Fulkerson v. Moore Prop. Invs., LLC
| Decision Date | 25 July 2014 |
| Docket Number | NO. 2012-CA-000893-MR,NO. 2012-CA-000856-MR,2012-CA-000856-MR,2012-CA-000893-MR |
| Parties | LAURA FULKERSON APPELLANT/CROSS-APPELLEE v. MOORE PROPERTY INVESTMENTS, LLC APPELLEE/CROSS-APPELLANT |
| Court | Kentucky Court of Appeals |
NOT TO BE PUBLISHED
APPEAL AND CROSS-APPEAL FROM JEFFERSON CIRCUIT COURT
Moore Property Investments, L.L.C., cross-appeals from an award of only a portion of its requested attorney fees.
Veterinarians Todd Yates1 and Fulkerson entered into negotiations in June 2009, to rent Suite B, in a shopping center owned by Moore Property Investments. Pursuant to the proposal, the five-year lease would commence after completion of the veterinary clinic or when it opened for business. The lease included base rent of $5,000 a month and a fluctuating amount of additional rent consisting of the the clinic's leasehold percentage of common area maintenance (CAM) fees and taxes. A set monthly amount of $750 for additional rent was stated in the lease agreement, but it was subject to being adjusted after actual expenses were paid, with a deficit amount to be collected at the beginning of the year and a new set amount specified based on the prior year's expenses. The lease agreement also provided for Moore Property Investments to recover its reasonable legal fees in the event it had to retain an attorney to enforce the provisions of the lease, bring a legal action against the tenant or defend any action brought by the tenant.
Before finalizing the lease agreement, Yates and Fulkerson inquired about the amount they would have to pay in additional rent. Through an e-mail, Moore Property Investments' leasing agent, Mark G. Wardlaw, provided an estimate as follows:
The CAM estimate is $121.20/month for insurance, common area maintenance, etc. . . .
Taxes are $627.00/ mo. Shawn just won an appeal and had the assessment lowered. That number should be good for several years.
Total CAM & Taxes is therefore $748.20/mo. This comes in at $2.49/sf which is about average ($2.50 to $3.00/sf) for most shopping centers in the area.
Yates and Fulkerson planned to make significant improvements to the property to convert it into a veterinary clinic. To protect this investment, they also negotiated a lease to purchase an option agreement for Suite B for $5,000 with a purchase price of $735,126, with $1,400 from each monthly lease payment to be credited against the purchase price at closing. Under the terms of the option agreement, Yates and Fulkerson had until December 31, 2010, to exercise the option in the following manner:
3. NOTICE REQUIRED TO EXERCISE OPTION. Buyer/Tenant may only exercise this option to purchase by delivering written notice of intent to purchase to Seller/Landlord. Such notice must specify a closing date to occur prior to the original Termination Date set forth in the Lease Agreement or the option expiration date set forth in paragraph 1 herein above, whichever is later in time.
As the lease term was for five years after Yates and Fulkerson opened the clinic for business, there was a lengthy period of time in which the closing date could be set. The option agreement also specified Moore Property Investments could terminate the option if Yates and Fulkerson were in default of the option agreement or failed to comply with the terms and conditions of the lease agreement at the time theoption was exercised, time is of the essence in the option agreement and performance of the option agreement was not conditioned on the availability of financing. The parties agreed if the option was exercised they would "execute a Contract for Deed in form reasonably acceptable to both parties for the full purchase price[.]"
The parties signed the lease agreement and the option agreement on July 15, 2009. Yates and Fulkerson spent $183,853.67 to improve the leasehold property and planned to exercise their option to purchase the property. They consulted with their lender, who performed a title search and determined the property was not subdivided. The lender refused to set a closing date for a loan to purchase the property because Moore Property Investments did not have the current ability to convey title.
On December 22, 2010, Yates and Fulkerson sent a letter to Moore Property Investments advising they were exercising their right to purchase the property but did not state a closing date as required by the option agreement. Yates and Fulkerson orally advised Moore Property Investments that they were unable to provide a date for the closing because Moore Property Investments had taken no steps toward subdividing the property, but were ready and able to close as soon as the property was subdivided.
On January 19, 2011, Moore Property Investments revised the additional rent amount based on the amount of CAM and taxes it paid the previous year. Yates and Fulkerson were provided with a list of total maintenance costs for2010 that totaled $41,386.71. This list included substantial amounts for electricity ($2,498.79), waste disposal ($1,353.24), water ($1,398.43), insurance ($3,518.88), lawn service ($2,565), county property tax ($17,285.48), city property tax ($2,496.14), roofing ($4,138.75) and snow removal ($4,617). It also included smaller, non-recurring charges. After the list of maintenance charges was corrected to remove the cost of roofing, their additional rent totaled $19,948.42, resulting in a deficiency of $10,948.42. The actual CAM expenses were roughly seven times higher than Moore Property Investments' estimate of CAM expenses or initial CAM fee in the lease.
In January 2011, Moore Property Investments informed Yates and Fulkerson their new additional rent amount would be $1,454.75 per month. Moore Property Investments also informed Yates and Fulkerson their notice attempting to exercise the option was invalid because it failed to provide a closing date.
Yates and Fulkerson continued to pay their $5,000 base rent and $750 in additional rent which Moore Property Investments accepted. They have not paid their deficiency amount or the increased additional rent amount, although they have placed an additional amount in escrow which they believe constitutes a reasonable increase for additional rent.
The complaint was filed on March 31, 2011. Yates and Fulkerson timely filed an answer and counterclaim.
On October 18, 2011, Moore Property Investments was granted leave to file an amended complaint. Moore Property Investments claimed Yates andFulkerson breached their contract by failing to pay the total amount of additional rent due, sought the deficiency amount and a declaration the option was not properly exercised, and attorney fees pursuant to the lease agreement. Yates and Fulkerson timely filed their answer.
On January 18, 2012, Yates and Fulkerson were granted leave to file an amended answer and counterclaim. In their answer, they denied breaching the lease agreement or failing to give proper notice to exercise the option and alleged Moore Property Investments breached the lease agreement and option agreement. They further alleged Moore Property Investments made material misrepresentations regarding the monthly amount of CAM and taxes, wrongfully executed an option agreement for premises it was unable to convey and, but for these inducements, they would not have entered into the lease agreement. They sought rescission and damages to recover their leasehold improvements, relocation costs, economic losses, costs and attorney fees.
On February 14, 2012, before any discovery had been conducted by Yates and Fulkerson or any discovery order had been entered, Moore Property Investments filed a motion for summary judgment without supporting affidavits. Moore Property Investments argued Yates and Fulkerson had no defense to the payment of additional rent as agreed in the lease agreement, the option agreement required strict compliance and a closing date, and there was no impossibility to fixing a closing date when the property could be conveyed as a condominium.
Yates and Fulkerson argued they were fraudulently induced to enter into the lease agreement on the basis of the (1) additional rent estimate and (2) option agreement. They argued Moore Property Investments' additional rent estimate was fraudulent because it had a historical basis for determining at least a portion of the costs based on Shawn Moore's operation of his dental practice in the shopping center and, if it had investigated any of the services the property required, it would have realized its estimate was grossly inaccurate. They argued they were assured they could effectively exercise the option agreement to purchase a subdivided, fee simple portion of the shopping complex, but Moore Property Investments made such an action impossible by failing to subdivide the property.
Yates and Fulkerson filed affidavits in which they stated the amount of the additional rent was essential to their decision to enter into the lease, they relied on the e-mail estimate of monthly additional rents when they entered into the lease, and they relied on the option agreement in entering into the lease and investing in renovating the space.
In Moore Property Investments' reply, it filed Wardlaw's affidavit stating Moore Property Investments did not have historical operating expenses from the shopping center's previous owners and had not previously leased the premises to determine an estimate of CAM expenses, so he conducted a survey of shopping centers in the area. He did not detail what these surveys entailed, whether they were of comparably sized properties or whether there were historical operating expenses for Moore's dental practice on the...
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