Bilbrey v. Worley

• Decision Date: 09 May 2005
• Citation: 165 S.W.3d 607
• Parties: Randall BILBREY, et al. v. Gary WORLEY, et al.
• Court: Tennessee Supreme Court

Page 607

165 S.W.3d 607

Randall BILBREY, et al. v. Gary WORLEY, et al.

Court of Appeals of Tennessee, at Nashville.

May 7, 2004 Session.

November 1, 2004.

Permission to Appeal Denied by Supreme Court May 9, 2005.

Jon E. Jones, Cookeville, Tennessee, and Amy V. Hollars, Livingston, Tennessee, for the appellants, Randall Bilbrey, as Executor of the Estate of Agnes Bilbrey, deceased, and the Bilbrey Family Partnership and Randall Bilbrey as General Partner of the Bilbrey Family Limited Partnership.

Onnie Winebarger, Byrdstown, Tennessee, for the appellees, Gary Worley and Larry Worley.

OPINION

WILLIAM B. CAIN, J., delivered the opinion of the court, in which WILLIAM C. KOCH, JR., P.J., M.S., and FRANK G. CLEMENT, JR., J., joined.

This is a landlord/tenant case involving abandonment and surrender by the tenant of the leased premises and whether or not the surrender was accepted by the landlord so as to prevent the landlord from collecting rents for the unexpired term of the lease. The chancellor first held for the landlord on the issue but thereafter came to believe himself bound by an unreported decision of this court and reversed his position to hold for Appellee. We find the first judgment of the chancellor to have been correct and reinstate his original judgment.

This case involves a commercial lease wherein the tenant abandoned the premises long before the expiration of the extended term of the lease and the landlord sues for the recovery of accumulated rents subsequent to the abandonment.¹ On January 25, 2002, the chancellor filed comprehensive findings of fact and conclusions of law which we believe properly recite and dispose of the issues in this case and which provide in pertinent part:

1. This case involves a lease entered into on October 31, 1984, by and between The Cumberland Company and Gary Worley and Larry Worley, d/b/a Super-D Drugs. This lease superseded a prior lease between those same parties. The lease was in effect for a term of ten years beginning January 1, 1985, and ending December 31, 1994. The lease provided for a base rent of $21,324.80 a year or $1,777.07 a month, payable in advance. In addition, the lease contract contained a provision for "additional rent" which provided that the tenant pay an overage fee of two percent of all annual gross sales over $1,066,240. The lease provided that this overage payment be made "forthwith" following the end of each calendar year, based on the sales of the prior calendar year.

2. The original landlord became insolvent. In the summer of 1996, the plaintiffs acquired the shopping center from L.H. Hardaway, Jr., Trustee. Quenton and Agnes Bilbrey owned the property from August 13, 1996, through March 5, 1997, when Quenton Bilbrey died. His widow, Agnes Bilbrey, owned the property until she conveyed it to her son, Randall Bilbrey (a two percent undivided interest), and her grandsons, Stacey Bilbrey (a 49 percent undivided interest) and Tony Bilbrey (a 49 percent undivided interest), on July 30, 1998. Thereafter, these three individuals conveyed their interests on August 7, 1998, to the Bilbrey Family Limited Partnership, Randall Bilbrey, general partner. Agnes Bilbrey died on December 25, 1998. Randall Bilbrey is the executor of her estate.

3. The defendants vacated the property on or about April 30, 1997. At the time they vacated the property, the defendants had been "holding over" for two years, four months. The defendants did not make any overage payments for sales during 1994, or for any subsequent year.

4. The first issue for the Court to decide was whether the defendants breached the lease by vacating the property on or about April 30, 1997, and by failing to pay any rent thereafter. The defendants contend that there is a conflict between the "option to renew" clause and the "holding over" clause in the lease. The Court does not agree. The "option to renew" clause sets out certain procedures that the tenant can follow and, thereby, exercise an option to renew the lease for two additional five-year periods. To trigger the option, the tenant was required to give a 90-day notice. The defendants argue that there is no requirement that that notice be in writing. The Court disagrees. The lease itself defines the requirements for notice. Page eight of the lease states: "The mailing of notices. The mailing of a written notice or demand by registered or certified mail return receipt requested (in a sealed post-paid envelope) addressed to the landlord as follows: The Cumberland Company, c/o Imperial Management Company, P.O. Box 60464, Nashville, TN 37206." There was no proof whatsoever in the record that the tenants gave any notice, written or otherwise, or any intent to exercise an option to renew the lease for an additional period. Certainly, the defendants did not give notice of any such intent as required by the terms of the contract.

5. Since the defendants failed to follow the provisions of the lease regarding giving notice of their intent to exercise an option to renew the lease for five years, they have no basis to assert that the lease's provisions regarding the effect of holding over should not apply to them. The hold-over clause of the lease states that if the tenant remains in possession of the property for more than 30 days following the expiration of the original term, the landlord can elect, at any time while the tenant is still occupying the property, to extend the lease for a second ten-year term. To effect the extension, the landlord must give a written notice of same to the tenant before the tenant surrenders occupancy. It was undisputed in this case that on November 25, 1996, the landlord delivered a letter to the tenants giving them notice of the landlord's election to extend the lease for a second ten-year term. This written notice was delivered to the tenants while they still occupied the premises. This written notice, therefore, effectively extended the lease contract for a second ten-year period, or from January 1, 1995, through December 31, 2004.

6. The plaintiffs are entitled to recover unpaid base rent for the second ten-year period of the lease, or through December, 2004. The plaintiffs have shown reasonable efforts to rent the property and to mitigate their damages. Their best efforts in this regard, however, were generally unsuccessful because of the rental market for commercial property in Livingston, Tennessee. After the defendants vacated the property, the plaintiffs initially stored material in the space. Therefore, for two months (May and June, 1997), the property was not available for lease, and the defendants cannot be charged with unpaid rent for those months. During the months of July,1998, through April, 1999, the property was rented to a local furniture manufacturer, and the defendants are entitled to mitigation for the amount of rent paid by this manufacturer. After giving the defendants full credit for the offsetting rent and for the two months in which material was stored in the property, the defendants remain indebted to the plaintiffs for monthly rental as follows:

Agnes Bilbrey Estate:

July, 1997, through June, 1998

(12 months @ $1,777.07=$21,324.84) ($4,904.71-interest)

July, 1998, @ $277.07^* =$277.07 ($57.49-interest)

These monthly amounts (after application of 6% prejudgment interest through October, 2001), total $26,564.11.

Bilbrey Family Limited Partnership:

August, 1998, through April, 1999

(9 months @ $277.07^* =$2,493.63) ($430.15-interest)

May, 1999, through October, 2001

(30 months @ 1,777.07 = $53,312.10) ($3,998.41 interest) These monthly amounts (after application of 6% prejudgment interest through October, 2001), total $60,234.29.

^**

^* After mitigation.

^** After the hearing, the attorneys for the parties advised the Court that Mr. Randall Bilbrey had begun occupying the premises in November 2001, for the purposes of operating a business. The parties agreed that no damages would be owed to the plaintiffs for the period that Mr. Bilbrey's occupancy continues. The parties further agreed, and the Court rules, that the plaintiffs may file a new suit for loss of future rentals if the property becomes unoccupied at any time before the end of December, 2004, subject to any defenses the defendants may have at that time, including surrender and failure to mitigate.

In reversing himself on the issue of acceptance by the landlord of the surrender by the tenant the learned chancellor followed the holding of this court in the unreported case of Maney v. Parker, 1995 WL 577805 (Tenn.Ct.App. Oct. 3, 1995). In the Maney case, the parties entered into a five year lease whereby Parker leased from Maney a commercial building and, after occupying it for slightly more than a year, vacated the premises. The landlord then filed suit seeking among other things back rent. The chancellor denied recovery of back rent and Maney appealed.

This court held:

Our decision in this case turns upon whether Mr. Maney should be deemed to have accepted Mr. Parker's abandonment. Our Supreme Court addressed this issue in Karns v. Vester Motor Co., 161 Tenn. 331, 30 S.W.2d 245 (1930). In Karns, the Supreme Court, in quoting from 35 Corpus Juris, 1093, adopted the following rule (161 Tenn. at page 333, 30 S.W.2d at page 245):

The acceptance of a surrender is not implied from the mere fact of a reletting of the demised premises, although taken in connection with other circumstances the reletting may amount to an acceptance and work a surrender of the term by operation of law. Whether a reletting shows an acceptance of the surrender depends on whether the landlord relets on the account of the tenant or on his own account.

The Court, cognizant of the rule requiring mitigation of damages, also stated: "[T]he landlord may refuse to accept a surrender, and after notice to the lessee of his intention to do so, relet the premises for the best rent obtainable, and recover the difference between the rent...