oppose summary judgment by demonstrating questions of material fact.  Failing to do anything more than allege that he made repairs at the request of public officials, without providing evidence of such requests or the nature of the code deficiencies, did not meet this burden.  Therefore, the district court did not err in rejecting Wattenhofer's arguments based on the Dennison case.

Finally, Wattenhofer challenges summary judgment by claiming that he no longer has to make payments under the lease, either because the eviction agreement or Bradley's attempt to relet the premises implicitly terminated the lease.  Where "the lease expressly permits re-entry by the landlord, there must be unequivocal proof that the landlord intended to forgive the tenant's further obligations under the lease and accepted the tenant's surrender of the premises."  Provident Mut. Life Ins. Co. v. Tachtronic Instruments, Inc., 394 N.W.2d 161, 164 (Minn. App. 1986) (emphasis added).

            Here, the lease provided that, in the event of Wattenhofer's default, Bradley would have an immediate right to re-enter the premises and terminate Wattenhofer's right of possession.  In such a case, Bradley could elect to either terminate the lease, or "from time to time without terminating this Lease, make such alterations and repairs as may be necessary in order to relet the Premises."  The lease further gave Bradley the right to relet the premises upon Wattenhofer's default, with proceeds applied first to Wattenhofer's obligations, other than rent, then to the costs of reletting, and finally to the rent due under the lease.  These lease provisions are directly contrary to Wattenhofer's claim that Bradley intended to forgive Wattenhofer's future rent obligation merely because Wattenhofer surrendered possession.  See id.

            In addition, the parties entered into an agreement to settle Bradley's eviction claim.  The summary nature of an eviction proceeding "is comparable to the summary nature of the former unlawful-detainer proceeding[.]"  Fraser v. Fraser, 642 N.W.2d 34, 40 (Minn. App. 2002).  An unlawful detainer proceeding "merely determines the right to present possession and does not adjudicate the ultimate legal or equitable rights of ownership possessed by the parties."  Gallagher v. Moffet, 233 Minn. 330, 333, 46 N.W.2d 792, 793 (1951) (citation omitted).  Thus, the settlement agreement did not alter the parties' rights and responsibilities under the lease on questions beyond the scope of the eviction proceeding.  Neither the plain language of the lease nor the settlement agreement terminated Wattenhofer's rent obligation.[3]  The district court did not err in granting summary judgment for Bradley.

II.

            The second issue is whether the district court erred by dismissing Wattenhofer's unjust enrichment counterclaim.  To establish unjust enrichment, the claimant must show that the defendant knowingly received or obtained something of value, for which fairness requires the defendant to pay.  ServiceMaster of St. Cloud v. GAB Bus. Servs., Inc., 544 N.W.2d 302, 306 (Minn. 1996).  "An action for unjust enrichment does not lie simply because one party benefits from the efforts of others; instead, it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully."  Schumacher v. Schumacher, 627 N.W.2d 725, 729 (Minn. App. 2001) (quotation omitted).  The general rule is that, absent an agreement in the lease regarding improvements, the lessee is not entitled to a lien for improvements made.  In re Estate of Vangen, 370 N.W.2d 479, 480 (Minn. App. 1985).

            Wattenhofer argues that because some of the repairs were structural in nature, they inured to Bradley's benefit, and that it would be unjust to allow Bradley to be so benefited without paying for the cost of such repairs.  However, Wattenhofer's repairs in preparing the premises for his business purpose do not necessarily benefit Bradley.  The next use of the building may require different, possibly even conflicting, improvements.  In any event, such repairs do not mean Bradley was unjustly enriched.  See Armstrong v. Carr, 341 N.W.2d 582, 583 (Minn. App. 1984) (holding that where the lessee made certain improvements to the premises in order to expedite the sale of the business, the landlord was not liable to lessee under a theory of unjust enrichment).  Bradley contracted to contribute up to $200,000 for the repairs and modifications needed by Wattenhofer to achieve the purpose of the lease.  Bradley paid out all but $14,721.88 of that amount.  Bradley has no assurance that it will recover rent payments adequate to recoup this advance.  Wattenhofer does not allege that Bradley did anything illegal or untoward in arranging for the repairs or in negotiating the terms of the lease.  There is no evidence that Bradley's recovery of the building with the repairs that Wattenhofer made was illegal or unlawful. 

            In sum, the district court did not err by dismissing Wattenhofer's counterclaim for unjust enrichment.

            Affirmed.

* Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.

[1] We note that residential premises are covered by a different rule.  See Minn. Stat. § 504B.161 (2004) (providing a non-waiveable, implied statutory covenant of habitability); see also Delamater v. Foreman, 184 Minn. 428, 429-30, 239 N.W. 148, 149 (1931) (implying common law covenant of habitability for apartments).

[2] Again, we note that residential leases are treated differently with respect to code violations.  See generally Minn. Stat. §§ 504B.001-.471 (2004).

[3] Wattenhofer also claims that Bradley breached the implied covenant of good faith and fair dealing by failing to adequately respond to his requests for an accurate accounting of how much rent he owed on the lease.  However, the lease clearly outlined Wattenhofer's payment obligations.  Bradley did not materially breach the lease by failing to give Wattenhofer a timely accounting where Wattenhofer himself could have determined the remaining amount with little difficulty by referring to the relevant lease provision.