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COURT OF APPEALS DECISION DATED AND RELEASED January 22, 1997 |
NOTICE |
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A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See § 808.10 and
Rule 809.62, Stats. |
This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official Reports. |
No. 95-3507
STATE
OF WISCONSIN IN COURT OF
APPEALS
DISTRICT II
DECADE 80-I, LTD.,
JEFFREY KEIERLEBER,
its general partner,
Plaintiff-Respondent,
v.
PDQ FOOD STORES, INC.,
OF MADISON and
NASH-FINCH COMPANY,
Defendants-Appellants.
APPEAL from a judgment
of the circuit court for Washington County:
LEO F. SCHLAEFER, Judge. Reversed
and cause remanded.
Before Snyder, P.J.,
Nettesheim and Anderson, JJ.
PER
CURIAM. PDQ Food Stores, Inc., of Madison and Nash-Finch
Company (hereinafter, PDQ) appeal from a judgment awarding Decade 80-I, Ltd.,
damages for the breach of a commercial lease.
PDQ argues that it had the right to terminate the lease because of
Decade's failure as the landlord to maintain the parking lot, to pay real
estate taxes, and to obtain PDQ's consent before developing
"outlots." It also contends
that the trial court's finding that Decade fulfilled its duty to mitigate
damages is clearly erroneous. We
reverse the trial court's determination that Decade had more than thirty days
to cure defaults with respect to parking lot maintenance. Because an issue of fact exists as to
whether potholes in the parking lot constituted a breach of the lease and
whether construction on the outlots reduced the number of parking spots, we
reverse the judgment and remand for further proceedings.
Commencing December 7,
1979, Nash-Finch leased commercial space in the Washington Square Shopping
Center in Germantown for a twenty-year period.
Decade became the owner of the shopping center in 1981. In May 1986, Nash-Finch assigned its
leasehold to PDQ. The space was used to
operate a food store.
In 1991, Decade sold one
of the shopping center's "outlots" to the Federated Bank and a branch
bank office was constructed there. In
October 1992, another "outlot" was sold for the construction of a
McDonald's restaurant.
By a letter of May 26,
1992, PDQ informed Decade that the sale to Federated Bank without PDQ's
approval was a breach of paragraph 12 of the lease.[1] A letter of October 28, 1992, notified
Decade of additional defaults under the lease.
PDQ asserted that paragraphs 3 and 8 had been violated by the existence
of delinquent real estate taxes and special assessments for 1990 and 1991 and
by Decade's failure to maintain the parking lot as exhibited by numerous
potholes.[2] The letter also noted that Decade had not
cured the breach which occurred when the outlot was sold to the bank and that
the sale to McDonald's was an additional breach of paragraph 12. The letter stated that if the defaults were
not cured within thirty days, PDQ would declare the lease terminated and vacate
the premises in accordance with the default provision of the lease.[3]
PDQ vacated the premises
in December 1992. Decade commenced this
action to collect sums due under the lease.
Both parties moved for summary judgment. The trial court determined that no time for performance was
stated in the provision requiring the landlord to maintain the parking lot, and
therefore, Decade had a reasonable time to effectuate repairs after which, if
there is a default, a thirty-day notice would be appropriate. It also determined that Decade's payment of
real estate taxes was not a condition of the lease, and the sale of the
"outlots" did not affect the parking lot and did not require PDQ's
consent. It held that PDQ had no right
to terminate the tenancy. The issue of
Decade's mitigation of damages was tried to the court. It concluded that Decade had undertaken
sufficient efforts to sublease the premises.
Judgment was entered for lease payments due in the amount of $168,035.
Upon review of a summary
judgment decision, we apply the standards set forth in § 802.08(2), Stats., in the same manner as the trial
court. County of Dane v. Norman,
174 Wis.2d 683, 686, 497 N.W.2d 714, 715 (1993). If there is no disagreement as to issues of fact, we must
determine whether the moving parties were entitled to judgment as a matter of
law. See id. This court decides question of law
independently, without deference to the decision of the trial court. See id.
We first address whether
PDQ could terminate the tenancy for Decade's failure to maintain the parking
lot. The lease requires Decade to
maintain the parking lot. PDQ gave
notice on October 28, 1992, that it believed Decade to be in default with
respect to parking lot maintenance because of the existence of numerous
potholes. The key provision here is the
lease provision allowing termination after written notice of a default.[4]
The interpretation and
construction of a contract are questions of law which we review without
deference to the trial court. Bank
of Barron v. Gieseke, 169 Wis.2d 437, 454-55, 485 N.W.2d 426, 432 (Ct.
App. 1992). The lease provides that
once the landlord is given written notice of any default, "and if such
default continues for a period of thirty (30) days after receipt by Landlord or
said mortgagee of a written notice from Tenant specifying such default,"
the tenant may terminate the lease. The
trial court looked solely to the provision requiring the landlord to maintain
the parking lot. Finding that no time
limit for a cure was established in that paragraph, the court read into the
lease a reasonable time to cure a default.
This was error as another provision in the lease states that the right
to terminate exists when the default continues for thirty days after written
notice of default. To read the lease as
the trial court did would require the tenant to give two written notices of
default. The necessity of two notices
from the tenant is not contemplated by the lease.
There is no dispute that
Decade did not make repairs to the parking lot within thirty days.[5] The remaining question is whether the
existence of the potholes constituted a breach of the lease.[6] That question involves issues of fact not
resolved. We reverse that portion of
the judgment based on this issue and remand for further proceedings on whether
the potholes in the parking lot constituted a default in the lease justifying
PDQ's termination.
PDQ also contends that
the lease required its approval before there could be construction of a bank
and a McDonald's restaurant on the two outlots of the shopping center.[7] The lease provision on which PDQ relies
required Decade to obtain written consent if the landlord caused the
construction of any building "in or upon the driveways, alleys, sidewalks
or parking areas" or in the event a reduction was made in the
"parking area."[8]
The record establishes
that the two areas sold and built on were not used as a driveway, alley,
sidewalk or parking area. PDQ's consent
was not necessary to build on those two outlots. However, it appears that an issue of fact exists as to whether
the construction of the McDonald's restaurant caused a reduction in the parking
area for which PDQ's permission was necessary.
The affidavit of Michael Rooney, Milwaukee area manager for PDQ, states
that the construction of the McDonald's restaurant required reconfiguration of
the parking lot and, consequently, a reduction in the number of parking
spaces. No affidavit countered this
statement. However, in a letter from
Decade's attorney to PDQ's attorney, attached to an affidavit in support of
summary judgment, it was asserted that the parking lot was not reduced in
size. This is sufficient to create an
unresolved factual question of whether the construction reduced the parking
area within the meaning of the lease.[9] We reverse the judgment on this ground as
well. Further proceedings are necessary
to determine if a reduction occurred and whether it constituted a breach of the
lease because PDQ's written consent was not obtained.
We summarily address
PDQ's remaining claim as to why it had the right to terminate the lease. We agree with the trial court's
determination that the lease did not require Decade to make timely payment of
real estate taxes. The provision
requiring PDQ to pay to Decade amounts for increased taxes requires PDQ to pay
its proportionate share of real estate taxes "assessed" against the
shopping center which become "due and payable" during the term of the
lease and to pay promptly upon receipt of a statement from the landlord but no
more than thirty days before taxes are "finally due to the taxing
authority." PDQ's payment is not
conditioned on Decade's timely payment of taxes. While Decade was delinquent for more than two years in the
payment of real estate taxes and it had collected such monies from PDQ, Decade
did not breach the lease in this respect and it was not grounds for PDQ's
termination.
PDQ argues that Decade
failed to mitigate damages because it attempted to rent the premises at a
higher rental rate than the lease rate.
Section 704.29(2), Stats.,
reduces a landlord's recovery by "net rent obtainable by reasonable
efforts to rerent the premises."
"Reasonable efforts" are "those steps which the landlord
would have taken to rent the premises if they had been vacated in due course,
provided that such steps are in accordance with local rental practice for
similar properties." Id.[10] Whether the landlord acted reasonably is a
finding of fact which we will not disturb unless clearly erroneous. See Ross v. Smigelski,
42 Wis.2d 185, 198, 166 N.W.2d 243, 250 (1969).
The trial court found
that Decade had undertaken substantial and reasonable efforts to relet the
premises as if the premises had been vacated at the end of the lease. This finding is not clearly erroneous. Testimony indicated that negotiations were
conducted with various parties and lease proposals submitted at rates generally
acceptable in local rental practices.
Decade advertised the property for lease and kept it listed with a
broker. It is not a per se failure to
mitigate when a landlord seeks a higher than lease rental rate when the
landlord acts in accordance with local rental practices.
By the Court.—Judgment
reversed and cause remanded.
This opinion will not be
published. See Rule 809.23(1)(b)5, Stats.
Landlord expressly agrees that commencing with the execution of this Lease and continuing for the entire initial term and any renewal term of this Lease, Landlord will not, without Tenant's express written consent, erect or construct or cause to be erected or constructed in or upon the driveways, alleys, sidewalks or parking areas as indicted on Exhibit "A", any buildings or structures of any nature whatsoever. Landlord shall not reduce the area of the driveways, alleys, sidewalks or parking area which are collectively indicated as "parking area" on Exhibit "A" without express written consent from Tenant.
[2] Paragraph 3 of the lease pertained to common area maintenance expenses and real estate taxes to be charged to tenants. Paragraph 8 provided in part, "Landlord shall repair, replace and maintain common areas of the Shopping Center, including sidewalk, parking areas and driveways (including snow removal), heating and air conditioning plant and equipment as provided in paragraph 3 (b) above."
[3]
Paragraph 8 of an amendment to the lease inserts the following in the
default provision of the lease:
Tenant shall give Landlord, and any mortgagee of the leased premises of which Landlord has notified Tenant, written notice of any default by Landlord in the performance of any covenant or obligation to be kept or performed hereunder, and if such default continues for a period of thirty (30) days after receipt by Landlord or said mortgagee of a written notice from Tenant specifying such default, then, and in such event, Tenant at its election may declare this Lease terminated and void and vacate the leased premises within an additional period of thirty (30) days, paying rent only to the date of said vacating.
[5] Decade responded to PDQ's concerns about the potholes with a November 23, 1992 letter indicating "that we have been working on getting them [the potholes] taken care of." The letter indicated that repairs were tied into the completion of the McDonald's restaurant.
[6] We reject Decade's claim that the October 28, 1992 letter of defaults was not effective notice under the lease because it came from PDQ Food Stores, Inc. and not Nash-Finch. Section 704.09(3), Stats., provides: "All covenants and provisions in a lease which are not either expressly or by necessary implication personal to the original parties are enforceable by or against the successors in interest of any party to the lease." PDQ, as a successor in interest to Nash-Finch, had the right to issue the default notice letter.
[9] It may be argued that the lease does not specifically prohibit the reduction of the number of parking spaces in contrast to a reduction in the size of the "parking area." Although the lease speaks generally about the "parking area," it differentiates that from driveways, alleys and sidewalks. Moreover, Exhibit A to the lease, incorporated by reference to the lease, shows a specific parking space configuration. To the extent that the lease may be deemed ambiguous as to whether a reduction in the number of parking spaces is a breach, a factual question is presented which is not appropriate for summary judgment.
[10] PDQ's citation in its reply brief to MBC, Inc. v. Space Ctr. Minn., Inc., 532 N.E.2d 255, 261 (Ill. App. Ct. 1988) ("efforts to secure subleases of the warehouse at rents considerably higher than due under the sublease ... constituted a breach of [the] duty to exercise reasonable diligence to mitigate damages") and 2 M. Friedman, Friedman on Leases, 1011-1014 (3rd ed.) (a landlord when reletting to minimize his damages does not have the same freedom of choice that is available to him when he selects a tenant for his own account) is unpersuasive in light of Wisconsin's statutory standard for mitigation of damages.