Schneiker v. Gordon

• Citation: 732 P.2d 603
• Decision Date: 09 February 1987
• Docket Number: No. 85SC33,85SC33
• Parties: Jakob SCHNEIKER, Petitioner, v. Darrell W. GORDON and Gary F. Peterson, Respondents.
• Court: Supreme Court of Colorado

Page 603

732 P.2d 603

Jakob SCHNEIKER, Petitioner, v. Darrell W. GORDON and Gary F. Peterson, Respondents.

No. 85SC33.

Supreme Court of Colorado,

En Banc.

Feb. 9, 1987.

Hart & Trinen, Donald T. Trinen, Stephanie M. Smith, Denver, for petitioner.

No appearance for respondents.

LOHR, Justice.

This case requires us to consider the interrelation of the law of contracts and the law of property in determining the obligations of a sublessee for payment of rent after termination of a sublease by abandonment and surrender. We granted certiorari to review the decision of the Colorado Court of Appeals that the termination of a sublease ended the sublessee's obligation to pay future rent. Gordon v. Schneiker, 699 P.2d 3 (Colo.App.1984). We disagree with that decision and conclude that the rights and obligations of the parties to the sublease with respect to the covenant to pay rent survived the termination of the sublease and that the sublessee is liable for contract damages caused by breach of that covenant. We therefore reverse.

I.

Sometime before July of 1979, the defendant in this action, Jakob Schneiker (lessee-sublessor), entered into a lease (the primary lease) with the owner of certain property for use of the leased premises as a car wash. The property included a structure and attached equipment. Rent under the primary lease was payable at the rate of $600 per month, and the term of the primary lease was to extend through May of 1983.

On April 1, 1980, the lessee-sublessor entered into a sublease with the plaintiffs, Darrell W. Gordon and Gary F. Peterson (sublessees). The sublease provided for a monthly rent of $1900 and was for a term ending at the same time as that of the primary lease. The sublease specified that the premises were to be operated as a car wash. In addition to containing a provision that the sublessees would keep the premises and equipment in good repair, the sublease also contained a "Repossession" clause which provided:

The parties agree that in case said premises are left vacant and any part of the rent herein reserved be unpaid, then the Lessor may, without in anyway being obliged to do so, and without terminating this lease, retake possession of said premises, and rent the same for such rent and upon such conditions as the Lessor may think best, making such changes and repairs as may be required, giving credit for the amount of rent so received less all expenses of such changes and repairs, and said Lessee shall be liable for the balance of the rent herein reserved until the expiration of this lease.

After July of 1981, the sublessees ceased making rental payments, and they abandoned the premises in August of 1981. Prior to mid-November of that same year, the sublessees mailed the keys for the car wash to the lessee-sublessor. In November the lessee-sublessor reentered the premises. The equipment was in such a state of disrepair that the property could not be operated as a car wash. The trial court found that the sublessees had breached their obligation to maintain and repair the equipment, that the reasonable cost of repairs was more than $6000, and that the reasonable rental value of the property was less than $600 per month. Being unable to afford to make the necessary repairs, the lessee-sublessor negotiated a surrender of the primary lease with the owner as of February 1982.

The sublessees brought suit against the lessee-sublessor, claiming misrepresentation on the part of the lessee-sublessor concerning the profitability of the car wash business, and requesting compensatory and punitive damages. The lessee-sublessor counterclaimed for damages caused by the sublessees' breach of the sublease and requested the full rent of $1900 per month from the time the sublessees ceased making rental payments, August of 1981, through the expiration of the lease, May of 1983. The case was tried to the court. After presentation of the sublessees' evidence, the trial court dismissed their claim. At the conclusion of the trial, the court awarded the lessee-sublessor partial relief on his counterclaim. The court found that the lessee-sublessor had acted to mitigate his damages by negotiating a surrender of the primary lease and that the lessee-sublessor had intended to hold the sublessees liable for the entire rent payable through the expiration of the sublease. However, the trial court held that the cancellation of the primary lease acted as a surrender and termination of the sublease as a matter of law, and that the lessee-sublessor was therefore entitled only to rent payable up until February 1, 1982, the date the primary lease was terminated by surrender. ¹

The lessee-sublessor appealed the denial of damages for the profits he would have received during the remainder of the original term of the sublease, from February of 1982 through May of 1983. The court of appeals affirmed the judgment of the trial court, holding that the surrender of the primary lease operated as a surrender and termination of the sublease as a matter of law, and that the sublessees' obligation to pay future rent ended when the sublease was terminated since there was no express agreement between the parties that the obligation to pay rent would survive termination of the sublease. The lessee-sublessor then filed a petition for certiorari with this court, and we granted that petition.

II.

A.

The law governing the relationship between landlord and tenant has ancient roots in the common law of England. See generally 1 American Law of Property § 3.1 (Casner ed. 1952); 2 R. Powell, The Law of Real Property p 221 (1986); Hicks, The Contractual Nature of Real Property Leases, 24 Baylor L. Rev. 443, 446-53 (1972). The tenant was initially regarded as having rights that were solely contractual in nature. The tenant did not have a sufficient relationship to the land to permit him to avail himself of the common law forms of action that could be utilized by freeholders to protect their interests against third parties. 1 American Law of Property, supra, § 3.1, at 175-76; Hicks, supra, at 449. As a consequence, in its very early history a lease had "primarily a contractual significance, rather than a property significance." 2 R. Powell, supra, p 221, at 178-79. With the passage of time, however, the tenant gradually was given the right to bring certain real causes of action, such as ejectment, and the tenant came to be regarded as possessing an interest in land. 3 G. Thompson & J. Grimes, Thompson on Real Property § 1028, at 84 (1980 repl. vol.); 1 American Law of Property, supra, §§ 3.1, 3.11; Hicks, supra, at 449-50. By the beginning of the sixteenth century the law had undergone such change that "the lease was asserted to be essentially a conveyance, rather than a contract." 2 R. Powell, supra, p 221, at 179. See Hicks, supra, at 449-51.

In modern times, however, covenants in leases have become more numerous and complex, reflecting the growing importance of structures on the land and the burgeoning complexities of an increasingly urban society. 2 R. Powell, supra, p 221, at 180-81; Hicks, supra, at 451-52. Therefore, while the modern lease remains a conveyance of an interest in land, it typically possesses many of the characteristics of a contract. 1 American Law of Property, supra, § 3.11, at 202-03. Particularly with regard to business or commercial leases, the contractual aspects of the landlord-tenant relationship have become increasingly important. 2 R. Powell, supra, p 221, at 180-87.

The dual nature of a lease, as both a contract and a conveyance of an interest in land, contains important implications for resolving disputes between landlords and tenants. Courts and commentators have noted the differences between the results that flow from analyzing the rights and obligations of parties to a lease by use of property law principles and those that are achieved by recognizing contract principles as influential or controlling in the analysis. See, e.g., MAR-SON, Inc. v. Terwaho Enterprises, Inc., 259 N.W.2d 289, 291 (N.D.1977); Wright v. Baumann, 398 P.2d 119, 120-21 (Or.1965); D. Dobbs, Handbook on the Law of Remedies § 12.6, at 828-29 (1973); 2 R. Powell, supra, p 221, at 180-87; Hicks, supra; Love, Landlord's Remedies When the Tenant Abandons: Property, Contract, and Leases, 30 U.Kan.L.Rev. 533 (1982). However, as a result of the dual nature of a lease, neither contract principles nor property principles can be exclusively relied upon to govern the resolution of all issues. One leading authority has described the modern law governing landlord-tenant relationships as follows [T]he present law of leases is a blend of property concepts and of contractual doctrines, made for the service of a wide variety of objectives; agrarian, urban and financial. This historical background makes it clear that we can expect varying proportions of these basic ingredients in the decision of cases litigated now and in the future. Any fixity of proportions would destroy the elasticity of the law, which is, at once, its glory, its challenge and its factor of uncertainty.

2 R. Powell, supra, p 221, at 187. Whether contract principles, property principles, or a blend of both control the resolution of a particular case depends largely on the intent of the parties, the interests of society, and the relative fairness of the results to be achieved through selection among the potentially applicable principles. See Javins v. First National Realty Corp., 428 F.2d 1071, 1074-75 (D.C.Cir.), cert. denied, 400 U.S. 925, 91 S.Ct. 186, 27 L.Ed.2d 185 (1970); Sommer v. Kridel, 74 N.J. 446, 378 A.2d 767, 770-73 (1977). See generally Hicks, supra.

The present case directs our attention to the law of landlord and tenant as it relates to abandonment and surrender of a leasehold and the obligation of a lessee for rent following abandonment. Under the common law view of a lease as a conveyance, a tenant's obligation to pay rent was based upon the ownership...