Homer L. Jones v. VCPHCS I, LLC ( 2018 )

01/26/2018
IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
June 28, 2017 Session
HOMER L. JONES v. VCPHCS I, LLC
Appeal from the Chancery Court for Shelby County
No. CH-16-0248-2 Jim Kyle, Chancellor
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No. W2016-02142-COA-R3-CV
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Following the end of the three-year term of a commercial real estate lease, the tenant
continued to occupy the leased premises and pay rent to the landlord. The landlord
accepted the rent payments for six months and then notified the tenant that the amount of
the required rent had increased. The tenant paid the increased rent but notified the
landlord that it was ending its tenancy in thirty days. Contending that the tenant had in
effect exercised its option to renew the lease for an additional three years, the landlord
demanded that the tenant pay rent for the remainder of the renewal term. The tenant
refused, and the landlord brought this action for breach of the lease agreement. Both
parties filed motions for summary judgment. Because the trial court found that the lease
had not been renewed and the tenant properly terminated the resulting periodic tenancy
upon thirty days’ notice, the court denied the landlord’s motion and awarded summary
judgment to the tenant. We agree that the lease was not renewed, but because we
conclude that the resulting periodic tenancy was year-to-year, the tenant was required to
give at least six months’ notice prior to the end of the periodic tenancy. Thus, we affirm
in part and reverse in part.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
in Part; Reversed in Part; and Case Remanded
W. NEAL MCBRAYER, J., delivered the opinion of the court, in which J. STEVEN
STAFFORD, P.J., W.S., and BRANDON O. GIBSON, J., joined.
Carroll C. Johnson III, Memphis, Tennessee, for the appellant, Homer L. Jones.
Michael Katzman, Memphis, Tennessee, for the appellee, VCPHCS I, LLC.
OPINION
I.
A.
The facts are largely undisputed.1 On July 21, 2011, Homer Jones leased office
space in Memphis, Tennessee, to VCPHCS I, LLC, a limited liability company doing
business as Behavioral Health Group. The lease provided for an initial three-year term at
a monthly rent of $3,608. The lease also provided for two three-year options, each at an
increased monthly rent. To exercise the option, Behavioral Health Group was required to
notify Mr. Jones in writing ninety days prior to the end of the relevant term and pay the
rent specified in the lease for that option period.
Behavioral Health Group did not exercise its renewal option. But, when the
original lease term expired on July 31, 2014, Behavioral Health Group did not surrender
possession. Instead it continued to occupy the leased premises and pay monthly rent of
$3,608.
Mr. Jones accepted the rent payments for the remaining five months of 2014 and
the first month of 2015. Then, in January 2015, Mr. Jones notified Behavioral Health
Group that, to continue to occupy the premises, it must pay an increased monthly rent of
$3,811. The $3,811 figure corresponded with the rent that would have been due under
the second option period of the lease. Mr. Jones also demanded payment of $1,218,
representing the difference between the rent Behavioral Health Group paid for the first
six months after expiration of the original lease term and the rent increase sought by
Mr. Jones. As requested, Behavioral Health Group paid the $1,218 and, beginning in
February 2015, the increased monthly rental amount.
On October 30, 2015, Behavioral Health Group notified Mr. Jones that it was
terminating the lease effective November 30, 2015. Behavioral Health Group vacated the
premises on November 30 and made no additional rent payments. Mr. Jones refused to
accept the surrender of the leased premises and demanded that Behavioral Health Group
continue to pay rent through July 31, 2017.
B.
On February 17, 2016, Mr. Jones filed suit for breach of the lease agreement in the
Chancery Court for Shelby County, Tennessee. Mr. Jones sought a judgment for unpaid
1
Except as otherwise indicated, the facts are taken from the parties’ statements of undisputed
material facts. See Tenn. R. Civ. P. 56.03.
2
rent and property damages. Behavioral Health Group filed a counterclaim, alleging that
it had overpaid rent after the expiration of the original lease term.
Mr. Jones moved for partial summary judgment. Mr. Jones contended that, under
the undisputed facts, Behavioral Health Group had in effect exercised its option to renew
the lease for an additional three-year term. As a result, according to Mr. Jones,
Behavioral Health Group was in breach of the lease for failing to pay rent for the entire
three-year term. Behavioral Health Group filed a cross-motion for summary judgment,
asserting that, as a matter of law, the lease was never renewed. It also asserted that Mr.
Jones was not entitled to increased rent during the holdover period beyond that provided
for under the first renewal option.
The chancery court granted Behavioral Health Group’s motion in part and denied
Mr. Jones’s motion. The court found that Behavioral Health Group had not exercised the
option to renew the lease. Rather, the written lease expired on July 31, 2014, and
thereafter Behavioral Health Group occupied the premises under a periodic tenancy. The
court concluded that Behavioral Health Group gave timely notice of termination and had
no further obligation to pay rent.
The court did not rule on Behavioral Health Group’s request for an award of
amounts that it claimed to have overpaid in rent. Ultimately, Behavioral Health Group
voluntarily dismissed its claim, and Mr. Jones dismissed his claim for damages to the
leased premises. This appeal followed.
II.
Summary judgment may be granted only “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law.” Tenn. R. Civ. P. 56.04; see also Martin v. Norfolk S. Ry.
Co., 271 S.W.3d 76, 83 (Tenn. 2008). As noted above, both parties moved for summary
judgment, supported by statements of undisputed facts. When considering cross-motions
for summary judgment, the trial court “must rule on each party’s motion on an individual
and separate basis.” CAO Holdings, Inc. v. Trost, 333 S.W.3d 73, 83 (Tenn. 2010). For
the respective competing motions, the trial court must view the evidence in the light most
favorable to the opposing party and draw all reasonable inferences in the opposing
party’s favor. See Bain v. Wells, 936 S.W.2d 618, 622 (Tenn. 1997). The court is not to
“weigh” the evidence when evaluating a motion for summary judgment. Martin, 271
S.W.3d at 87.
A trial court’s decision on a motion for summary judgment enjoys no presumption
of correctness on appeal. Id. at 84; Blair v. W. Town Mall, 130 S.W.3d 761, 763 (Tenn.
2004). We review the summary judgment decision as a question of law. Martin, 271
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S.W.3d at 84; Blair, 130 S.W.3d at 763. Accordingly, we must review the record de
novo and make a fresh determination of whether the requirements of Tennessee Rule of
Civil Procedure 56 have been met. Eadie v. Complete Co., 142 S.W.3d 288, 291 (Tenn.
2004); Blair, 130 S.W.3d at 763.
A.
On appeal, Mr. Jones contends that, by failing to deliver possession on July 31,
2014, and paying increased rent, Behavioral Health Group exercised the option to renew
the lease for an additional three-year term. We evaluate this contention by examination
of the terms of the lease agreement. See Cain P’ship Ltd. v. Pioneer Inv. Servs. Co., 914
S.W.2d 452, 459 (Tenn. 1996) (holding that in commercial lease disputes, the “parties’
rights and liabilities should turn on an interpretation of the lease, the conduct of the
parties, and rules which are consistent with modern business practice”). Interpretation of
a lease agreement is a matter of law which we review de novo with no presumption of
correctness. Allstate Ins. Co. v. Watson, 195 S.W.3d 609, 611 (Tenn. 2006). The
“cardinal rule of contract interpretation is to ascertain and give effect to the intent of the
parties” as expressed in the plain language of the contract. Id.; see Dick Broad. Co. v.
Oak Ridge FM, Inc., 395 S.W.3d 653, 659 (Tenn. 2013). If the language used is
unambiguous, we will enforce it as written. Dick Broad. Co., 395 S.W.3d at 659; Allstate
Ins. Co., 195 S.W.3d at 611.
“[P]arties are free to negotiate any number of . . . arrangements for renewal
options by including specific and pertinent language in the lease agreement.” Norton v.
McCaskill, 12 S.W.3d 789, 794 (Tenn. 2000). The lease in this case specified that “[n]o
renewal or extension of this Lease shall be binding on either party unless it be in writing
and signed by the Lessor and the Lessee, except as provided in Paragraph 26 hereof.”
Paragraph 26 of the lease provided, in relevant part, as follows:
26. DELIVERY AT END OF LEASE. The Lessee agrees to deliver to the
Lessor, . . . the within leased premises at the expiration of this Lease in the
same good order and condition as they were when received. . . . Should
Lessee remain on the premises after term of this lease, Lessee has the
option to renew the lease with a new monthly rent rate of $3,700 (THREE
THOUSAND SEVEN HUNDRED DOLLARS) for an additional three
years defined herein as the second term. Should Lessee remain on premises
after the second term, Lessor has the option to exercise an additional
extension (third term) for a period of three years at a new monthly rental
rate of $3,811.00 (THREE THOUSAND EIGHT-HUNDRED AND
ELEVEN DOLLARS) or a three (3%) increase in monthly rent over the
second term monthly rent. Lessee must notify Lessor in writing 90 days
prior to renewal and the end of the first and second terms.
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“An option to renew a lease is a unilateral contract under which the lessee retains
an irrevocable right to extend the lease during the option period.” Id. at 792. But
renewal is not automatic. The right to renew will be lost if not exercised in accordance
with the lease provisions. Id.; see Am. Oil Co. v. Rasar, 308 S.W.2d 486, 490 (Tenn.
1957) (“No obligations are on the lessors and no rights could be acquired by the lessee
until the lessee or its assignee had complied with the terms of giving notice under this
clause.”).
The lease executed by Mr. Jones and Behavioral Health Group provided that,
absent a written agreement signed by both parties, the lease could only be renewed by a
timely written notice by Behavioral Health Group. The undisputed facts establish that
there was no written agreement to renew the lease and that Behavioral Health Group did
not provide written notice of an intention to renew prior to expiration of the original lease
term. Because neither event occurred, the lease was not renewed.
Mr. Jones argues that he waived the written notice requirement. But we find that
argument unavailing.
Waiver is a voluntary relinquishment or renunciation of some right, a
foregoing or giving up of some benefit or advantage, which, but for such
waiver, he would have enjoyed. It may be proved by express declaration;
or by acts and declarations manifesting an intent and purpose not to claim
the supposed advantage; or by a course of acts and conduct, or by so
neglecting and failing to act, as to induce a belief that it was his intention
and purpose to waive.
Baird v. Fid.-Phenix Fire Ins. Co., 162 S.W.2d 384, 389 (Tenn. 1942) (quoting Farlow v.
Ellis, 81 Mass. (15 Gray) 229, 231-32 (Mass. 1860)). While a landlord may waive
notice, our courts generally require evidence of an express waiver or acceptance of rent
payments as specified in the renewal provision and other action consistent with the
exercise of the renewal option. See Am. Oil Co., 308 S.W.2d at 490; Abou-Sakher v.
Humphreys Cty., 955 S.W.2d 65, 68-69 (Tenn. Ct. App. 1997); Playmate Club, Inc. v.
Country Clubs, Inc., 462 S.W.2d 890, 894 (Tenn. Ct. App. 1970); Noles v. Winn Oil Co.,
204 S.W.2d 539, 541 (Tenn. Ct. App. 1947).
In this case, Mr. Jones did not expressly declare that he was waiving the written
notice requirement for renewal. And Mr. Jones’s initial acceptance of rent payments of
$3,608 during the holdover period is inconsistent with an intention to treat the lease as
having been renewed. His January 2015 demand that Behavioral Health Group pay rent
equal to the amount provided for under a subsequent renewal option is also unhelpful to
his claim of waiver. In any event, a landlord is free to demand higher rent from a
holdover tenant as a condition of continued occupancy. See AHCI, Inc. v. Lamar Advert.
of Tenn., Inc., 898 S.W.2d 191, 195-96 (Tenn. 1995). And we do not interpret the mere
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demand for higher rent as sufficient manifestation of intent to waive the written notice
requirement for renewal.
Even if waiver does not apply, Mr. Jones argues that he was entitled to a
presumption of renewal based on Behavioral Health Group holding over, citing Carhart
v. White Mantel & Tile Co., 123 S.W. 747 (Tenn. 1909). We conclude that Mr. Jones’s
reliance on the Carhart case is misplaced. In Carhart, our supreme court discussed the
legal consequences of a tenant’s continued occupancy after the expiration of the original
lease term when the lease gave the tenant the option to renew at an increased rental but
did not specify when or how the renewal option was to be exercised. Id. at 750-51. The
rule announced in Carhart only applies “when the lease does not contain a specific
provision prescribing the time and method for exercising the option to extend the lease.”
Ellis v. Pauline S. Sprouse Residuary Tr., 280 S.W.3d 806, 810 (Tenn. 2009). Here, the
parties’ lease, specifically paragraph 26, plainly sets forth “how and when” Behavioral
Health Group could exercise the renewal option. See id. at 813.
Even under Carhart, when a lease gives a tenant the option to renew at an
increased rent, as this one does, the tenant’s payment of the original rent amount during
the holdover period rebuts any presumption that the tenant intended to exercise the
option. Carhart, 123 S.W. at 750-51. And the fact that a landlord accepts the original
rent amount by mistake does not change this result.2 Id. at 751. Under these
circumstances, the law will not presume that the lease was renewed. Id.
Because Behavioral Health Group did not provide notice, written or otherwise, of
an intent to renew, we conclude that the lease was not renewed. Thus, the trial court
properly denied Mr. Jones’s motion for partial summary judgment. Because the written
lease expired by its terms on July 31, 2014, Tennessee common law determines the rights
and obligations of the parties after that date.
B.
When a tenant fails to deliver possession of the leased premises at the end of the
lease term, the tenant becomes a holdover tenant. Smith v. Holt, 193 S.W.2d 100, 101
(Tenn. Ct. App. 1945). The landlord has the option of treating a holdover tenant as a
trespasser or as a new periodic tenant. Id. at 102 (explaining that the landlord “had the
right to elect to treat [the tenant’s] holding over either as an unlawful detainer or as
creating a new tenancy for another like term”). By accepting a holdover tenant’s rent
2
The landlord in Carhart argued that his failure to require the tenant to pay the increased rent
specified in the renewal option was simply a mistake. Carhart, 123 S.W. at 751. Likewise, Mr. Jones
claims that Behavioral Health Group’s payments of $3,608 and then $3,811 in rent during the holdover
period, instead of the required $3,700, was simply a mistake. The supreme court has held that “[t]his,
however, does not change the rule of law.” Id.
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payments, the landlord consents to the creation of a new periodic tenancy. Id. at 101.
In the absence of a contrary provision in the original lease, the holdover tenant is bound
for another like term.3 Fly v. Simple Pleasures, Inc., M2002-01385-COA-R3-CV, 2003
WL 354467, at *2 (Tenn. Ct. App. Feb. 18, 2003). “[I]f the original tenancy was for a
year or more, the new or hold over tenancy is from year to year; if the original term was
for less than a year, as a month or a quarter, the new tenancy is . . . measured by such a
period.” Smith, 193 S.W.2d at 101-02. And the tenant is obligated to make rent
payments for the full term of the periodic tenancy. Id. at 102.
A periodic tenancy automatically continues for successive periods unless one of
the parties gives proper notice to terminate. Periodic Tenancy, BLACK’S LAW
DICTIONARY (10th ed. 2014); see also Hammond v. Dean, 67 Tenn. 193, 196 (1874) (“As
Drake suffered the second year to commence without putting an end to the relation,
Hammond was entitled to the whole of that year’s rent . . . .”). Notice to terminate a
year-to-year tenancy “must be given six months before the end of the year.” Smith, 193
S.W.2d at 102; accord Hayes v. Schweikart’s Upholstering Co., 402 S.W.2d 472, 479,
484 (Tenn. Ct. App. 1965). If timely notice is provided, the periodic tenancy will
terminate at the end of the period. Shepherd v. Cummings, 41 Tenn. 354, 356-57 (1860).
When Behavioral Health Group continued to occupy the leased premises and
Mr. Jones accepted rent, a periodic tenancy was created. Because the original lease term
was for three years, the resulting periodic tenancy was year-to-year. See Smith, 193
S.W.2d at 101-02. The first year of the periodic tenancy ended on July 31, 2015. When
neither party gave timely notice to terminate during the first year, the periodic tenancy
continued for another year or until July 31, 2016. To terminate the periodic tenancy,
Behavioral Health Group was required to give notice six months prior to end of the term.
Thus, Behavioral Health Group’s notice of termination on October 30, 2015, could not
serve to terminate the periodic tenancy on November 30, 2015. Rather, Behavioral
Health Group’s notice terminated the periodic tenancy on July 31, 2016, the end of the
second year. See Shepherd, 41 Tenn. at 357. And Behavioral Health Group remained
liable for rent through that date.
III.
The trial court’s judgment is affirmed in part and reversed in part. We affirm the
denial of the motion of Mr. Jones for partial summary judgment, and we reverse the grant
of summary judgment to Behavioral Health Group. This case is remanded for entry of
judgment in favor of Mr. Jones for the amount of rent owed for the remainder of the
periodic tenancy. On remand, the trial court should also determine whether Mr. Jones is
3
The original lease may include a provision specifying that a holdover tenancy will be for a
different duration. Fly, 2003 WL 354467, at *3. For example, in Fly, the lease provided that any
holdover tenancy would be month-to-month. Id. at *2.
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entitled to an award of prejudgment interest, as requested in the complaint. See Tenn.
Code Ann. § 47-14-123 (2013).
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W. NEAL MCBRAYER, JUDGE
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