Reston Recreation Center Associates v. Reston Property Investors Ltd. Partnership

• Decision Date: 22 September 1989
• Docket Number: Nos. 871175,880097,s. 871175
• Citation: 238 Va. 419,384 S.E.2d 607
• Parties: RESTON RECREATION CENTER ASSOCIATES v. RESTON PROPERTY INVESTORS LIMITED PARTNERSHIP. Record
• Court: Virginia Supreme Court

Page 607

384 S.E.2d 607

238 Va. 419

RESTON RECREATION CENTER ASSOCIATES v. RESTON PROPERTY INVESTORS LIMITED PARTNERSHIP.

Record Nos. 871175, 880097.

Supreme Court of Virginia.

Sept. 22, 1989.

John E. Harrison (Sandra L. Hughes, Adam D. Elfenbein, Johnna S. Spera, Light & Harrison, P.C., McLean, on briefs), for appellant.

Stephen K. Fox (Bernadette A. Fritschie, William L. Carey, Fox & Proffitt, P.C., Miles & Stockbridge, Fairfax, on brief), for appellee.

Present: All the Justices.

WHITING, Justice.

This dispute over a landlord's termination of a commercial lease before its scheduled expiration presents a number of issues. They are primarily: (1) whether the lease obligated the tenant to maintain public liability insurance coverage for its alleged subtenant's business activity on the premises; (2) if so, whether either the doctrine of impossibility of performance or a provision of the lease prevented the landlord from terminating the lease when the tenant failed to maintain such insurance; (3) whether the tenant lost the benefit of favorable lease provisions by failing to vacate the premises on the landlord's demand; and (4) if termination was proper, the appropriate measure of damages for the tenant's retention of the premises.

The trial court decided most of the issues against the tenant by summary judgment. Therefore, in conformity with well-settled appellate principles, we review the pleadings and admissions relative thereto in the light most favorable to the tenant.

By lease dated February 6, 1981, Reston Racquet Club Associates (the landlord) let 4.7595 acres, improved by a building, in which it had operated a recreational center in Reston, to Reston Recreation Center Associates, a limited partnership (tenant), for "roller rink, tennis, racquetball, gymnastics and related recreational center uses." The lease obligated the tenant to make a number of additions and modifications to the premises, including the installation of a roller skating rink.

Paragraph 15(A) of the lease required the tenant to "maintain at Tenant's sole cost and expense, for the benefit of Landlord and Tenant, insurance with respect to the premises, of the following types and in the following amounts: ... (3) [p]ublic liability insurance with limits of at least ... $5,000,000 for the injury to more than one person in one accident or occurrence." (Emphasis added.) Effective February 27, 1985, paragraph 15(A)(3) was amended to provide that the required public liability insurance would include "host liquor liability insurance if available, in the event that alcoholic beverages are served on the premises by Tenant, its agent or employees."

In another paragraph of the February 27, 1985 amendment, the landlord approved the tenant's sublease of a portion of the building to Reston Home Owners Association (Home Owners), for the operation of a fitness center, tennis and racquetball courts, and related facilities. Paragraph 15 of the sublease required Home Owners to maintain a $5,000,000 public liability insurance policy with a "combined single limit on account of bodily injuries to or death of persons and damage to property with host liquor liability insurance" for the benefit of the landlord, the tenant and Home Owners. On June 1, 1985, with the landlord's written consent, the tenant subleased another portion of the building to Specs Of Herndon, Inc. (Specs) for gymnastic and exercise training, with the same provisions for public liability insurance as in paragraph 15 of Home Owners' sublease.

Until October 2, 1985, the tenant caused public liability insurance in the required amounts to be maintained protecting the landlord, the tenant, and the tenant's sublessees in the occupation and use of the premises, including their business activities thereon. Such insurance covered the operation of the roller skating rink by a corporation known as Reston Roller Rink, Inc., which had operated the rink until some time in 1983, as well as the tenant's operation thereafter. Effective October 2, 1985, the tenant's public liability insurance carrier cancelled coverage on the roller skating activities. Despite diligent effort, the tenant was unable to obtain public liability coverage for its operation of the rink from other insurance companies; nevertheless, it continued its operation.

On December 23, 1985, the landlord notified the tenant of its alleged default, and gave the tenant a 30-day period, required by paragraph 28(A)(2) of the lease, in which to cure the default or risk termination. On January 22, 1986, the tenant created a wholly owned subsidiary corporation, Reston Recreation Center, Inc. (Skateway) to operate the rink. On the same day, the tenant secured a five million dollar public liability insurance policy which covered the landlord and the tenant in its capacity as "the prime tenant," and included their business activities upon the premises. The tenant, however, was only able to secure a $500,000 policy for Skateway's operation of the rink.

On April 18, 1986, the landlord issued a notice terminating the lease, as provided by paragraph 28(A) thereof, alleging a failure to maintain the required insurance, and demanded possession five days after receipt of the notice. The tenant admits receiving this notice shortly after it was sent, but did not surrender the premises as required.

Paragraph 13 of the lease, supplemented by a letter addendum dated February 6, 1981, gave the landlord the right, upon the expiration of the term of the lease, to retain the furniture, fixtures, and machinery installed by the tenant but obliged the landlord to pay the tenant $225,000 if the right were exercised. On April 24, 1986, the landlord gave the tenant written notice of its exercise of the right.

On April 28, 1986, the landlord sold the premises to Reston Property Investors Limited Partnership (successor landlord). The successor landlord admits knowledge of the original lease, but not of the February 6, 1981 letter addendum. The lease documents were not recorded.

On June 27, 1986, the successor landlord filed this unlawful detainer action to recover possession of the premises. On June 29, 1987, the trial court sustained the successor landlord's motion for summary judgment for possession.

The tenant filed a counterclaim contending that, because the landlord had exercised its right to retain the tenant's property in its April 24, 1986 notice of election, the successor landlord owed it $225,000, whenever and however the landlord regained possession of the premises. On October 23, 1987, the counterclaim was dismissed upon the successor landlord's motion for summary judgment. We granted the tenant an appeal from that ruling. (Record No. 880097.)

On June 12, 1987, the successor landlord filed an amended motion for judgment seeking damages for the tenant's retention of the premises after the lease had been terminated. At a trial upon that issue, a jury returned a $112,275 verdict for the successor landlord. On July 17, 1987, the trial court entered judgment on the verdict, and we granted the tenant an appeal from that ruling and the previous summary judgment ruling on the issue of possession (Record No. 871175), in addition to the previously granted appeal. We consolidated both appeals for argument and decision.

I.

The tenant contends that it did not breach the insurance requirements of paragraph 15(A)(3) of the lease, because that paragraph: (1) unambiguously limited its obligation to maintaining public liability insurance coverage for claims arising out of defects in the premises; and (2) did not require coverage for claims arising out of the operation of any business thereon. If that construction is erroneous, the tenant claims that the language is at least ambiguous and that the trial court should have submitted the issue to the jury.

The term "public liability insurance" is generic, and requires agreement as to the coverage or risks insured. 11 G. Couch, Cyclopedia of Insurance Law § 44:247 (2d ed. 1982). The only written agreement of the parties was that such insurance should be "with respect to the premises," and in the amounts specified; the parties did not specify the type of public liability insurance required. During the first four years of the lease, the tenant caused the maintenance of $5,000,000 of business activity public liability coverage on the premises, and the landlord acquiesced therein. This practical construction by the parties of the terms of the lease defined the type of insurance required therein, and thereafter bound the tenant to continue such coverage. See Dart Drug v. Nicholakos, 221 Va. 989, 995, 277 S.E.2d 155, 158-59 (1981).

Alternately, the tenant contends that its subsequent sublease to Skateway, a separate entity, relieved it of its obligation because the lease did not require it to maintain such insurance for a sublessee's activities on the premises. The tenant admits, however, that the landlord did not consent to the sublease, as required by paragraph 18 of the lease. One obvious reason for requiring a landlord's consent to a sublease is to permit the landlord to retain control over the terms under which any sublessee occupies the premises. That the parties envisaged retention of such control is underscored by a consideration of the language of the second sentence of paragraph 11, dealing with the use of the premises. Therein, the tenant is prohibited from permitting a licensee or concessionaire to operate a business on the premises without obtaining the landlord's prior written consent. Under these circumstances, we hold that the landlord could ignore the sublease and continue to treat the tenant as the occupant. See Owens v. Oglesby, 123 So.2d 521, 524 (La.Ct.App.1960); Digby v. Hatley, 574 S.W.2d 186, 189 (Tex.Civ.App.1978).

The tenant also relies upon a provision in paragraph 18 of the lease, relieving it of its obligation to obtain landlord consent to a sublease, where "the effect of any such...