Opinion
No. 52661-8-I.
Filed: June 1, 2004. UNPUBLISHED OPINION
Appeal from Superior Court of Snohomish County. Docket No: 03-2-05967-4. Judgment or order under review. Date filed: 06/20/2003. Judge signing: Hon. Anita L Farris.
Counsel for Appellant(s), James Anthony Santucci, The Lanz Firm PS, 1200 Westlake Ave N Ste 809, Seattle, WA 98109-3590.
Counsel for Respondent(s), Raymond Jay Walters, Attorney at Law, 1621 N 45th St, Seattle, WA 98103-6701.
A tenant who fails to fully and timely perform all terms of a commercial lease, or meet certain conditions thereunder, is not entitled to exercise an option to extend the lease for an additional term. The trial court's determination that the tenant-defendant is guilty of unlawful detainer is affirmed.
FACTS
Punuel, Inc., d/b/a Hill Top Market and Deli is owned by Yung Choi. Hill Top is a convenience and video rental store, deli, and Chevron gas station. On April 1, 1997, Punuel entered into a written 5-year commercial lease with landlords Harry Gunn, F. George Gunn, and George's wife Janis (Gunn), who owned a small shopping center in Snohomish, Washington. Harry Gunn was the contact person for the property and lived nearby. George, Harry's son, operated a hardware store in the shopping complex.
Two additional 5-year periods were conditionally available beyond the March 2002 end date of the original lease. To extend the lease Punuel was required to give written notice to the landlords at least six months prior to the termination of the lease and meet certain other conditions. The `[t]enant shall have the option to extend this lease for two additional 5-year terms on the following conditions: (a) Tenant shall have fully and timely performed all terms of the current lease.'
The lease only became effective if Punuel purchased the gas station fixtures and store fixtures from a prior tenant. Punuel did so, purchasing the pumps, tanks, canopy, monitoring devices and other store fixtures for $251,500. There is no dispute that Punuel owns these fixtures. When Punuel leaves it has a right to remove the fixtures.
During the course of the initial 5-year term, Punuel was late paying its rent for at least two significant periods of time. It also failed to comply with insurance requirements of the lease during at least one of these periods. In early 2001, Punuel was approximately $10,000 in arrears. Gunn's attorney sent Punuel a letter requesting payment and reiterated that the right to extend the lease required timely payment and fulfillment of other conditions. Punuel eventually paid the past-due amount of rent. Later in the lease term Punuel's rent again became past due. Gunn sent another letter to Punuel and eventually Punuel paid all past-due rent.
Punuel's written notice to extend the lease was due to Gunn by October 1, 2001. Choi testified that in August 2001, he and/or his daughter hand delivered the required written notice to extend the lease for another 5-year term to begin the following April. In the letter, Choi stated that if he did not get a response within 30 days he would assume the lease would continue as is. The trial court found that Punuel provided the notice, but noted that Choi/Punuel could not unilaterally assume the lease would continue without more.
Gunn testified he never received Punuel's written notice, and that, in early November 2001, Gunn sent a notice to Punuel stating that, because Punuel failed to exercise its option and to fully and timely comply with the conditions of the lease, including being more than $8,000 in arrears with its rent, the lease would terminate at the end of its term, March 31, 2002. This notice was sent by certified mail and regular mail. The notice sent by certified mail was returned. However, on January 19, 2002, Gunn personally delivered a copy to Mrs. Choi at the market. The trial court found that Gunn rejected the 5-year extension based on past and current late rent, and other issues.
Gunn asserted that the terms of the old lease were lost. He attempted to negotiate with Choi/Punuel for a new 1-year lease with a 1-year option to extend and tendered a new lease with these terms. Since Punuel did not sign the new lease, Gunn asserts the tenancy became month-to-month beginning April 1, 2002. Choi acknowledged that Gunn tendered a new lease, and that he refused to sign it. But he testified he did so because he believed Punuel had another 10 years on its original lease under the options. Choi further testified that by becoming current with the rent before the end of the lease term and by providing a written notice exercising the option, Punuel was entitled to enforce the optional 5-year extension.
While Gunn and Punuel did not agree as to their rights, after March 2002 they began to operate under terms upon which they could agree: a smaller space for less rent. Substantial remodeling was done to the space and both parties incurred expenses. There was testimony that Punuel spent approximately $40,000 in remodeling costs.
In November 2002, Choi discovered that Gunn was in the process of selling the property. He wrote to Gunn indicating his shock that Gunn sold the property and said that he thought that in exchange for reducing the space of the original premises Gunn had promised to continue or renew the expired lease. Choi stated that he hoped Gunn would remedy the situation before any sale.
About five days later, Gunn completed the sale of the property to Highway 9 Shopping Center, LLC (Highway 9), owned and managed by Mohammed `Moe' Youssefi. Highway 9 is the plaintiff below and the respondent on appeal. By special addendum to the sale documents, Gunn warranted to Highway 9 that the lease between Gunn and Punuel was terminated and that the property was being leased on a month-to-month tenancy. After Highway 9 bought the property, Youssefi sent a letter of introduction to the center's tenants indicating where rent payments should be sent. Punuel responded that it was looking forward to a landlord/tenant relationship with Highway 9 and that Choi and his corporation were uncertain of the contract and rental amount for the reduced space, but generally assumed that the lease would be continued.
Youssefi and Choi met, and Youssefi offered a new lease agreement to Choi, which he refused. Thereafter, in mid-December, 2002, Highway 9 sent Punuel a letter terminating the month-to-month tenancy. The letter incorrectly stated that Punuel had been arrears in rent during the last year, and was so notified by the prior landlord. In fact, during most of 2002, Punuel had been current or ahead in its rental payments.
Punuel held over and the unlawful detainer action followed. During the course of the proceedings Highway 9 would not accept rent but it was arranged that Punuel would pay into the registry of the court. The trial court found that Punuel was guilty of unlawful detainer, that although Punuel attempted to exercise its option, the option was properly rejected and not enforceable by Punuel against Gunn (Highway 9's predecessor) due to the late payment of rent and insurance coverage issues over the course of the first 5-year lease. Thus, the court found Punuel to be operating under a month-to-month tenancy. The trial court also determined that, due to the expenditures made by Punuel in purchasing costly gas station `fixtures' and by its incurring expenses in the remodel, a specter of equity arose, specifically that of `part performance.' However, although sympathetic, the court held that before the doctrine could be applied there must be at least an oral contract, which necessarily must include agreement on all essential terms. Because no such agreement was in place there was no oral contract to which the court could apply the doctrine of part performance.
By agreement of the parties, the trial court gave Punuel 90 days to appeal or remove its fixtures and exit the premises. Punuel moved for reconsideration. Thirty days later, a hearing on the motion was held at the same time the order and judgment were presented. The court denied reconsideration, but agreed to stay the order pending appeal with a proper bond and the continued payment of rent into the registry of the court. This appeal followed.
DECISION
Punuel makes a sweeping assignment of error claiming the trial court erred in its findings of fact and conclusions of law by declaring that Punuel was guilty of unlawful detainer, and by awarding Highway 9 attorney fees and costs. The trial court made a number of findings, none specifically challenged on appeal. Unchallenged findings are verities on appeal. In any event, findings of fact supported by substantial evidence will not be disturbed on appeal. This court reviews questions of law de novo.
Robel v. Roundup Corp., 148 Wn.2d 35, 42, 59 P.3d 611 (2002).
Thorndike v. Hesperian Orchards, Inc., 54 Wn.2d 570, 575, 343 P.2d 183 (1959).
Josephinium Assocs. v. Kahli, 111 Wn. App. 617, 621, 45 P.3d 627 (2002) (citing Mountain Park Homeowners Ass'n v. Tydings, 125 Wn.2d 337, 341, 883 P.2d 1383 (1994)).
Punuel broadly challenges the trial court's findings and the conclusion adjudging it to be in unlawful detainer. The trial court found that, during the term of the lease, Punuel failed to pay rent in a timely manner and failed to provide public liability insurance as required by the lease. The trial court held that rent was overdue well beyond the 10-day grace period a number of times, even though all rent was eventually paid. The trial court also found that Punuel attempted to exercise its option to extend the lease by timely delivering written notice to Gunn, but that Gunn properly rejected the attempt to extend by written notices sent to Punuel in November 2001 and January 2002. The trial court specifically found that Punuel's failure to fulfill the conditions of the lease was sufficient justification for Gunn to reject the extension of the lease. These findings are not specifically challenged.
Even had specific challenges been made to the findings, a review of the trial transcript and the exhibits fully supports the findings made by the trial court. The findings support the conclusions of law. There can be no doubt that Choi/Punuel understood that Gunn had rejected his attempt to exercise his option. Following the lease term Punuel was a month-to-month tenant.
In arguing that it performed as required under the lease, Punuel makes a tortured analysis regarding the payment of rent that distinguishes between the words `timely' and `promptly.' We reject the analysis. Rent eventually paid does not constitute rent `timely' paid. Further, the acceptance of late or untimely rental payments by a landlord during the lease does not waive or otherwise affect the requirements contained in the lease for renewal, especially where the agreement states that, in order to renew, the lessee must timely fulfill the terms of the lease.
Lenci v. Owner, 30 Wn. App. 800, 802-03, 638 P.2d 598 (1981).
Punuel also argues the trial court erred because the notice to terminate the tenancy and quit the premises given by Highway 9, Inc., contained grounds which were not true. There is no dispute that proper service of the notice was made; it is the content of the notice itself that is disputed. Highway 9's notice indicated that the former landlord gave Punuel at least four written notices to pay rent within the last twelve months, meaning the year 2002. This was not true. However, when a tenant is a month-to-month tenant, no reason or justification is required. As stated in RCW 59.04.020:
The fact that the notice of termination contained the language which proved to be untrue as to the number of times in 2002 that notices to pay were sent to Punuel is unimportant as to the effect of the notice. The landlord need only prove that a written notice was timely served on the tenant informing the tenant that its tenancy was terminated by a certain date and that the tenant had not vacated after the date of termination. See Foisy v. Wyman, 83 Wn.2d 22, 32, 515 P.2d 160 (1973); Erz v. Reese, 157 Wn. 32, 35, 288 P. 255 (1930); Provident Mutual Life Ins. Co. v. Thrower, 155 Wn. 613, 617, 285 P. 654 (1930).
When premises are rented for an indefinite time, with monthly or other periodic rent reserved, such tenancy shall be construed to be a tenancy from month to month, or from period to period on which rent is payable, and shall be terminated by written notice of thirty days or more, preceding the end of any of said months or periods, given by either party to the other. Because this was a month-to-month tenancy, Highway 9 gave proper and sufficient notice in mid-December 2002 for Punuel to terminate its tenancy at the end of January 2003. This notice was for a period greater than thirty days as required in the statute. Highway 9 attempted to get Punuel to sign another lease, but Choi refused. Once Punuel held over after the end of the term, Highway 9 was within its rights to bring an action for unlawful detainer under RCW 59.12.030(2). The trial court did not err.
RCW 59.12.030 states in pertinent part:
A tenant of real property for a term less than life is guilty of unlawful detainer either:
. . .
(2) When he or she, having leased property for an indefinite time with monthly or other periodic rent reserved, continues in possession thereof, in person or by subtenant, after the end of any such month or period, when the landlord, more than twenty days prior to the end of such month or period, has served notice (in manner in RCW 59.12.040 provided) requiring him or her to quit the premises at the expiration of such month or period.
In its oral decision, the trial court noted that counsel for Punuel argued in closing that it would be inequitable for the court to find Punuel guilty of unlawful detainer because Punuel spent an additional $40,000 remodeling the premises after the end of the lease term under an assumption that he had some sort of agreement with Gunn. While there were references made to the difficulty and expense of moving the gas station fixtures and the expenditure for remodeling costs following the end of the lease term, Punuel failed to raise an equitable defense in its pleadings.
In defending against an unlawful detainer action, a tenant may raise affirmative equitable defenses. But an equitable defense arises only when there is `a substantive legal right, that is, a right that comes within the scope of judicial action, as distinguished from a mere moral right.'
Port of Longview v. Int'l Raw Materials, Ltd., 96 Wn. App. 431, 437, 979 P.2d 917 (1999).
Port of Longview, 96 Wn. App. at 437, quoting Motoda v. Donohoe, 1 Wn. App. 174, 175, 459 P.2d 654 (1969).
Under the maxim that equity abhors a forfeiture, a court may under some circumstances refuse to recognize an exercise of the power of termination in unlawful detainer cases. On the other hand there is a general reluctance of courts to relieve a party from its own negligence. Professor Stoebuck indicates that Washington has little authority on this subject. The leading case recognizing the equitable power of the court in lease renewal situations is Wharf Restaurant, Inc. v. Port of Seattle. There, after leasing the premises from the Port for 25 years, the Wharf inadvertently failed to give proper notice of renewal of its lease. The parties recognized the failure was purely inadvertent. Further, the Port did not change its position in any way as a result of the late notice. In fact, for some time the Port did not know that the restaurant had failed to exercise its option. Unlike here, in the Wharf case there were no allegations of any breach of the lease agreement, such as untimely failures to pay rent, and there were no ongoing negotiations regarding terms of a new lease, although The Wharf and the Port had been discussing possible renovations.
William B. Stoebuck, 17 Washington Practice sec. 6.77 at 415 (1995).
The Wharf Restaurant, Inc. v. Port of Seattle, 24 Wn. App. 601, 610-13, 605 P.2d 334 (1979).
Here, the trial court recognized there were special circumstances, such as the difficulty of removing the gas station fixtures as well as the money spent on remodeling the deli and market. But before it would apply an equitable doctrine of part performance due to the remodeling, the trial court found there was no evidence of an agreement on all necessary essential terms. The court found that Punuel did not clearly and unequivocally prove there was an agreement between it and Gunn to equitably enforce. Actually, the evidence shows the parties actively disagreed to an essential term, the length of a lease period. The court found that Punuel knew it did not have an agreement as shown by letters back and forth in the record. The court determined that Punuel poured money into the property knowing Gunn's position on the term of the lease and its enforceability. Without a new lease or an agreement to reinstate the former lease, Punuel took the risk that its position would not be accepted in court. Review of the record indicates the trial court did not err in making this determination. As such, its decision not to impose an equitable remedy here was not error.
Attorney fees
Highway 9 seeks attorney fees on appeal. The trial court awarded attorney fees to Highway 9, as the prevailing party below, pursuant to the underlying lease agreement and RCW 59.12.170. Even though the parties were no longer operating under the written lease agreement, its terms were applicable due to Punuel, Inc.'s, attempt to claim relief under the lease and because of the general rule that, absent an agreement to the contrary, the terms of a written lease apply to a party holding over thereunder. Pursuant to the same provisions and under RCW 4.84.330, Highway 9's request for reasonable attorney fees on appeal is granted.
The decision of the trial court is affirmed.
SCHINDLER and COX, JJ., concur.