Gardner v. Ebenezer, LLC

• Decision Date: 06 May 2008
• Docket Number: No. COA07-1190.,COA07-1190.
• Citation: 660 S.E.2d 172
• Parties: C. Tom GARDNER, Plaintiff v. EBENEZER, LLC and Joseph P. Speight, III, Defendant.
• Court: North Carolina Court of Appeals

660 S.E.2d 172

C. Tom GARDNER, Plaintiff v. EBENEZER, LLC and Joseph P. Speight, III, Defendant.

No. COA07-1190.

Court of Appeals of North Carolina.

May 6, 2008.

Appeal by plaintiff and defendant Ebenezer, LLC, from order entered 20 February 2007 by Judge Quentin T. Sumner in Superior Court, Dare County. Heard in the Court of Appeals 18 March 2008.

Aldridge, Seawell, Spence & Felthousen, LLP, by W. Mark Spence, Manteo, for plaintiff-appellant.

Hornthal, Riley, Ellis & Maland, L.L.P., by M.H. Hood Ellis and L. Phillip Hornthal, III, Elizabeth City, for defendant-appellant Ebenezer, LLC.

Gray & Lloyd, by E. Crouse Gray, Jr., Kill Devil Hills, for defendant-appellee Speight.

WYNN, Judge.

Where a commercial lease does not expressly provide for the lessor's reentry upon the tenant's nonpayment of rent, forfeiture of the lease is implied upon the tenant's "failure to pay the rent within 10 days after a demand is made by the lessor . . . for all past-due rent[.]"¹ Here, the lessee and sub-lessee argue that the trial court erred by granting summary ejectment against them and in favor of the lessor. Despite the lessor's failure to repair the property after a fire, because the tenants failed to pay rent, we affirm.

Defendant-appellee Joseph P. Speight, III is the owner of a lot and building located in Duck, North Carolina. On 24 November 1993, Mr. Speight entered into a commercial real estate lease agreement with Plaintiff-appellant C. Tom Gardner. Under the lease agreement, Mr. Gardner was given the right to assign or sublet the premises, and Mr. Speight agreed "to carry sufficient fire and flood insurance." Additionally, the lease contained a provision that stated:

Should the building upon the leased space be destroyed or rendered unfit for the use and occupancy by fire or other casualty, the lease shall hereupon terminate. Should the building be partially destroyed, then Lessor shall make repairs to replace and restore building to the original standards of said lease.

Mr. Gardner owned and operated a restaurant in the leased premises until April 1996, when he sold the restaurant business to Ted Millican and Scott Kelly, and subleased the property to them. In turn, Mr. Millican and Mr. Kelly subleased the restaurant property to Whalebone Junction Resort, LLC, which subleased the property to Defendant-appellant Ebenezer, LLC, on 3 January 2005, with an effective date of the lease of 15 January 2005. As the sub-lessee, Ebenezer began operating a restaurant on the premises.

On 14 October 2005, a fire occurred in the restaurant. Although the premises were not destroyed by the fire, all the parties agree that the property was damaged to the point that a restaurant could not be operated until repairs were made.

After the fire, Ebenezer's managing member, Joel Jordan, initiated efforts to clean up and repair the restaurant. Ebenezer hired a contractor and obtained a demolition permit from the Town of Duck, which was limited to fire damage repairs only. However, in the process of its repairs, Ebenezer began additional, unauthorized remodeling and construction, including building a new deck and replacing old restaurant equipment with new equipment. On 15 November 2005, Ebenezer's insurance company indicated that Ebenezer did not have insurance coverage on the building. As a result, Ebenezer stopped work and initiated a clean up process which was completed on 18 November.

Mr. Speight admitted to making a written claim against his insurance carrier for the fire damage and receiving $45,443.46 from his insurance company. In his response to plaintiff's request for admissions, Mr. Speight asserted that he used the insurance proceeds "to pay for survey of property, fees to attorneys to deal with the Town of Duck to obtain permits; [and] Cost of permits." All parties agree that Mr. Speight did not use his insurance proceeds to pay for repairs of the premises.

Ultimately, as a result of the unrepaired fire damage, Ebenezer stopped paying rent to Mr. Gardner, and in turn, Mr. Gardner stopped paying rent to Mr. Speight.

On 28 June 2006, Mr. Gardner filed a complaint against Ebenezer and Mr. Speight, requesting a declaratory judgment that Ebenezer's sublease be terminated and Ebenezer ordered to vacate the premises, and that the lease with Mr. Speight continue in full force and effect, with Mr. Gardner entitled to possession of the premises. The parties then filed a series of answers, counterclaims, and cross-claims. Mr. Speight requested that the court eject Mr. Gardner and Ebenezer from the premises and, in the alternative, Mr. Speight's complaint provided notice to Mr. Gardner that the right of occupancy would be forfeited "upon failure to pay all present and back rent within ten (10) days after date of service." However, Ebenezer requested that the lease and sublease continue, with the rent abated, until the premises were repaired. On 31 October 2006, Mr. Speight filed a motion for summary judgment. A hearing was held on 15 January 2007, and on 12 February 2007, the trial court issued an order of partial judgment, granting summary ejectment in favor of Mr. Speight, by ordering Mr. Gardner and Ebenezer be removed from the premises and Mr. Speight be put in possession of the premises, but denying summary judgment for Mr. Speight's other claims.

On appeal, Mr. Gardner and Ebenezer argue that the trial court erred by granting summary ejectment in favor of Mr. Speight.

A trial court conducting a summary ejectment proceeding for a commercial tenant obtains its jurisdiction from section 42-26 of our General Statutes.² ARE-100/800/801 Capitola, LLC v. Triangle Labs., Inc., 144 N.C.App. 212, 216, 550 S.E.2d 31, 34 (2001). Section 42-3 has also been applied to commercial leases to create an additional ground for summary ejectment. Id. Section 42-3 states:

In all verbal or written leases of real property of any kind in which is fixed a definite time for the payment of the rent reserved therein, there shall be implied a forfeiture of the term upon failure to pay the rent within 10 days after a demand is made by the lessor or his agent on said lessee for all past-due rent, and the lessor may forthwith enter and dispossess the tenant without having declared such forfeiture or reserved the right of reentry in the lease.

N.C. Gen.Stat. § 42-3 (2005). However, section 42-3 "applies only when a lease does not expressly provide for the landlord's reentry upon nonpayment of rents." Charlotte Office Tower Assoc. v. Carolina SNS Corp., 89 N.C.App. 697, 700, 366 S.E.2d 905, 907 (1988).

In this case, the lease agreement did not contain a provision by which Mr. Speight could terminate the lease or re-enter the premises for nonpayment of rent. Therefore, section 42-3 creates an implied "forfeiture of the term upon failure to pay the rent within 10 days...