Kinney v. Capitol-Strauss, Inc.

• Decision Date: 23 May 1973
• Docket Number: INC,No. 55578,CAPITOL-STRAUS,55578
• Citation: 207 N.W.2d 574
• Parties: Joe KINNEY and Sylvia Kinney, Appellants, v., an Iowa corporation, et al., Appellees.
• Court: Iowa Supreme Court

Page 574

207 N.W.2d 574

Joe KINNEY and Sylvia Kinney, Appellants, v. CAPITOL-STRAUSS, INC., an Iowa corporation, et al., Appellees.

No. 55578.

Supreme Court of Iowa.

May 23, 1973.

Cahill, Lovelace, Poula & Wimpey, Iowa City, for appellant.

Shulman, Phelan, Tucker, Boyle & Mullen, Iowa City, for appellees.

Heard before MOORE, C.J., and RAWLINGS, LeGRAND, REYNOLDSON and HARRIS, JJ.

REYNOLDSON, Justice.

This declaratory judgment action was brought by plaintiffs (lessor) to determine whether under a 'Ground Lease' agreement with defendants (lessee) the latter were obligated for additional rent when, during the course of the lease term, lessee claimed the right to use a portion of the leased area for a commercial campground. Trial court held lessee iwas under no obligation to pay additional rent. We affirm.

Lessor owned land in the northwest quadrant of the Oxford, Iowa, interchange on Interstate 80. In 1967 lessee entered into negotiations to lease a tract for certain uses as an interchange outlet. Originally the leased area was to be a unit. However, during preliminary discussions it was ascertained construction of a service station would necessitate subordination of the land ownership to a mortgage and a similar situation would exist as to a restaurant. For this reason the area as shown by a plat attached as an exhibit to the lease was designated parcel A--1 (service station), parcel A--2 (restaurant) and parcel B (balance of tract). The lease on the service station area (parcel A--1) was by separate instrument and does not concern us here.

The above facts were stipulated. These parties further stipulated the parcel A--2 and parcel B ground lease original draft was prepared by lessee's attorneys, submitted to lessor's counsel, and after several drafts ensued the final draft was executed October 31, 1967.

Thereafter the service station was constructed on parcel A--1 and the restaurant on parcel A--2. Parcel B remained undeveloped until the fall of 1971.

The 'Ground lease' was for a 20 year term with options to renew for three successive five year terms. Particularly pertinent here is part 'II, RENTAL.' Paragraph A thereof provides for monthly rental of $150 'commencing with the completion of the construction of a restaurant building on the premises.' Paragraph B states 'B. In addition to the foregoing rental, Lessee will pay additional rental determined as follows:

1. In the event a building is constructed for a restaurant, specialty food and gift sales, 2% Of gross sales over $250,000.00 in each lease year * * *.

2. If a motel is erected, one half of the net ground rental received by Lessee, with the minimum rental to be no less than 5% Of room revenues.

3. If additional tenancies are created, the net ground rental shall be divided equally between Lessor and Lessee.

4. In the event a sub-lessee should require a lease whose term would exceed the term of this lease plus its three five-year renewal options, Lessee may ask Lessor to grant a longer term for the ground to be occupied by said sublessee, and Lessor's consent thereto shall not be unreasonably withheld.'

In the fall of 1971 discussions were had between these parties concerning development of parcel B. In an exchange of correspondence between attorneys for these litigants, lessee took the position its development of parcel B as a franchised campground would not constitute an 'additional tenancy' and no additional rental would be due lessor. Lessor's attorney contended lessee, by making the improvement itself, should not be permitted to deprive lessor of the additional rent which would ensue if the tract were sublet to a third party for such purpose.

There followed a letter from lessee to lessor, enclosing an executed sub-lease of parcel B to Kamp Dakota of Oxford, Inc. The letter stated in part, 'You are hereby advised that an additional tenancy covering Parcel B has been created between Capitol-Strauss, Inc. as lessor, and Kamp Dakota of Oxford, Inc. as Lessee.' The sub-lease provided for rental of $100 per month plus 5% Of the excess 'in any lease year in which rentals from campers exceed $24,000.00 * * *.'

About two weeks later lessor was notified by letter from lessee this sub-lease 'ha(d) not materialized' and lessee had decided to develop the proposed campgrounds by itself. According to the stipulation dictated into the record by the parties and the testimony of S. W. Strauss, one of the corporate owners of the lessee, Kamp Dakota of Oxford, Inc. was never formed. No corporate papers were signed. Two sons of S. W. Strauss signed the sub-lease as officers for Kamp Dakota of Oxford, Inc.

Lessor's petition in equity prayed for injunction to prevent construction of campground, for a construction of the lease declaring lessee's obligation to pay rent and the amount thereof, for expenses, costs and attorney fees as provided by lease, and for general equitable relief.

When trial commenced these parties stipulated, among other things, '(T)he sole question involved * * * was as to whether or not the development by the defendant or Parcel B as a campground constitutes an additional tenancy for which rent is payable under the provisions of the lease.'

Trial court, confining itself to the sole stipulated issue, held defendant's use...