Opinion
C.A. No. 01C-01-230-FSS
Submitted: May 9, 2001
Decided: August 31, 2001
Upon Defendant's Motion for Partial Summary Judgment.
James S. Green, Esquire, Seitz, Van Ogtrop Green, Attorney for Plaintiffs.
Edmond D. Johnson, Esquire, and Richard L. Abbott, Esquire, The Bayard Firm, Attorneys for Defendant.
MEMORANDUM OPINION
For now, this case is about the recording requirement under 25 Del. C. § 158, for long-term residential leases. Plaintiffs-lessors, Branpark et al., filed suit claiming that First USA Bank, Defendant-lessee, has defaulted on or anticipatorily breached several leases. First USA has moved for partial summary judgment, contending that the leases underlying Counts II and III of Plaintiffs' complaint are unenforceable because they relate to residential property, they are for more than five years and they have not been recorded. Any lease subject to the recording statute is unenforceable.
Cf Copeland v. Beh, Del. Supr., No. 217, 1990, Horsey, J. (Apr. 23, 1991) ( Copeland I), opinion withdrawn, Horsey, J. (June 18, 1991) ( Copeland II) (explained in Smyrna Center Assocs. v. Great Atlantic Pacific Tea Co., Inc., Del. Super., C.A. No. 91C-10-033, Steele, J. (Feb. 10, 1992) (ORDER), aff'd, Del. Supr., No. 235, 1992, Horsey, J. (Nov. 4, 1992)).
I.
Plaintiffs are lessors of several completed and yet-to-be-completed apartment complexes. First USA was a lessee and prospective tenant. On September 17, 1999, the parties executed a "combined lease" for future rental of 50 apartments "to be built and delivered to First USA before March 21, 2001", in the Queensbury Village apartment complex, and 68 apartments "to be built and delivered to First USA on or before March 1, 2002" in the Harbor Brick Building. The Rockford lease's default provision states that if a tenant defaults, upon five days after giving written notice, the landlord "may terminate and have possession of the units."Further:
Tenant shall pay to the landlord, on demand, all rent due under this Lease before and after the default, plus: any and all costs related to the reletting; and, reasonable compensation to the landlord for arranging fix-up and reletting.
The Harbor Associates Lease's default provisions are identical to the Rockford lease.
II. A. Plaintiffs' Contentions
Plaintiffs' complaint is sweeping. Plaintiffs claim that a September 22, 2000 letter from William P. Boardman to Greg Pettinaro, "anticipatorily breached" the Rockwood lease, putting First USA in default to Plaintiffs. Plaintiffs seek $1,739,000.00 in costs and $7,500,000.00 in "lost rental income." Plaintiffs also claim that pursuant to the same letter, First USA anticipatorily breached the Harbor Associates lease. Plaintiffs claim $57,184.00 costs and $12,648,000.00 lost rental income. Plaintiffs also demand damages for tortious interference, damage to a rental unit, long distance telephone charges and punitive damages. But, as mentioned above, the current dispute merely concerns the leases' enforceability.
Plaintiffs' current position is that the statutory recording requirement does not apply to the leases. Plaintiffs contend that the leases are for five years or less. Also, Plaintiffs suggest that they fit under the commercial lessor exception to the recording requirement.
B. First USA's Contentions
First USA claims that the leases do not constitute contracts between the parties. First, the bank claims that Plaintiffs' alleged leases were not entered into by First USA authorized agents. Next, and most importantly for now, First USA claims that there is a statutory bar to the leases' enforcement. It maintains that the leases for the yet-to-be-completed apartment complexes, are:
unenforceable as a matter of law pursuant to the provisions of 25 Del. C. § 158 since they were not recorded in the Office of the Recorder of Deeds in and for New Castle County within fifteen (15) days of the date of their execution and the appropriate transfer tax has not been paid.
First USA contends that, according to the statute, because these leases are for 6 1/2 and 7 1/2 years respectively, they must be recorded to be enforceable. Finally, First USA has a counterclaim seeking declaratory relief.
III.
Under Delaware law, summary judgment motions require the court to determine whether there are any genuine issues of material fact. The court must consider the facts in a light most favorable to the non-moving party "accept[ing] as established all undisputed factual assertions, made by either party, and accept[ing] the non-movant's version of any disputed facts." The moving party has the burden to present evidence demonstrating no issue of material fact. If that burden is met, the non-moving party must show evidence demonstrating a genuine material issue of fact. Summary judgment is only granted when no material issue of fact exists. If the record indicates that a material fact is in dispute, summary judgment may not be granted.
Moore v. Sizemore, Del. Supr., 405 A.2d 679, 680 (1979).
Merrill v. Crothall-American, Inc., Del. Supr., 606 A.2d 96, 99 (1992).
Id. at 99-100.
Ebersole v. Lowengrub, Del. Supr., 180 A.2d 467, 470 (1962).
Id.
Merrill, 606 A.2d at 99 ( citing Moore).
Ebersole, 180 A.2d at 470.
The recording statute, 25 Del. C. § 158, states:
No document defined or described in § 30 Del. C. § 5401(4) of Title 30 and not exempt from transfer tax on the basis of § 30 Del. C. § 5401(1) of Title 30 or otherwise, shall be enforceable in any court of this State unless such document . . . shall be recorded in the office of the Recorder of Deeds in the county in which the premises or any part thereof are located within 15 days of the commencement of the term provided by such document; provided, however, that upon recordation and payment of any and all taxes, penalties and other charges relating thereto, any document rendered unenforceable by this statute . . . shall be renewed and revived with the same force and effect as if it had never been unenforceable.
25 Del. C. § 158. None of the several exemptions in 30 Del. C. § 5401(1) applies.
Title 30 Del. C. § 5401(4)(c) provides:
Any writing purporting to assign or transfer a leasehold interest or possessory interest in residential property under a lease for a term of more than five years. For this purpose, the term "residential property" means any structure or part structure which is intended for residential use, and excluding any commercial unit subject to tax under paragraph (88) of subsection (6) of § 2301 of this title relating to commercial lessors.
Title 30 Del. C. § 2301(a)(6) provides:
See court's May 21, 2001 letter to counsel.
Commercial lessor, $75. "Commercial lessor" includes every person who, as lessor or sublessor, receives rental income pursuant to any agreement transferring a title interest or possessory interest in real property located in this State under a lease of a commercial unit for any term. For this purpose, "commercial unit" means a structure or that part of a structure which is used for purposes other than a dwelling unit farm unit.
IV. A. The Leasehold Interest
The first issue is whether the leases meet the recording statute's time requirements: "a lease term of more than five years." The leases' terms state:
This Lease shall be effective as of the date hereinabove written. The tenancy for each unit shall be for five (5) years, measured from the date the unit is delivered to the Tenant.
Plaintiffs contend that because the leases state that "tenanc[ies] for each unit shall be for five (5) years," the leases are within the statutory time limits, and are enforceable. They claim that the leases merely provide that First USA takes a possessory interest for five years. Plaintiffs only note in passing the added time from when the leases were signed to the leases' effective dates, and the statute's applicability to a "leasehold interest." They contend that when they signed the lease, "Plaintiffs were under a contractual duty to transfer a leasehold or possessory interest to Defendant at a future date." That contention, however, is circular and untenable.
In their complaint Plaintiffs state that, for both leases, Plaintiffs and First USA "entered into a Lease Agreement dated September 17, 1999." Moreover, Plaintiffs, themselves, allege that "[p]ursuant to a letter dated September 22, 2000 . . . First USA has anticipatorily breached" the leases and is "in default." In their complaint, Plaintiffs also tacitly acknowledge the entire time of the leasehold interest, when in Counts II and III, they allege First USA's anticipatory breach. In other words, by suing for anticipatory breach Plaintiffs are effectively admitting that the leasehold interest is longer than five years.
If the statute said "possessory interest" only, then Plaintiffs' contention that the leases are not more than five years would be correct. The statute is broadly written, however. It applies not only to a "possessory interest," but also to a leasehold interest. Plaintiffs' suit is predicated on the leasehold interests created by their leases. Plaintiffs cannot have it both ways. They cannot rely on the leases' "effective dates" to support their litigation and, at the same time, rely on the same leases' dates of possession to knock out the recording requirement. At this point, Plaintiffs cannot recharacterize the leases merely as contracts to form leases in the future.
B. The Commercial Lessor Exception
The second issue is whether Plaintiffs are commercial lessors. If Plaintiffs are commercial lessors under 30 Del. C. § 2301(a)(6), then their leases are not covered by the recording statute.
Nothing in the record, the written submissions, nor the oral argument establishes that Plaintiffs are licensed commercial lessors under the statute. At oral argument the court asked whether Plaintiffs qualified as commercial lessors. Specifically, the court asked if Plaintiffs' counsel could "represent that your client [sic] qualifies as a commercial lessor who has complied with the various laws that relate to commercial lessors." Moreover, the court stated, "you're going to have to demonstrate sooner or later that your client fits [sic] squarely underneath the [commercial lessor] exclusion . . . we can't just assume that it does." The court gave Plaintiffs leave to prove they are exempt. At this point, the court considers that claim as abandoned.
V.
In summary, the court is satisfied that the leases purport to transfer a leasehold interest in residential property. The leasehold interest exceeds five years because it begins upon signing, becomes effective upon later delivery of the rental units and then runs for five after that. And finally, Plaintiffs have not attempted to prove that they are commercial lessors, exempt from the recording requirement. Therefore, the court concludes that the leases are unenforceable unless they are recorded.
As a closing aside, Defendant's invocation of the statutory recording requirements is curious, at best. But, Plaintiffs still can defeat Defendant's motion merely by paying the transfer tax and recording the leases. All that Defendant probably is accomplishing is to increase this litigation's cost. Defendant suggests that it is responding in kind. And, considering the complaint's bombast, there may be something to that. Even so, this phase of the litigation does not seem likely to make resolving this case simpler. The court encourages the parties to reassess their litigation stances. Perhaps, mediation is in order.
VI.
For the foregoing reasons, the court is prepared to grant First USA's Motion for Partial Summary Judgment, unless Plaintiffs comply with 25 Del. C. § 158. If Plaintiffs present proof of compliance, the court will enter an order denying partial summary judgment. If Plaintiffs fail to comply, the court will grant Partial Summary Judgment. The court is awaiting further applications.