Tuesday, February 19, 2013

Court of Appeals Addresses Damages Arising from Breach of Lease

Court of Appeals Addresses Damages Arising from Breach of Lease

      The Kentucky Court of Appeals has issued helpful guidance with respect to the interpretation of commercial lease agreements.  Nohr v. Hall’s Rentals, LLC, ___ S.W.3d ___, 2013 WL 462004 (Ky. App. Feb. 8, 2013). 
      Adrian Nohr, an individual, leased office facilities for the operation of a chiropractic practice from Hall’s Rentals, LLC.  The lease, with a five-year term, provided rent in the amount of $5,000 due on the first of each month.  The lease did not contain a provision accelerating all rent due under the term of the lease upon its breach.
      By early 2010 (the opinion is not more specific) Nohr was in default of his obligations to Hall’s.  On February 24, 2010, the District Court entered a forceable detainer judgment against Nohr, allowing him to remain in the property for forty-five days provided a payment of $10,000 was made to Hall’s.  That payment was made and Nohr vacated the property at the end of the forth-five day period.  Since that time Nohr has not had possession of the property, and Hall’s undertook maintenance and similar obligations that were to have been performed by Nohr.  Nohr as well undertook certain activities to re-let the property, all of which were ultimately unsuccessful.

      Hall’s as well filed suit against Nohr, seeking damages under the contract for accrued but unpaid monthly payments, maintenance obligations performed by Hall’s and attorneys’ fees.  Nohr defended on the basis that, with Hall’s successful eviction of him from the property, he had no further obligations under the agreement, arguing that the “term” of the agreement had been terminated thereby.  Hall’s, in response, noted that the contract language contemplates that upon default there may be recovery for monthly rental expenses that accrue in the future.  The contract provided:
DEFAULT.  If default is made in any payment of said rent, or any part thereof, within thirty (30) days from the date said payment is due, or in fulfillment of any of the covenants or agreements herein specified to be fulfilled by the Lessee, or if any waste be committed or unnecessary damage done upon or to said premises, the Lessor may, after thirty (30) days’ written notice to the Lessee and the Lessee has not corrected said default, declare the said term ended and enter into possession of said premises and sue for and recover all rent and damages accrued or accruing under the lease or arising out of any violation thereof….
      The trial court granted Hall’s summary judgment with respect to its calculation of damages due and owing under the lease and as well determining that Hall’s had engaged in activities appropriate to mitigate damages.  Nohr appealed to the Court of Appeals.
      With respect to Nohr’s assertion that his obligations under the lease were terminated by Hall’s taking possession of the property, the Court of Appeals, as had the trial court, easily disposed of that argument, finding that the default provision of the lease clearly contemplated that the lessee’s obligations would continue.  In this respect, the court found that the use of the term “accruing” to be important:
We agree with the trial court as we believe that the language of [the default clause] plainly allowed Hall’s to seek recovery of any future rent obligation as it accrued under the terms of the lease.  In our view, the fact that the lease authorized Hall’s to “declare the [lease] term ended did not cancel its right to pursue “all rent … accruing under this lease.”  Instead, that language merely allowed Hall’s to take action to evict Nohr and to pursue a claim for rent and damages against him.  The fact that the word “and” is used as a conjunctive term between the specified remedies supports the conclusion that they are not intended to be exclusive to one another.  Moreover, the fact that the lease allows for the collection of rent “accruing” even after eviction and repossession indicates that Nohr’s requirement to satisfy his contractual rent obligation did not cease once same occurred.
      Turning, however, to the question of mitigation, the Court of Appeals, while indicating its agreement with the trial court, held that a determination on summary judgment that there had been sufficient efforts to mitigate damages was inappropriate.  “Thus, while we are inclined to believe that Hall’s efforts to mitigate were sufficiently reasonable, such is not our determination to make.”  On which basis, it reversed the similar determination by the trial court and directed that determination be made by the finder of fact.

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