Wycoff v. Gavriloff Motors, Inc.

• Decision Date: 01 March 1961
• Docket Number: No. 29,29
• Citation: 107 N.W.2d 820,86 A.L.R.2d 663,362 Mich. 582
• Parties: , 86 A.L.R.2d 663 Lena A. WYCOFF, Plaintiff and Appellee, v. GAVRILOFF MOTORS, INC., a Michigan corporation, Defendant and Appellant.
• Court: Michigan Supreme Court

Page 820

107 N.W.2d 820

362 Mich. 582, 86 A.L.R.2d 663

Lena A. WYCOFF, Plaintiff and Appellee, v. GAVRILOFF MOTORS, INC., a Michigan corporation, Defendant and Appellant.

No. 29.

Supreme Court of Michigan.

March 1, 1961.

Gault, Davison & Bowers, Flint, for defendant and appellant.

Cline & George, Flint, for plaintiff and appellee.

Before the Entire Bench.

KAVANAGH, Justice.

Plaintiff sued defendant to recover the increase in real estate taxes paid as a direct result of the increase in valuation due to improvements defendant-lessee made to the premises with the consent of plaintiff-lessor, all in pursuance of a written lease between the parties. Defendant denied liability and claimed the increase in taxes was the obligation of plaintiff-lessor. The sole question presented is whether the lessor or the lessee has the burden to pay the amount of increased taxes upon the leased property because of improvements placed thereon by the lessee under a lease which failed to specifically provide for such eventuality.

Under the terms of the lease in question the lessee was given the right to make general alterations or material additions with the written consent of the lessor. This consent was obtained. The clause in the lease, claimed by the lessor to provide for payment by the lessee of the increased tax due to the improvements, reads as follows:

'* * * all alterations or additions shall be upon the sole charge and responsibility of the lessee and the lessee shall protect said building and premises from any lien or charges whatsoever, by reason of said alterations or improvements.'

The trial court construed the above provision to indicate the intent of the parties was that the increase in taxes due to the improvements placed on the leased property by the lessee would be paid by the lessee. It seems for from clear that such intent may be inferred from the above provision in the lease. We ought, then, to look at the problem in the absence of any clear provision relating to the payment of this increased tax levy. We turn, therefore, to general legal principles for the answer to the question.

It is clear that, in the absence of an agreement making it the duty of the lessee to pay the taxes or assessments chargeable against the premises, the law ordinarily imposes this obligation upon the lessor. In Sherman v. Spalding, 126 Mich. 561, 85 N.W. 1129, the Court held that where a lease is made without any stipulation as to the taxes, the landlord--not the tenant--is bound to pay the taxes. It should be remembered, however, that the rule placing the burden upon the lessor when the lease is silent on the payment of taxes is not an inflexible one, but leads to the contrary where overbalancing considerations indicate that result. Pittsfield & N. A. R. Corp. v. Boston & A. R. Co., 260 Mass. 390, 157 N.E. 611. Provisions as to the length of term of the lease; whether the lease itself is renewable; whether the lessee has an option to purchase; whether any improvements are to be considered realty and attach to the land and are nonremovable by the tenant at the expiration of the lease; whether the lessee is compensated for any improvements; whether the rental basis is fixed for the term of the lease; are all matters which must be considered to properly determine liability.

The lease in the instant case was originally for a 15-year period, and approximately a year after its execution was amended to provide for an additional 5 years and for the right in the lessee to purchase the property at a fixed sum at any time during the original lease term or any renewal thereof. The lease also provided for a fixed monthly rental not subject to change during the term of the lease or the subsequent additional 5-year extension period. No provision was made in the lease as to the ownership or any improvements or additions erected on the property by the lessee. The lease did provide that the lessee would keep and maintain the premises in a good state of repair during the lease term and at the termination deliver the property to the lessor in as good a state of repair and maintenance as of the date of the creation of the lease, except reasonable depreciation because of lapse of time.

The rule is well established that, although the lessor is liable for taxes on the land leased, in the absence of a covenant in the lease stipulating as to who shall pay the taxes on the leased premises, the lessee is liable for the tax on any improvements which he may erect thereon. Bournique v. Williams, 225 IllApp. 12; Philadelphia, W. & B. R. Co. v. Appeal Tax Court, 50 Md. 397; People ex rel. Muller v. Board of Assessors, 93 N.Y. 308; Yeo v. Leman, 2 Strange 1191, 93 Eng.Reprint 1120. See also, Phinney v. Foster, 189 Mass. 182, 75 N.E. 103; Leach v. Goode, 19 Mo. 501; Joslyn v. Spellman, 9 Ohio Dec. 258; which hold that as between the lessor and lessee, the latter is liable, in the absence of special agreement, for taxes on improvements which have been placed upon the land by him for his own use and benefit.

In the early English case of Watson v. Home, 7 B & C 285, 14 ECL 45, 6 LJ KB 73, 1 M & R 191, 31 Rev Rep 200, the lessor demised for a period of years a piece of property for a fixed annual rental. The tenant convenanted not to build on the land without the license of the lessor. The lessor agreed to pay all taxes already charged to or to be charged upon or in respect of the leased property during the lease term. At the time the lease was executed the lessor gave a license to the lessee to build on the leased land. The lessee did build and thereby increased the annual value of the premises. The court held the landlord was liable upon his covenant to pay the taxes in proportion to the rent reserved and not to the improved value. The court said (p. 289):

'The question turns entirely upon the construction of that clause in the lease by which the lessor covenants to pay and discharge, as well the land tax as all other taxes, charges, rates, and assessments, parochial, parliamentary, or otherwise, already charged, or to be charged upon or in respect of the said demised piece or parcel of ground, or any part thereof, during the continuance of the term. The annual rent reserved was 791. 12s. 6d., and there was a covenant, by the lessee, not to build upon the demised premises without the consent of the lessor. If the land had not been built upon, but had remained in the same state as when the lease was executed, it is quite clear that the lessor would be liable to pay such taxes only as would have been payable in respect of property of the annual value of 791. 12s. 6d. By the lease the parties have agreed that that sum should be taken as the annual value of the premises. It is the annual sum which the property yields to the lessor, and in respect of which he would have been liable to be assessed to the land tax and poor rates if they had been payable by him; but the lessee afterwards built upon the land, and thereby increased its value. The question is, whether the lessor is bound to contribute to the tenant's taxes in propertion to the rent reserved, or in proportion to the increased rate at which the premises are now assessed by reason of the improvements made by the tenant. The covenant, in terms, is to pay all taxes charged or to be charged upon the demised piece or parcel of ground during the continuance of the term; but that covenant must receive a reasonable construction. If it were literally construed, so as to make the landlord liable for all taxes charged in respect of the improved value, it might possibly happen, in consequence of the improved value of the premises and the increased rate of taxation, that the landlord would have nothing to receive for the...