Brown v. Hoffman, 79SC218

• Decision Date: 18 May 1981
• Docket Number: No. 79SC218,79SC218
• Citation: 628 P.2d 617
• Parties: Samuel BROWN, Ronald Brown, Harold Kapelovitz, Ken Jeung, Michael Cooper, Robert Rifkin, Gerald Kernie and Gary Mosko, Individually and d/b/a Evans Joint Venture, Petitioners, v. Kent HOFFMAN and Gary Levinson, Respondents.
• Court: Colorado Supreme Court

Page 617

628 P.2d 617

Samuel BROWN, Ronald Brown, Harold Kapelovitz, Ken Jeung Michael Cooper, Robert Rifkin, Gerald Kernie and Gary Mosko, Individually and d/b/a Evans Joint Venture, Petitioners, v. Kent HOFFMAN and Gary Levinson, Respondents.

No. 79SC218.

Supreme Court of Colorado, En Banc.

May 18, 1981.

As Modified on Denial of Rehearing June 8, 1981.

Hobbs & Waldbaum, P. C., Leonard N. Waldbaum, William E. Brayshaw, Denver, for petitioners.

Bernard D. Morley, Denver, for respondents.

LEE, Justice.

Petitioners, doing business as Evans Joint Venture (lessors), challenge the holding of the court of appeals denying them possession of their premises which had been leased to respondents, Kent Hoffman and Gary Levinson (lessees). Hoffman v. Brown, 42 Colo.App. 444, 599 P.2d 959 (1978). We reverse in part and affirm in part.

On June 4, 1974, lessees and lessors' predecessor in interest entered into a lease of space in a building located on East Evans Avenue in Denver, Colorado. The premises were to be used by lessees for their karate school. The term of the lease was three years beginning July 31, 1974. In pertinent part, the lease provided:

"(Rent shall be payable), in advance, on or before twelve o'clock noon, on the first day of each calendar month during said term * * * without notice. Lessees shall * * * furnish lessor with a deposit of $1,475.00 to secure full and timely performance of all terms and conditions of the contract * * * (I)f lessees are in default, lessor may use so much of said security deposit as is necessary to cure such default and thereafter return the remainder * * *.

"It is expressly understood and agreed, by and between the parties aforesaid, that if the rent above reserved, or any part thereof, shall be in arrears, or if default shall be made in any of the covenants or agreements herein contained, to be kept by the said lessees, it shall and may be lawful for the said lessor to declare said term ended, and enter into the said premises, or any part thereof, either with or without process of law * * *.

"It is further expressly understood and agreed by the parties hereto that: * * * (4) Lessor will pay all real property taxes on the demised premises provided, however, that in the event of an increase in real property taxes, the increase, pro-rated according to land and floor space occupied shall be added to the annual rent, reduced to monthly installments * * *.

"And it is further expressly understood and agreed that all the covenants and agreements in this lease contained shall extend to and be binding upon the heirs, executors, legal representatives and assigns of the respective parties hereto."

By letter dated June 4, 1974, the parties agreed that the lessees would have the right to renew the lease for an additional period of not more than five years at a rental "to be determined by the change in the Consumer Price Index."

On February 28, 1975, the parties executed an addendum to the lease. The addendum recited: "That in consideration of the keeping and performance of the covenants and agreements set forth in the indenture (lease) hereinabove referred to and which are incorporated herein by reference and hereinafter set forth, and the payment of the rent hereinafter stated by the lessees, * * *" the lessor leased to the lessees additional space. The addendum further provided for an option to renew as follows:

"IT IS FURTHER AGREED that the LESSEES shall have the option to renew the indenture including this addendum for an additional period of five consecutive years under the same terms and conditions, except the rental for each space described shall be increased by an annual amount determined by the amount of increase in the Consumer Price Index promulgated by the U.S. Bureau of Labor Statistics based on the increase between the date of the execution of the indenture and the effective date of the exercise of the renewal option. This provision supersedes that letter agreement between the LESSOR and the LESSEE dated June 4, 1974. The LESSEES shall exercise this option to renew by notice to the LESSOR in writing at the address stated herein, not less than thirty days prior to the end of the lease period."

On May 6, 1977, the lessors gave notice by letter that the lessees were considered to be in breach of the lease for several reasons among which was the lessees' failure to comply with the requirement that they pay their prorated share of the increase in the real property taxes. The lessees were advised that the taxes had increased for the years 1975 and 1976 and that the lessees owed eleven percent of the increase, or a total of $777.58, and that if that amount was not paid the owners (lessors) would terminate the lease. Lessees claimed that they had only leased ten percent of the space in the building and, thus, were only liable for that percentage of the increased taxes. However, they failed to tender the amount of taxes they admittedly owed, and refused to pay any sum whatsoever.

On June 3, 1977, more than thirty days before the end of the primary term, lessees notified lessors that they were exercising their right to renew the lease for an additional five-year period. Lessees paid June and July base rent, without any amount for increased taxes. The July rental payment was not timely made.

On July 1, 1977, the lessors served the lessees with a notice terminating the lease as of July 31, 1977, the end of the initial term of the lease, requiring the lessees to vacate and surrender the premises on or before that date. ¹ The lessees refused to do so and on July 28, 1977, filed this action seeking a declaratory judgment as to the status of the lease. The lessors counterclaimed, asking for a declaration that the lessees were in violation of the terms of their lease and not entitled to possession, for a writ of restitution, for judgment for unpaid taxes, for compensatory and exemplary damages, and for attorneys' fees and costs. ²

After trial to the court, the district court entered extensive findings of fact, conclusions of law, and a judgment in favor of the lessors. ³ In summary, the court found that, although the lessees were notified by letter dated May 6, 1977, that the taxes on the leased premises had increased $3,551.09 during the year 1975 and $3,517.18 during the year 1976; that they had not paid their prorata share as required by the lease; that the lessees' rental space had increased ten percent (not eleven percent) and the lessees were therefore obligated to pay as additional rent ten percent of the increase in taxes; and that lessees' failure to pay the additional rent was willful and intentional, with knowledge that they were in arrears for the additional rent accrued; and that the breach of the covenant to pay rent was substantial.

The district court concluded as a matter of law that the lessees had no right to possession of the premises. The court held that, although the lessees may have believed in good faith that they owed only ten percent of the increase in taxes as additional rent, they were not excused from tendering the ten percent rent increase and that the filing of the declaratory judgment action did not excuse the nonperformance by the lessees. Further, the court concluded that the consideration for the lease, of which the option was a part, was the payment of the rent and the keeping of the covenants. Since the breach by the lessees was intentional and substantial, the court concluded it was willful and, therefore, the lessees had no right to renew the lease.

The court entered a judgment for possession of the premises and for the additional rent due attributable to the tax increase. The court denied the lessors' claim for damages, based upon various other alleged breaches of the lease, for want of sufficient proof. The court also denied the lessors' claim for attorneys' fees. The court delayed implementation of its order pending appeal and ordered lessees to pay rent at the rate set in the original lease plus any monthly adjustment for increased taxes.

The court of appeals, in a divided opinion, reversed. Hoffman v. Brown, supra. It held that the only condition to the exercise of the option to renew was that lessees give lessors thirty days notice of intent to renew. Since lessees had done this, the court of appeals found the renewal was valid and the lessees were entitled to possession. However, it remanded the case to the district court for a more precise finding on the rental rate to be paid by lessees during the renewal period.

I.

The principal issue is whether there was a valid exercise by the lessees of the option to renew the lease for an additional term of five years, as the court of appeals decided.

We do not agree with the court of appeals' construction of the terms of the lease, which held that the only condition to the exercise of the option to renew was the giving of a thirty-day written notice prior to the end of the initial term of the lease. As thus construed, the granting of the option to renew was...