UNITED PROPERTIES v. WALGREEN PROPERTIES

• Citation: 134 N.M. 725,82 P.3d 535
• Decision Date: 11 June 2003
• Docket Number: No. 159, No. 298., No. 22
• Court: Court of Appeals of New Mexico
• Parties: UNITED PROPERTIES LIMITED COMPANY, a New Mexico limited liability company, Plaintiff/Counterdefendant-Appellee, v. WALGREEN PROPERTIES, INCORPORATED, an Illinois corporation, and Walgreen of New Mexico, Incorporated, a New Mexico corporation, Defendants/Counterplaintiffs-Third-Party Plaintiffs-Appellants, v. Casa Chevrolet, Inc., and Ford Leasing Development, Third-Party Defendants-Appellees.

82 P.3d 535

134 N.M. 725

UNITED PROPERTIES LIMITED COMPANY, a New Mexico limited liability company, Plaintiff/Counterdefendant-Appellee, v. WALGREEN PROPERTIES, INCORPORATED, an Illinois corporation, and Walgreen of New Mexico, Incorporated, a New Mexico corporation, Defendants/Counterplaintiffs-Third-Party Plaintiffs-Appellants, v. Casa Chevrolet, Inc., and Ford Leasing Development, Third-Party Defendants-Appellees.

Nos. 22,159, 22,298.

Court of Appeals of New Mexico.

June 11, 2003.

Paul G. Bardacke, Kerry Kiernan, C. Shannon Bacon, Eaves, Bardacke, Baugh, Kierst & Kiernan, P.A., Albuquerque, NM, for Appellee United Properties Limited Co.

Steven L. Tucker, Tucker Law Firm, P.C., Santa Fe, NM, for Appellants Walgreen Properties, Inc. and Walgreen of New Mexico, Inc.

William D. Winter, Dines, Gross & Esquivel, P.C., Albuquerque, NM, for Appellee Casa Chevrolet, Inc.

Robert M. St. John, Tom Outler, Rodey, Dickason, Sloan, Akin & Robb, P.A., Albuquerque, NM, H. David Barr, Kurt D. Williams, Anthony D. Burgin, Berkowitz, Feldmiller, Stanton, Brandt, Williams & Shaw, LLP, Prairie Village, KS, for Appellee Ford Leasing Development Co.

OPINION

PICKARD, Judge.

{1} In this case, we are presented with an issue related to commercial leases: will a late notice to the landlord of intent to renew the lease for another term be given effect when the lateness of the notice is due to the tenant's own negligence? We hold that the late notice was ineffective in the circumstances of this case. Consequently, we reverse.

FACTS AND BACKGROUND

{2} This case concerns commercial property located at 7100 Lomas Boulevard NE in Albuquerque, New Mexico. The property was owned by Walgreen Properties since the 1960s. Initially, Walgreen Properties leased the property to Walgreen of New Mexico, which subleased the property to Walgreen Corporation, which built and operated a discount retail store (Globe Discount City) on the property. The initial term of the lease and sublease was for twenty years, to expire on December 31, 1984, with an option to renew for up to six successive periods of five years each. The lease and sublease also provided that notice of intent to renew for additional five-year terms be given to Walgreen of New Mexico three months before the expiration of the five-year term then in effect.

{3} In 1978, Globe closed its doors and Walgreen Corporation assigned the sublease to K-Mart. When the original term of the lease expired in 1984, K-Mart renewed the lease for three additional terms of five years. In the mid-1990s, the K-Mart store closed. In 1994, United Properties Limited (UPL) bought out K-Mart's interest in the lease for $700,000. At that time, the rental payments on the lease were $44,640 per year, the term of the lease was due to expire on December 31, 1999, and there were three additional five-year terms remaining. UPL spent over $1.272 million on capital improvements to the property. These capital improvements included remodeling to adapt the property to UPL's use, landscaping, and bringing the existing facilities up to code, as well as enhancing the existing buildings with additional fixtures. Ultimately, UPL subleased various portions of the property to Casa Chevrolet, Ford Leasing Development, and Pacific Eatery. We refer to these three entities collectively as Subtenants. Together, the Subtenants pay a total of $263,500 a year rent to UPL.

{4} When UPL took over the property, the term of the lease was set to expire on December 31, 1999. Thus, if UPL wished to renew for an additional five-year term, it was required to give written notice of its intent to extend the lease for another five years no later than September 30, 1999. As counsel for Walgreen put it, UPL just "plain plumb forgot" to do that. On November 8, 1999, Walgreen notified UPL that the date for giving written notice of intent to renew had passed. The next day, UPL sent Walgreen of New Mexico a written notice that it elected to extend the sublease for an additional five years. However, on November 22, 1999, Walgreen of New Mexico notified UPL that it would not honor the notice and expected UPL and its Subtenants to vacate the premises by December 31, 1999.

{5} On December 2, 1999, while the lease was still in effect, UPL filed an action for injunctive and declaratory relief, acknowledging that it failed to send a timely notice and asking that the district court exercise its equitable powers to order Walgreen of New Mexico to extend the lease for another five-year term. The Subtenants also appeared in the case and made arguments to the district court in support of UPL's requested relief. Ultimately, both sides filed motions for summary judgment. UPL argued that strictly enforcing the three-month notice requirement of the lease would be inequitable and result in a forfeiture. Walgreen Properties and Walgreen of New Mexico argued that under New Mexico law the district court was required to strictly enforce the terms of the option to renew the lease. The Subtenants also argued that they would be harmed by strict enforcement of the three-month notice requirement. The district court granted the relief requested by UPL and its Subtenants. Walgreen Properties and Walgreen of New Mexico appealed to this Court. For the sake of clarity, we refer to Walgreen Properties and Walgreen of New Mexico as Landlord and UPL and its Subtenants as Tenant.

STANDARD OF REVIEW

{6} When the facts are not in dispute and the district court enters summary judgment, we review the district court's application of the law to the facts of the case de novo. Phoenix Indem. Ins. Co. v. Pulis, 2000-NMSC-023, ¶ 6, 129 N.M. 395, 9 P.3d 639; Barncastle v. Am. Nat'l Prop. & Cas. Cos., 2000-NMCA-095, ¶ 5, 129 N.M. 672, 11 P.3d 1234. We recognize that in other cases, we have stated that the decision of whether equitable relief should be granted is a matter within the sound discretion of the district court and is reviewed only for abuse of discretion. See, e.g., Padilla v. Lawrence, 101 N.M. 556, 562, 685 P.2d 964, 970 (Ct.App. 1984)

. However, as our Supreme Court has observed, "even when we review for an abuse of discretion, `our review of the application of the law to the facts is conducted de novo.'" N.M. Right to Choose/NARAL v. Johnson, 1999-NMSC-028, ¶ 7, 127 N.M. 654, 986 P.2d 450 (quoting State v. Elinski, 1997-NMCA-117, ¶ 8, 124 N.M. 261, 948 P.2d 1209).

{7} Thus, in cases such as this, the proper standard of review may be expressed as follows. The question of whether, on a particular set of facts, the district court is permitted to exercise its equitable powers is a question of law, while the issue of how the district court uses its equitable powers to provide an appropriate remedy is reviewed only for abuse of discretion. See, e.g., Amkco, Co. v. Welborn, 2001-NMSC-012, ¶¶ 8-9, 130 N.M. 155, 21 P.3d 24

(treating the question of the showing necessary to obtain injunction concerning an encroachment and the showing necessary to establish irreparable injury as issues of law and reviewing the district court's balancing of the equities under an abuse of discretion standard); Nearburg v. Yates Petroleum Corp., 1997-NMCA-069, ¶¶ 7-9, 123 N.M. 526,

943 P.2d 560 (reviewing the district court's interpretation of a contract de novo and reviewing equitable relief granted by the district court under an abuse of discretion standard). In this case, Landlord does not contend that there was an abuse of discretion if the trial court had discretion to exercise in the first place. Landlord contends that contract principles preclude any exercise of discretion on these facts.

DISCUSSION

{8} The precise issues raised by this case have been the subject of numerous appellate decisions from across the country. See William B. Johnson, Annotation, Circumstances Excusing Lessee's Failure to Give Timely Notice of Exercise of Option to Renew or Extend Lease, 27 A.L.R.4th 266, 277-80, 1984 WL 263120 (1984 & 2002 Supp.). At one end of the spectrum are cases that hold that:

[e]quity will not relieve a lessee of the consequences of his failure to give written notice of renewal of the lease within the time required by the provisions of the lease when the failure resulted from the negligence of the lessee unaccompanied by fraud, mistake, accident or surprise and unaffected by the conduct of the lessor.

Ahmed v. Scott, 65 Ohio App.2d 271, 418 N.E.2d 406, 411 (1979). At the other end of the spectrum are cases that hold that:

in cases of mere neglect in fulfilling a condition precedent of a lease, [even if the cases] do not fall within accident or mistake, equity will relieve when the delay has been slight, the loss to the lessor small, and when not to grant relief would result in such hardship to the tenant as to make it unconscionable to enforce literally the condition precedent of the lease.

F.B. Fountain Co. v. Stein, 97 Conn. 619, 118 A. 47, 50 (1922).

{9} At oral argument, both parties characterized the differences in the cases as reflecting a true split of authority. Although some cases have held that one view or another is the "majority" rule or the "modern" rule, we believe that such characterizations are not particularly helpful. For example, the court in Trollen v. City of Wabasha, 287 N.W.2d 645, 647 (Minn.1979) characterized the Fountain rule as the "modern" rule. Yet, the latest two jurisdictions to weigh in on this issue after canvassing the authorities on both sides have squarely sided with the traditional rule favoring definiteness of contracts. See SDG Macerich Props., L.P. v. Stanek, Inc., 648 N.W.2d 581, 587-89 (Iowa 2002)

; Utah Coal & Lumber Rest., Inc. v. Outdoor Endeavors Unlimited, 40 P.3d 581, 583-85 (Utah 2001). Similarly, one California Court of Appeals rejected the reasoning of another California Court of Appeals in language suggesting that the first court failed to follow the "better-reasoned," "majority" rule of Fountain, but did so in a case whose facts would have...