Merrill v. DeMott, 28369
| Decision Date | 30 December 1997 |
| Docket Number | No. 28369,28369 |
| Citation | 951 P.2d 1040,113 Nev. 1390 |
| Parties | R. Thomas MERRILL, Appellant, v. John DEMOTT; Waldon Randall Welty; Jeff Goetch; JeffJohn, Inc., and Wild J's, Inc., Respondents. |
| Court | Nevada Supreme Court |
Ralph J. Rohay, Las Vegas, for Appellant.
Neil J. Beller, Las Vegas, for Respondents.
This case involves a lessor's attempt to recover damages for lessees' claimed breach of a contract regarding a five-year lease of commercial property in Las Vegas, Nevada. In July 1993, R. Thomas Merrill contracted to purchase commercial real estate located at 2875 Industrial Road, Las Vegas, Nevada, for the sum of $635,000.00. In order to qualify for the purchase money loan necessary to close escrow, Merrill needed to procure a credit-worthy tenant. With the aid of a real estate agent, Merrill entered into negotiations with John DeMott concerning a lease arrangement.
DeMott and his business partner, Waldon Randall Welty, intended to use the property as an expansion of their adult book store and video arcade, Wild J's Book & Video ("Wild J's"). The new expansion was to consist primarily of a cabaret, and all parties were aware that DeMott and Welty would need to procure an appropriate adult use permit. The parties were also aware that parking arrangements would be necessary for issuance of the permit; and they speculated that a contiguous lot owned by the Nevada Power Company could be leased for parking purposes.
Merrill entered into a sixty-month lease agreement with DeMott and Welty on January 14, 1994, specifying a lease commencement date of January 1, 1994, despite the fact that escrow had not yet closed on Merrill's purchase of the property. The agreement provided that Merrill would assign the anticipated lease of the parking lot owned by the Nevada Power Company to DeMott and Welty. Although the language in the lease consistently referred to Merrill as "Landlord," and defined "Landlord" as the "owner of fee title," Merrill did not actually become the owner of the fee title until escrow closed on February 8, 1994.
The lease contract between Merrill, DeMott, and Welty contained a contingency clause giving DeMott and Welty the right to cancel the lease with a full refund of rents and deposits if they were unable to obtain an adult use permit for the cabaret within thirty days after the lease commenced. The lease also provided that DeMott and Welty would receive "the month of January 1994 and the first month all improvements are completed and approved (totaling two months) rent free. " A merger clause was also included, specifying, in pertinent part, that "no prior agreement or understanding pertaining to [the lease] shall be effective," and that the lease could be modified in writing only. Finally, the lease contained a waiver clause specifying that Merrill's waiver of any lease provision shall not be deemed a waiver of any other provision or of any subsequent breach by DeMott and Welty.
DeMott claims to have been denied consideration of his application for an adult use permit at some time after the lease was executed, allegedly due to the fact that Merrill did not yet own the property. This claim was never confirmed because DeMott's testimony on this matter was apparently a hearsay account of what his now deceased employee relayed to him after returning from the Clark County permit office, and the permit office has no record of his employee's visit.
Despite the claimed bar to application for the permit, DeMott and Welty took possession of the property and began improvements at the beginning of February 1994. DeMott testified that he thought the lease was cancelled by his inability to obtain the permit, but proceeded with the planned renovations in anticipation of salvaging the deal.
Merrill obtained legal title to the property when escrow closed on February 8, 1994. The parties had previously agreed that DeMott and Welty would sublease the property to JeffJohn, Inc., a California corporation with Jeff Goetch as president and DeMott as secretary, treasurer, and sole stockholder. DeMott's and Welty's attorney, Neil Beller, sent a letter to Merrill, including the proposed sublease contract, on February 8, 1994. The parties also agreed that DeMott and Welty would receive free rent from February 1, 1994, to February 15, 1994, in consideration for giving Merrill a construction schedule by March 1, 1994, and a set of plans for the improvements by March 30, 1994, as well as releasing Merrill from any claims relating to his ownership of the property during the lease period. Pursuant to this agreement, Beller sent Merrill's attorney, Gary B. Torpy, a letter dated March 7, 1994, stating, in pertinent part, that his clients "release any claim arising out of or relating to the question of whether [Merrill] owned the property during any period of time in which the Master Lease was in effect." DeMott and Welty signed the letter.
The sublease commenced on March 1, 1994, and ran for the remainder of the sixty-month master lease period. The sublease provided that the sublessee would assume all remaining obligations of the sublessor under the master lease. In addition, DeMott and Welty provided a written guarantee of the sublessee's "prompt payment" and "performance of each and every one of the terms, conditions, and covenants" of the master lease.
On March 11, 1994, Merrill and the Nevada Power Company executed a lease under which the lot adjacent to Merrill's property could be used as customer parking for the cabaret. On the same day, DeMott and Welty filed an application for the adult use permit. The permit office denied the application on March 24, 1994, citing "insufficient parking" as the basis for denial. Irene Navis, who processes the adult use permit applications for Clark County, testified that the leased lot failed to satisfy the parking requirement because the Nevada Power Company owned the lot, rather than Merrill. She told Beller that "the only way that [he] could use the Nevada Power property for parking was if Mr. Merrill owned the property also, and that he could, then, administratively combine the one bar through the assessor's office."
On March 25, 1994, the day after the permit office denied the adult use permit application, Beller sent Torpy a letter attempting to cancel the lease as provided in the contingency clause. Beller wrote, Despite the assertion of Beller's letter, he did not in fact apply for a zoning variance. DeMott testified that he did not apply for a zoning variance or appeal the permit denial because of the time involved and low probability of success.
Following Beller's letter attempting to cancel the lease, Merrill put his property back on the lease market. He found a new tenant, who signed a lease on September 13, 1994, and began rent payments on December 1, 1994; however the payments were substantially lower than Merrill had expected under the lease with DeMott and Welty.
Merrill filed suit, seeking to recover rent due under the lease agreement, and DeMott, Welty, Goetch, JeffJohn, Inc., and Wild J's, Inc. ("Respondents") filed a counterclaim for declaratory relief, seeking a declaration that the lease agreement was not enforceable, and attorneys' fees. Following a trial, the district court entered judgment for Respondents on both the claim and counterclaim, from which Merrill now appeals.
The district court found that the initial master lease agreement was void ab initio as a matter of law because Merrill was not yet the fee title owner of the leased property. Although Merrill argues that procurement of a credit worthy tenant is a common prerequisite for obtaining a purchase money mortgage needed to close escrow, he does not challenge the finding of initial invalidity on appeal. All of Merrill's arguments posit subsequent validation of the lease as a result of events occurring after he obtained fee title to the property. Accordingly, we decline to consider whether the lease was void at the time of execution as a matter of law. The dispositive issues, as discussed below, are whether Respondents' acceptance of benefits under the lease should estop them from challenging its validity, and whether the parties' conduct or agreement subsequent to Merrill's acquisition of fee title to the property ratified the lease.
Merrill argues that, although the lease may not have been valid at the time of execution, Respondents are barred from denying the lease's validity under principles of estoppel. Respondents argue that estoppel should not apply because Merrill did not alter his position in detrimental reliance on Respondents' conduct.
Although this issue is one of first impression in Nevada, treatises and courts of other states have addressed analogous situations. Merrill emphasizes that "[t]he rule is well settled that during the existence of the relation of landlord and tenant, a tenant is estopped to deny a landlord's title or to challenge or dispute it." 49 Am.Jur.2d Landlord and Tenant § 915, at 734 (1995) (footnotes omitted). "This is because, absent a disturbance of possession, an adverse claim to property has no effect upon the lease." Id. § 917, at 735-736 (footnote omitted); see, e.g., Campbell v. Hensley, 450 S.W.2d 501 (Ky.1970); Rockport Shrimp Cooperative v. Jackson, 776 S.W.2d 758, 760 (Tex.Ct.App.1989) ().
While the principle set forth above is useful as a policy guideline, it is not dispositive in the instant case...
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