Country Mile, LLC v. Cameron Properties ( 2019 )

03/13/2019
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
July 11, 2018 Session
COUNTRY MILE, LLC, ET AL. v. CAMERON PROPERTIES
Appeal from the Circuit Court for Williamson County
No. 2016-471 Joseph A. Woodruff, Judge
No. M2017-01771-COA-R3-CV
Cameron Properties, LLC (“Landlord”) appeals the judgment of the Circuit Court for
Williamson County (“the Trial Court”), which, inter alia, found Landlord in breach of a
lease agreement with Country Mile, LLC (“Country Mile”) and awarded a judgment
against Landlord of $18,037.75. Landlord raises issues, among others, regarding
standing, whether Country Mile breached the lease agreement by failing to pay rent, and
whether Landlord is entitled to an award of all of its attorney’s fees. We find and hold,
that Country Mile, Well North, LLC, and Dean Pennington all had standing; that the Trial
Court did not err in finding the tenants in breach but that Landlord had breached the lease
agreement first; that the tenants proved $18,037.75 in damages from Landlord’s breach;
and that pursuant to the lease agreement Landlord is entitled to an award of reasonable
attorney’s fees due to the tenant’s breach. We affirm the Trial Court’s judgment.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed
Case Remanded
D. MICHAEL SWINEY, C.J., delivered the opinion of the court, in which ANDY D.
BENNETT and RICHARD H. DINKINS, JJ., joined.
Deana C. Hood and Robert C. Ashworth, Franklin, Tennessee, for the appellant, Cameron
Properties.
Thomas J. Boylan, Franklin, Tennessee, for the appellees, Country Mile, LLC; Dean
Pennington; Well North, LLC; and Zacari Pennington.
OPINION
Background
On September 8, 2015, Country Mile and Landlord entered into a Tenant
Agreement (“the Contract”) for Country Mile to lease space at 400 Downs Boulevard in
Franklin, Tennessee (“the Premises”) from Landlord for the purpose of operating an
Anytime Fitness business. Don Cameron (“Cameron”) executed the Contract on behalf
of Landlord and Dean Pennington (“Dean”)1 executed it on behalf of Country Mile. In
pertinent part, the Contract provides:
3. Rent Commencement Date. -- Rent shall commencement [sic] after
tenant receives an occupancy permit from the city of Franklin, but no later
than 60 days after Handover date. In the event the landlord hasn’t delivered
the space within 8 months of lease execution the tenant has the right to
terminate the lease.
4. Hand-Over Date: Landlord will Hand-Over the Premises to the Tenant
no later than 60 days after final stamped drawings are delivered to Landlord
by Tenant from the City of Franklin. For every 30 days over the initial 60
days Landlord fails to handover the space, Tenant shall receive 1 month
free months’ rent. To be taken at the initial term of the lease.
5. RENTAL.
A. As gross monthly rental for the Leased Premises, Tenant hereby
agrees to pay to Landlord without deduction, set-off, or prior notice
or demand in lawful (legal tender for public or private debts) money
of the United States of America according to the following schedule:
$20.00 per sq. ft. With annual gross rent increases of 3%
thereafter Starting in year 3. To take place each year on the first
day after the anniversary of Commencement Date.
B. Rental is payable monthly in advance installments commencing
on the Commencement Date, and continuing due and payable on the
first day of each and every month for the entire term of the Lease,
except as adjusted herein, at the office of: Cameron Properties.
1
Because both Dean Pennington and Zacari Pennington are heavily involved in this case, we refer to
them by their first name rather than as ‘Pennington’ simply to avoid confusion with no disrespect
intended.
2
1503 Columbia Ave. Franklin TN 37064, Rent checks made out to:
Cameron Properties.
***
15. ASSIGNMENT AND SUBLETTING. Tenant covenants and agrees
not to assign or sublet said Leased Premises or any part of same or in any
other manner transfer the Lease without the written consent of the
Landlord, but such consent to sub-Lease or assign shall not be unreasonably
withheld by Landlord. In the event of such subletting or assignment,
Tenant nevertheless shall remain liable for the payment to the Landlord
under and compliance [sic] with all of the terms and conditions of this
Lease.
***
17. DEFAULT BY TENANT. In the event of a breach as hereinafter
defined by the Tenant of any of the terms or conditions of this Lease,
Landlord shall have the right at Landlord [sic] sole discretion to annul and
terminate this Lease upon written notice sent by certified mail to the
Tenant. At any time after such termination, the Landlord may re-let the
Leased property in whole or part in the name of the Landlord. No such
termination of this Lease shall relieve the Tenant of its liability and
obligations under this Lease and such liability and obligations shall survive
any such termination. The occurrence of any one of the following events
shall be considered a breach of this Lease:
a. In the event the Tenant shall fail to pay one or more of said
installments of rents it [sic] becomes due and payable.
***
23. ATTORNEY’S FEES AND INTEREST. In the event it becomes
necessary for Landlord to employ an attorney to enforce collection of the
rents agreed to be paid, or to enforce compliance with any of the covenants
and agreements, herein contained, Tenant shall be liable for reasonable
attorney’s fees, costs and expenses incurred by Landlord, and in addition,
shall be liable for interest at ten percent (10%) per annum on the sum
determined to be due by reason of breach of this Lease, such interest to run
from the date of breach of the Lease, whether or not litigation is involved.
3
***
42. SPECIAL CONDITIONS:
A. Landlord will deliver the leased premises on the Commencement
Date on or before December 1st. [sic] or at such time thereafter [sic]
Landlord completes the Tenant Improvements described on Exhibit
C.
B. Tenant Improvements delivered by Landlord are attached to this
lease as Exhibit C.
C. Finish Improvements required by the Tenant shall be listed and
Attached to this lease on Exhibit D.
D. Tenant is responsible for the costs pertaining to the costs of
permits and fees charged by the City of Franklin to build out this
space. In addition Tenant is responsible for the costs and fees
pertaining to the architectural drawings, engineering drawings or any
other plans or professional services required by the city of Franklin
to permit the construction of this space.
E. The landlord shall grant exclusive use for a gym or fitness [sic] to
Anytime Fitness, including personal training, yoga and similar use
***
Exhibit C.
Tenant Improvements Delivered by Landlord.
Landlord agrees to deliver the following improvements per Anytime
Fitness current Design Book and Franchisor specifications Build Plans on
or before the Hand-Over date.
1. Deliver the space roughed in to the specifications described in
Build Plans, the Anytime Fitness current Design Book and
Franchisor specifications and delivered to Landlord by Tenant.
2. Deliver the space roughed in with all electrical wiring, breakers,
main breakers, cutoffs, plugs receptacles and covers, electrical boxes
and connectors needed for Tenant to install its own light fixture or
electrical apparatus. Tenant is responsible for that portion of labor
and cost to attach any light fixture or apparatus to the system.
3. Deliver the space roughed in with all plumbing systems needed
per franchise requirements for Tenant to install its own plumbing
4
fixtures and plumbing apparatuses. Tenant is responsible for that
portion of labor and cost of such to attach any plumbing fixture or
plumbing apparatus. Landlord will install the Shower inserts needed
by Tenant as part of the framing rough in, and install all toilets and
sinks
4. Landlord will rough in the space and deliver it to the Tenant per
specifications described in, Anytime Fitness Design Book and
franchisor specifications. .[sic] That buildout shall be delivered in a
timely manner complete with all framing and drywall installed and
wall [sic] sanded and ready for paint.
5. Deliver space with the necessary HVAC unit on roof top and
deliver it throughout the space,.[sic]
Exhibit D.
Finish Improvements required by the Tenant
After Landlord delivers the space with improvements described in Exhibit
C. Tenant agrees to finish the space as described in the Build Plans
submitted and approved by the City of Franklin for the subject premises to
obtain a satisfactory occupancy permit from the city of Franklin.
1. Install all plumbing fixtures and apparatus needed to complete the
premises per build plan.
2. Install all electrical fixtures and apparatus needed to complete the
space per build plan, excluding shower inserts.
3. Install all flooring per build plan.
4. Install baseboard trim per build plan.
5. Paint and decorate the space as desired or required by Build Plan
6. Install any signage required or desired.
7. Any other item not mentioned in the lease is the responsibility of
the Tenant.
Anytime Fitness began operating in the Premises on August 1, 2016. In
September of 2016, Landlord filed a detainer action in the General Sessions Court for
Williamson County (“the General Sessions Court”) against Country Mile, Well North,
LLC (“Well North”), Dean Pennington, and Zacari Pennington (collectively “Tenants”).
Tenants attempted to have the case removed to the Trial Court, but their motion was
denied. The detainer action was tried and a judgment was entered in favor of Landlord.
Tenants appealed the General Sessions Court judgment to the Trial Court.
5
Country Mile and Dean also filed a breach of contract action in the Trial Court
alleging, in part, that Landlord had breached the Contract by failing to meet the hand-
over date and by failing to complete its required improvements to the Premises. In
December of 2016, the Trial Court ordered the appeal from the General Sessions Court
be consolidated into the breach of contract action. The case proceeded to trial without a
jury in March of 2017.
At trial, Cameron testified that he is a partner in Cameron Properties with his
brother Tim. Cameron Properties is in the business of leasing properties in middle
Tennessee. Cameron has been in this business for over 30 years. He testified that he
signed the Tenant Agreement as the landlord on behalf of Cameron Properties to lease the
Premises to Country Mile. Cameron explained that he hired an agent, Tom Lochbihler,
to negotiate the Tenant Agreement. Cameron believed he was entering into an agreement
with Country Mile negotiated by Dean and Zacari Pennington (“Zac”).2 Cameron
testified that he got a guarantor to the Contract, Dean. He testified that there also was
supposed to be a guarantee from Zac and that it was a mistake that there is not one in the
Contract. Cameron stated that rent was to begin on August 1, 2016, the day Anytime
Fitness opened for business.
Cameron admitted that he agreed to Dean and Zac running an Anytime Fitness
business in the Premises. He also admitted that Landlord cashed the security deposit
check, which came from Well North not Country Mile. Cameron, however, claimed that
he personally never saw that check. Cameron was asked if he ever gave notice that he
did not consider Well North the tenant, and he admitted he had not. Cameron also
admitted that he executed Equipment Waivers and Disclaimers – Key Equipment Finance
documents (“Equipment Waivers”), which stated that the Premises are occupied in whole
or in part by Well North. Cameron admitted that he did not read the Equipment Waivers.
He claimed he did not know Well North was involved until “this thing kind of blew up in
all honesty,” but admitted that the Tenants didn’t try to hide that Well North was
involved. Cameron also admitted that the information was in plain view in the
documents he signed, and he could have asked about it.
The initial agreement was for Tenants to lease 4,597 square feet. Cameron
testified that ultimately Landlord agreed to give them 5,000 feet. He explained that he
offered them space next to Domino’s, which would have given them 6,000 feet, but
Tenants refused. As a result of this refusal, a wall between Suites 110 and 120 was
moved approximately seven feet to the left into Suite 110. Cameron testified that the
space Tenants are occupying is actually 5,080 square feet.
2
See footnote 1.
6
Cameron admitted that Landlord agreed to put in the shower stall, but stated it did
not agree to put in sinks and toilets. He was asked how the sentence about the Landlord
installing the sinks and toilets got into the Contract if Landlord did not agree to installing
the sinks and toilets, and Cameron stated: “That is a good question.” Cameron stated that
to his recollection there was no discussion about sinks and toilets. Cameron agreed that
the provision with regard to sinks and toilets was in the Contract when he signed it.
Cameron testified that installing sinks and toilets is trim-out work not rough-in work.
Cameron claimed that Tenants agreed to pay to move the electrical panels. He
testified that he met with Jerry Caldwell, Kerry Hosford, and Zac on the site around
March of 2016 to talk about the panels. Cameron told them that if they moved the panels
they would have to pay because he did not believe they needed to be moved. Cameron
testified that he thought that they agreed during that meeting that Tenants would pay if
they moved the panels. Cameron admitted, however, that neither Dean nor Zac ever told
him that they would pay to move the panels. Cameron testified that Dean and Zac looked
at the site before signing the lease and that the electrical panels were there at that time.
Cameron testified that it was Landlord’s responsibility to rough-in for electrical, but he
stated that moving electrical panels is not rough-in work.
Cameron testified that the Contract was signed in October of 2015, but that they
didn’t get building plans until sometime between February 21, 2016 and March 1, 2016.
Cameron claimed that the hand-over date was around May 20, 2016. Cameron agreed
that it would not be possible to finish the Landlord’s portion of the work listed on Exhibit
C if the Tenants did not do their portion as listed on Exhibit D because of the way
construction works. He testified that it was Landlord’s responsibility under the Contract
to install the sprinklers. The sprinkler plans were approved April 4, 2016, and the
sprinkler system could not be installed until they had approved plans. Revised electrical
plans were approved May 16, 2016. Cameron testified that Anytime Fitness asked for the
electrical plans to be changed.
Cameron testified that Country Mile never requested that it be allowed to assign
the lease to Well North. He stated that if they had, he could have asked for a personal
guarantee from the members of Well North. Cameron never agreed to allow Country
Mile to assign the lease.
Landlord did not receive rent on time for August 1st, September 1st, October 1st,
or November 1st of 2016. The rent for August, September, October, November, and
December of 2016 was tendered to Landlord’s attorney in November of 2016. That
check had not been cashed as of the time of trial.
7
Dean testified that he is a member of Country Mile along with his wife, Teda. He
along with his wife, his son Zac, and Zac’s wife Olivia are members of Well North.
Dean explained that the LLCs were formed for the purpose of holding Anytime Fitness
franchises. Country Mile was the original franchisee of the Anytime Fitness to be
operated at the Premises. Dean explained that the franchise agreement was transferred to
Well North in November of 2015 when 50% was sold to Zac and Zac’s wife. Country
Mile executed a transfer agreement wherein Well North acquired and assumed Country
Mile’s rights and obligations under the franchise agreement with Anytime Fitness. Dean
testified that they hired an agent from Franchise Real Estate, Richard Parnell, to negotiate
the Contract. He explained that Richard Parnell is from Anytime Fitness corporate in
Minnesota.
Dean signed the Contract. Country Mile is the tenant and is obligated to pay the
rent. Dean also signed the personal guaranty. Dean testified that it is his understanding
that he remains personally liable under the guaranty. Well North provided the down
payment on the Contract. Cameron never said anything to Dean about Well North being
the source of the deposit check. Dean testified that Country Mile never assigned the lease
to Well North. Country Mile never has subleased the Premises. Dean testified that they
never had any conversations with Cameron with regard to the fact that Country Mile was
to be the tenant, and Well North was to be franchisee.
Dean testified that the lease payments “originate from me to Well North” as did
the initial payment to Landlord and the payments to David Wyles Construction. Dean
stated he “put the money in Well North and they paid it.” Dean was asked how Country
Mile and Well North account for expenses related to the operation of the Anytime Fitness
located at the Premises, and he stated: “Largely for organizational purposes we created
those 2 LLC’s. I fund both of them. I’m the beneficiary of both of them and have the
responsibility of both of them. But I wanted to create a separation there from our other
territories.”
Dean testified that Zac was in charge of the build out for the Tenants. He
explained that Anytime Fitness corporate gave them the general layout, and they then
hired an architect to have professional drawings made for the build. Zac acted as the
project manager.
Dean testified that drawings were submitted to Cameron around February 21,
2016. He stated that they anticipated that once they got approval for the plans, which
happened around March 1, they would be able to have the space in two months. That did
not happen. Dean stated that Landlord took “2 and a half times as long as he promised.
It took 5 months.”
8
Dean testified that there wasn’t an actual hand-over date because the work still had
not been completed as of the time of trial. Dean testified that the drywall is not complete.
He contended that the light connections were done improperly. He also stated that the
general contractor was still in the space doing work in July within days of when they
opened. Dean claimed that “we have never received any notice of verbal, written or
otherwise that the property is handed over.” He was asked if the Contract required
Landlord to give them written notice of hand-over, and Dean stated: “Not that I’m aware
of.” Dean testified that he attempted to contact Cameron about the delays and left voice
mails, but the calls were not returned. Dean admitted that the Anytime Fitness business
has been operating at the Premises since August 1, 2016 and earning revenue. Dean
stated that when they opened on August 1st, he “didn’t think [the Premises were] in good
condition but I felt compelled to accept it because we had to get the doors open.”
Dean testified that he visited the site a “couple of times a week.” Jerry Caldwell
was the general contractor in charge of the build out for Landlord. Dean’s interactions
with Jerry Caldwell were “just a friendly chit chat type of thing.”
Dean testified that the last conversation he had with Cameron was prior to the
build out when he, Zac, and Cameron met at the space because Cameron wanted them to
move their space to the left to be adjacent to Domino’s instead of the chiropractic office.
Dean and Zac did not agree to move the space. Dean stated that when Cameron testified,
Cameron was mistaken because the meeting was never about moving a wall. Dean stated
that the suites were wide open, and Cameron “wanted to just have us re-draw it all and
put it down on the left end. And because of the time and expense we didn’t want to do
that.” Dean stated: “We had already leased for 5,000 square feet. We were not asking
for more space. I just think [Cameron] is confused about it.” Jerry Caldwell was not at
that meeting.
Dean never met with Cameron or Jerry Caldwell about moving the electrical
panels. He stated he never discussed the electrical panels with Cameron. Jerry Caldwell
never told him that moving the panels needed to be paid for. Dean testified that he never
agreed to pay to move the panels.
Dean testified that initially they hired David Wyles Construction to do the finish
work that was the Tenant’s responsibility, but then they also hired them to do the work
that Landlord had not completed. Dean testified that they ended up spending $39,000
“exclusively for finishing what Cameron Properties was delinquent in doing.”
Dean testified about alleged business losses claimed by Tenants and stated that
they kept good notes and they:
9
were actually able to identify 83 people that as part of their reason for not
joining was that it had taken so long to get it built out. Repeatedly on a
more than a weekly basis, we were repeatedly being told, well, you said
you were going to be ready to go June 1st. You said you were going to be
ready to be open July 1st. And we just had a whole bunch of people that
ended up not joining because they got tired of waiting. And just went
somewhere else. . . . Well, Mr. Cameron was so delinquent or Mr.
Caldwell was I guess as the builder, he was so delinquent in getting his
work done, that we were running up against members that had joined us,
that they were beginning to tell us we want to drop our membership
because you are not getting open. So we were faced with, do we keep
waiting on Mr. Caldwell to get the work done, or do we hire our own guy
that is going to do the finish work, David Wiles [sic] Construction to come
in and get it done. And the longer it went the more pressure we felt, we
have got to get this thing open. We have people, we sold 150 memberships
prior to opening and these people were pressuring us. You are not open,
you are not getting open when you say.
And so we finally decided we are going to have to pony up the
money and get the place open.
Zac testified at trial that he is Dean’s son. Zac helped negotiate the Contract, but
he did not sign the Contract. He testified that he did not write his name at the top of the
first page of the Contract and that is not his signature at the top of the first page. Zac also
stated that he did not write his name in the notary section. Zac also did not sign the
guaranty.
Zac was asked about an email from Tom Lochbihler, Landlord’s agent, to Richard
Parnell, Tenant’s agent, dated September 16, that stated: include the toilet and sink
rough-in. Zac testified that he believed that this email was Tom Lochbihler responding to
a previous email from Richard Parnell asking Landlord to deliver sink, toilet, and water
heater and that Tom Lochbihler was agreeing to do the sinks and toilets.
Zac testified that he was at the job site “if not every day, every other day.” He
testified that the City of Franklin granted approval on the drawings on February 16, 2016,
and Zac provided the approved drawings to Landlord on February 21, 2016. Zac was
asked if it was his understanding that these were the final approved drawings that the
Contract required be provided to Landlord, and he stated: “Yes, absolutely. These are the
drawings we all agreed to be in construction and pulling permits from.” Zac testified that
because they handed over approved final drawings to Landlord on February 21, 2016,
Tenants contend that the hand-over date should have been April 23, 2016.
10
Zac testified that he was told Cameron was not happy and wanted them to shift the
space, so he set up a meeting with Cameron in the space to discuss the matter. That
meeting occurred during the week of February 21, 2016 between Cameron, Zac, and
Dean. Cameron wanted them to move from the space next to the chiropractor to the
space next to Domino’s, and they were not willing to do so. Zac stated: “At the end of
that discussion Mr. Cameron did agree to proceed forward with the plans as drawn and
approved by the City of Franklin.” Permits were pulled a few days later and construction
began.
Cameron did not talk to them about the electrical panels at that meeting. Zac did
not hear that the electrical panels were a problem until after they opened for business. He
was told that Cameron testified that Cameron had told them they would need to pay to
have the panels moved, and Zac stated: “That is a complete fallacy.” He testified that
there was no discussion during the meeting in February about moving the electrical
panels and who would pay for that move. Zac explained that the panels had to be moved
to conform to the drawings because one would have been in a bathroom and one would
have “split the demising wall.” He stated: “Someone had to move them. And Mr.
Cameron had agreed to follow the approved set of drawings that were given to us by
Franklin, which showed them in the utility closet.”
Zac testified that some of the improvements for which Landlord was responsible
remain incomplete. He testified that he had to have his people do the sinks and toilets,
some rough drywall work, and some sanding to prep, all of which Landlord was supposed
to do. Zac stated: “sinks, toilets, those are not completed. There is also a series of
electrical items not completed. We had to come in and rework panels. We had to finish
panels. There were plugs and receptacles in the whole building that were never even put
in.” Zac testified that Jerry Caldwell told Zac that they were not going to run electrical to
the exterior emergency lights underneath the awnings as called for in the plans. Zac also
testified that Jerry Caldwell told him in July that they were not going to install any sinks
or toilets. Zac testified that Jerry Caldwell told him that the electrician, Kerry Hosford,
would not be finishing his work and that is why Zac told his “guy to come in and do it.”
Zac testified that the Premises failed an inspection by the Franklin Fire
Department Inspector on July 25, 2016. He testified that the fire inspector gave them a
temporary Certificate of Occupancy to allow them to move in equipment after having
them secure sprinkler heads to the grid. They received the actual Certificate of
Occupancy on August 1, 2016.
Zac estimated that they lost 83 clients due to: “The slow progress and our need to
redirect funds that we were assigned to use for a presale to pay for construction items that
11
Mr. Cameron did not complete. It depleted our presale efforts and ability to close
contracts.” He was asked how much those clients would have been worth over the life of
a contract, and he stated:
At the time we were doing presale, 90 percent of the contracts we
were signing were 24 month agreements. Those 24 month agreements are
for two years. The average monthly value of that contract we sold was $42.
So $42, I will say 90 percent of those contracts of the 83 would have sold
would have been a value of $42 a month times 24, gives us roughly, I
belive [sic] we submitted it in evidence somewhere here, it is roughly in the
85 to 95 to $100,000 range.
Zac also stated: “We do have customers that simply never decided to pay us after their
contracts went into effect, . . . . We had roughly about 30 members that went into default
the day we opened or the month thereof.” He explained that the 83 number represents
communications that they had with people who never would commit. Zac stated that
when this litigation started the number was closer to 90 or 95, but because some of those
people have since joined the gym, they deleted them from the number of lost contracts.
Zac was questioned about projected sales goals, and he testified that working with
Anytime Fitness corporate they were gauging between 200 and 300 presales for this
location. He testified that they signed up 200 members.
Jerry Caldwell (“Caldwell”) testified at trial. Caldwell is a contractor and builder.
He was hired as a supervisor for this job. Caldwell has known Cameron and Tim
Cameron for most of his life and has built things for them in the past. He was partners
with them building some homes in the 1990s.
Caldwell stated he was hired to: “go in and get everything ready, the grade work,
get the plumbing and electrical in the slabs, pour the concrete, build the metal stud walls,
rough-in all of the electrical, plumbing and heat and air unit, ducts, and to come back and
hang and finish the sheetrock.” He was asked what the electrical and plumbing rough-in
would entail and he stated:
Well, a rough-in is just where you got to go in and get all of your
stuff in the slabs that you need stubbed up before you pour your concrete.
And then after you do that you get your concrete poured. And then you
come back and layout all of your metal stud walls, build all of your metal
stud walls. And then your electrician comes in and starts roughing in
anything that goes down into the metal stud walls and around the metal stud
walls, and get all of his pipes and conduits and all of his wire pulled to a
12
certain location where he has plugs and switches and everything in the
walls.
And at that point then the heat and air guy, he comes in and hooks
up all of his units the duct work, runs all of the duct work off into the
building. And the plumber comes back, if you need to put in certain kinds
of shower stalls he has to put them in on the rough-in because you have to
have them inside to put the sheetrock around them when you are hanging
sheetrock. And basically that is it on the rough-in.
Caldwell testified he was given a piece of paper that told him what was to be done
with regard to “roughing-in the plumbing and electrical, pouring the concrete and
everything we had to do.” He could not recall who had given him that piece of paper. At
trial, Caldwell was able to identify the piece of paper as a copy of Exhibit C of the
Contract. Caldwell admitted that he probably had final say on what Landlord was going
to install and how it was to be done. When roughing-in, Caldwell planned to pull conduit
for all of the switches and plugs, install a shower, and put boxes in the walls for switches
and for plugs. Caldwell explained that usually he would not hang sheetrock as part of a
rough-in, but the Contract required it, so that is what he did. Caldwell did not think
Exhibit C said he was to install sinks and toilets.
Caldwell explained that when they were done with the rough-in, Caldwell would
leave to allow the tenant to trim out. He stated that trim out would include:
Trim out items would be putting in commodes, sinks, faucets, light
fixtures, plugs, switches, any breakers in the panels. Now we had one
panel that had breakers in it because we had it hot but that was before this
job ever started. And you know, it had a lot of breakers in it, and we, you
know, we worked off of that panel for the electricity while we was working
in the building.
Caldwell further stated: “Trim out would be putting the plugs and switches, hanging light
pictures, your toilets, your sinks, you commode, I mean that would be a trim out.”
Caldwell testified that they finished their work at the end of May. He explained
that they do not pull low voltage wire, but they did put boxes on the walls for the low
voltage wires to be pulled. They installed the duct work and the exhaust fans. Caldwell
testified that Landlord was not responsible for installing plugs and switches or for
installing sinks and toilets, and Landlord did not install plugs, switches, sinks or toilets.
13
Caldwell explained that they never put plugs in until after the drywall is finished
and painted. He agreed that in order for a landlord to put in switches and plugs, sinks and
toilets their crew would need to stop work and wait for the painting to be done by the
tenant and then come back to do that work.
Caldwell testified that Zac wanted all of the switches put in the front office despite
the fact that the plans called for them to be in different locations. Caldwell was asked
about moving the switches, and he testified:
But Mr. Hosford, when he roughed it in, he roughed in everything by what
the plans called for. That was their plans drawn. We didn’t draw the plans.
They give us the plans and that is what we roughed it in by. But it showed
some of the switches in the back, and the back hallway and some in the
front office. And then Zac wanted all of them in the front office, and that is
when Mr. Hosford had to take all of them out of the back and rework all of
his piping, get all the wires to make sure he got all the switches in the front
office.
Doing this cost more money and took more time. Caldwell agreed this was out of
Landlord’s control.
Caldwell admitted that someone on behalf of the Landlord used the wrong kind of
fire caulk, but he stated that his people had not done that. The use of the wrong fire
caulking held up obtaining the Certificate of Occupancy. Caldwell testified that he
supervised the corrective work for all of the failed inspections, and all of the necessary
corrections were made.
Caldwell testified that Cameron gave the approval to move the electrical panels,
but Cameron told Tenants they would have to pay to move the panels. Caldwell knows
this because Cameron told him so. Caldwell was asked if he heard Cameron say that to
Tenants, and he stated: “Yes, sir. We was standing over there, yes, sir.” Caldwell was
not present when they talked about shifting the space, but was present when they talked
about moving the electrical panels. He stated that the electrical panels had to be moved
because one of them “hit dead center of a wall,” and “one of them was in a bathroom
area.” Cameron told Caldwell, Kerry Hosford, and Zac that he was not going to be
responsible for paying to move the panels. Caldwell didn’t hear Zac say anything during
that meeting. Caldwell never heard Zac say he would pay to move the panels, but
Caldwell heard Cameron say he would not pay.
Caldwell was shown an exhibit depicting the suites pre-divided with electrical
panels and HVAC units pre-installed according to the lines of each pre-divided space and
14
was asked about changes that might move dividing walls and asked if moving those walls
would cause changes to the Landlord’s scope of work, and he stated:
With the square footage they are showing here, the wall is built, the
firewall, well if you [sic] standing in front to the left of the building it
should have been built on the column line. If that wall had been built on
the column line where it should have been built, it would have created a lot
less problems. One service would not have to be moved at all, and the
firewall would have worked a lot better putting it on the column line. But
the drawings made us move six and a half foot or seven foot past that
column line, and it hit dead center of a window which you very seldom do
but that is what the drawings called for and that is what we did.
***
When we started honestly I thought they were getting two bays plus
another piece of a bay on the other side, but I thought the wall would go
where the column line is. That is where we thought it would go. We got to
looking at their plans and coming up with our measurements, they bought
the wall way past the column line and it hit out dead center of the windows
in the last bay. So we actually went six or seven feet more and when that
wall was built it hit right dead center of a panel in the back and we had to
move that panel too.
Caldwell agreed this was a significant amount of work and that it took some time to move
the panel.
Caldwell was asked about photos submitted from January of 2017 showing
missing drywall in the Premises, and he stated: “I thought we finished all of that. If we
missed that, that would be my mistake. I don’t remember, thought we finished out all of
the corners and everything. We had to go back over there and redo some stuff around
those windows.” Caldwell agreed that the picture showed a gap in the finishing of the
drywall.
Caldwell testified that the electrician, Kerry Hosford, stopped working because he
discovered another electrician on the job. He stated: “Kerry Hosford is a good man, he is
not going to let somebody work off of his license and stuff,” so he removed his permit
and left.
Kerry Hosford (“Hosford”) testified at trial. Hosford has been a licensed
electrician for over 40 years. He was asked to define an electrical rough-in, and he
15
stated: “On commercial you put your conduit, your boxes to pull your wire and the
conduit, make all your joints up, and you are ready for the trim out. . . . I never put on
switches on a rough-in.” Hosford further stated: “trim out would be installing plugs,
switches, plates, breaker, light fixtures and et cetera, whatever.” Main breakers, cutoffs,
plugs, receptacles, and covers are not rough-in items. Hosford testified it would not be
possible to install electrical wiring, breakers, main breakers, cutoffs, receptacles and
plugs prior to the rough-in inspection. Breakers would be installed as trim-out after the
dry wall was painted.
Hosford met with Cameron, Caldwell, and Zac at the site to discuss moving the
panels. Hosford explained that the panels had to be moved because “2 panels were in the
middle of a wall and the third panel was in a bathroom.” He testified: “The only
discussion was Mr. Cameron and Mr. Pennington were there, and Mr. Cameron said that
the panels had to be moved and Mr. Pennington would have to be responsible for it, for
the payment of it.” Hosford never heard Zac respond to that. Hosford considered
moving the panels to be rough-in work. Hosford billed $4,492 for the moving of the
panels. It was his understanding that Tenants were going to pay that bill. Hosford had
not been paid for that work as of the time of trial.
Hosford testified that he is not licensed to install low voltage electrical wiring, but
he is required to rough-in boxes for the low voltage. He testified that “electrical and low
voltage are 2 different things.” Hosford testified that Zac made “changes on the fan
controls, 3 switches in the hallway, and one switch on the right side off the backside
where the bathrooms were.” Zac wanted them put in the manager’s office.
Christopher Lynn Bridgewater (“Bridgewater”), the Director of the Building &
Neighborhood Services Department for the City of Franklin, testified at trial.
Bridgewater’s department formerly was known as Codes Administration. Bridgewater
testified that as far as the City of Franklin is concerned the final stamped set of building
plans for the Premises was approved on May 16, 2016. He explained that if there are no
amendments to plans, then the first set of plans would also be the final stamped set.
Bridgewater testified there were three submittals for this project, the initial one, the
second one that made corrections to allow for obtaining the building permits, and the
third one when they made their electrical revision. Bridgewater explained that the initial
submittal was declined so changes were made leading to the second submittal, which was
approved. Bridgewater testified that Tenants could not have obtained a Certificate of
Occupancy based upon the second submittal because the electrical inspection would have
failed.
After trial, the Trial Court entered its extensive Memorandum and Order on May
22, 2017 finding and holding, inter alia:
16
Cameron Properties had actual notice of Well North’s participation
in Country Mile’s business venture throughout the course of the business
relationship between parties. The security deposit check was issued to
Cameron Properties by Well North (Ex. 1); and on December 17, 2015,
Cameron Properties executed three Equipment Waiver and Disclaimer
documents for the benefit of Key Equipment Finance, which released all
rights for Cameron Properties to attach a lien to Tenants’ equipment located
on the premises for satisfaction of any potential unpaid rent. Each of these
documents identifies Cameron Properties as the “Owner/Landlord” and
Well North, LLC, as the “Lessee.” (Ex. 2.)
When commercial landowners agree to provide commercial space in
a shell building with an unfinished interior to a tenant with specialized
design requirements, the parties allocate certain building responsibilities to
the landlord or owner and others to the tenant. Customarily, owners have
the obligation of “roughing-in” certain core construction elements such as
electricity, plumbing, HVAC; and tenants are allocated responsibility for
“trimming-out” the remaining construction necessary to outfit the leased
premises in a manner suitable for the intended commercial business.3
In the construction industry, rough-in electrical work for commercial
space is understood to mean the installation of junction boxes which bring
power into the building; the installation of conduit in the designed space;
pulling of wires in the conduit; and the installation of junction boxes with
stubbed wires in the contemplated location of switches, outlets, and
fixtures. Trim-out for electrical work is understood to mean the installation
of plugs, switches, plates, and fixtures.4
Similarly, rough-in plumbing is understood to mean the installation
of sub-foundational pipes to bring water into the building and to carry
wastewater away; the installation of water supply lines running toward the
designed location of fixtures; the installation of wastewater piping running
away from these designed locations; the installation of shower pans and
inserts; and, depending upon applicable building codes, the installation of
fire-suppression sprinkler lines. Trim-out of plumbing typically involves
the installation of fixtures such as sinks, toilets, water-heaters, and drinking
fountains.5
3
The Court credits the testimony of Donald Cameron, Jerry Caldwell, and Kerry Hosford.
4
Id.
5
Id.
17
Rough-in of interior walls is customarily understood to require the
placement of metal track or wood framing, while trim-out is understood to
be the installation, finishing, and painting of the drywall and baseboards.6
Rough-in of HVAC foundational work is customarily understood to
mean the installation of air handling equipment, A/C and furnaces, air-
ducts, and filter housing. Trim-out typically encompasses installation of
floor or ceiling registers.7
During the course of construction for the interior of a commercial
space, certain work, such as painting of the walls and the installation of
floor tiles, has to be done prior to other work, such as the installation of
electrical switches, outlets, and plumbing fixtures.8 Thus, in order for the
requisite construction to be completed successfully, there is a natural
progression which must be considered when allocating rough-in and trim-
out responsibilities.
The Tenant Agreement in this case represents a significant departure
from the customary allocation of landlord and tenant construction
responsibilities. For example, (1) Landlord agreed to install electrical
plugs, receptacles, and covers; (2) Landlord agreed to install all toilets and
sinks; and (3) Landlord agreed to complete all framing, and install all dry-
wall “sanded and ready for paint.” All of these responsibilities are typically
allocated to the tenant, but were otherwise bargained for during the course
of contract negotiations.9
***
Well North tendered the security deposit check in the amount of
$7,662.00 on or about October 12, 2015. Cameron Properties accepted and
deposited Well North’s check as the security deposit.10
6
Id.
7
Id.
8
Id.
9
Exs. 18, 19, 20, and 21. The original letter of intent sent to Landlord’s agent was more consistent with
the customary allocation of construction responsibilities between owners and commercial tenants. The
business reasons driving the decision to depart from this allocation were never explained by the parties
and the Court will not speculate what they were. The Court’s task is to determine the intent of the parties
expressed in their unambiguous written agreement, and enforce it.
10
Testimony of Lesa Hay.
18
On February 16, 2016, the City of Franklin (the “City”) approved the
Anytime Fitness Tenant Build-Out Plans dated January 12, 2016, which
were prepared by Studio Oakley Architects, LLC. (Ex. 6.) The City issued
building permit #103731 for “Tenant Build Out” of the Leased Premises on
March 1, 2016. (Ex. 3.) Shortly thereafter, Landlord commenced work
through its retained contractor, Caldwell Builders.11
At some point in late February 2016, prior to the commencement of
construction, Dean Pennington met with Donald Cameron on the Leased
Premises; Zac Pennington and Jerry Caldwell, the contractor’s
representative, were also present. One topic of discussion at this meeting
was Landlord’s request to Tenant that the contemplated footprint of the
finished space be moved leftward, in relation to the plans, in order to take
advantage of an existing column wall in the building so that the column
wall could be used as a fire wall. Without this leftward shift, the fire wall
depicted in the architect’s plans conflicted with both a window on the south
side of the building and an electrical junction box which had previously
been installed inside the north wall. Mr. Caldwell, a construction expert
qualified by more than 40 years of experience in commercial and residential
construction, testified, without contradiction, the requested leftward shift
would have benefitted not only the Landlord, but also would have been
advantageous to the Tenant in that Tenant could have increased the HVAC
tonnage for the rentable space. Tenants did not challenge Mr. Caldwell’s
opinion in any manner and the Court accepts his opinion as a finding of
fact.
Tenants were unwilling to agree with Landlord’s requested change
and insisted that the build out be done in strict conformity with the plans
prepared by their architect. Mr. Cameron maintained that Tenants bear the
expense of relocating the electrical panel which was required in order to
remain in compliance with the plans. Tenants did not agree to Landlord’s
request. When Landlord’s electrical sub-contractor, Hosford Electric,
completed the work to move and relocate the electrical panels, Cameron
Properties declined to pay Hosford Electric and told Hosford to bill the
Tenants. Hosford did as Landlord instructed and sent Tenants an invoice
(Ex. 4) in the amount of $4,462.48. Tenant refused to pay Hosford’s
invoice.
11
Testimony of Donald Cameron and Jerry Caldwell.
19
In keeping with the original design plans, Hosford Electric installed
fan control switches on the back / north wall of the Leased Premises. In
May 2016, Zac Pennington, who was Tenant’s representative on the job
site, told Kerry Hosford he wanted all fan control switches to be located in
the manager’s office located near the front / south side of the Leased
Premises. Mr. Hosford told Mr. Pennington that he would move the
switches in accordance with his directions, but new plans depicting this
changed location would have to be prepared and submitted to the City for
approval or else the installation would not pass electrical codes inspection.
The City approved the new electrical plans reflecting the change on May
16, 2016. (Ex. 10.) These revised electrical plans (Ex. 10) are materially
different from the electrical plans contained in the original set of plans
approved by the City on February 16, 2016. (Ex. 6.)
The City requires that approved construction plans are to be kept at
all job sites engaged in construction authorized by City building permits.
The City considers “final plans” to be those which have been reviewed by
the City Department of Building and Neighborhood Services (formerly
known as the “Codes Administration”). Such finalized plans provide the
basis for the City’s final inspections prior to issuance of certificates of
occupancy. According to the records filed with the City of Franklin, the
first set of plans for this construction project was submitted on January 13,
2016, for which approval was declined on February 3, 2016. The plans
were resubmitted February 12, and approved on February 16, 2016.
Revised plans were submitted May 4, 2016 and administratively declined.
The revised plans were then submitted on May 5, and approval was issued
on May 16, 2016. The operative plans for the final building inspection,
which determined whether a certificate of occupancy would be issued, were
the complete set of plans bearing an approval date of May 16, 2016.12
Thus, the Court finds May 16, 2016 to be the operative date for calculating
the Handover Date pursuant to Section 4 of the Tenant Agreement.
Accordingly, the Handover Date under the parties’ contract was July 15,
2016, sixty (60) days after May 16, 2016, the date final stamped plans were
approved.
Due to the allocation of construction responsibilities in the Tenant
Agreement, it was impossible for Landlord to fully complete its obligations
prior to handing the premises over to Tenant for Tenant’s share of the work.
For example, Landlord was required to install electrical plugs, switches,
12
Testimony of Chris Bridgewater, Director, City of Franklin Department of Building and Neighborhood
Services.
20
and covers-work that customarily is done only after the walls have been
painted. Tenant maintained responsibility for painting the walls. Similarly,
Landlord was responsible for installing sinks and toilets; work that
customarily is done only after the walls are painted and baseboards are
installed. In addition to painting, Tenant was also responsible for
baseboard installation. Nevertheless, the building trades subcontractors
who were hired by Landlord attempted to facilitate implementation of this
non-standard allocation of responsibility for both parties. For example,
Tenant’s construction contractor was given access to the leased premises
during the time prior to the required Handover Date, even while Landlord’s
work was not yet completed.
Landlord’s electrical sub-contractor, Kerry Hosford, completed the
customary rough-in portion of the electrical work and withdrew from the
premises in order for Tenant’s painters and trim carpenters to perform their
portion of the construction work. Mr. Hosford was never instructed to
install plugs, switches, covers, or breakers as part of the Landlord’s work,
notwithstanding the allocation of such work to Landlord in Exhibit C to the
Tenant Agreement. Mr. Hosford has done both the traditional rough-in and
trim-out work on other jobs and he testified that he anticipated this job
would involve the same customary allocation of construction
responsibilities. Mr. Hosford left his electrical building permit posted at
the job site awaiting the proper time to return and finish the trim-out.13
Zac Pennington interpreted Mr. Hosford’s withdrawal from the job
site as an indication that Mr. Hosford considered his work to be complete.
Without conferring with Landlord’s construction supervisor, with Mr.
Hosford, or anyone else authorized to represent Landlord, Mr. Pennington
engaged his own contractor, David Wyles Construction, to install plugs,
switches, covers, and breakers; work that was Landlord’s responsibility
under the Tenant Agreement, prior to installation of Tenant’s fixtures.
Upon returning to the job site, Mr. Hosford discovered Tenant’s contractor
working on the site without a separate electrical building permit, doing the
work Mr. Hosford had anticipated completing himself. Mr. Hosford
removed his permit from the premises and left the job site without
returning.
In performing Landlord’s electrical work, Hosford Electric installed
electrical conduit and positioned terminal boxes for low voltage wiring.
Hosford did not pull any low voltage wires, nor did it otherwise perform
13
Testimony of Kerry Hosford.
21
any low voltage installation. There are two reasons for this: (i) Hosford
Electric is not licensed as a low voltage electrical contractor, and (ii) the
installation of low voltage wiring is not identified in the Tenant Agreement
as part of Landlord’s work.
***
Contrary to the terms of the Tenant Agreement, Landlord did not
install any sinks or toilets. Although Landlord did install drywall, there
were portions of the drywall installation around certain window frames that
were left incomplete. (Ex. 13.) Tenant did not prevent Landlord from
completing these construction tasks. Although the fire wall installation
failed earlier codes inspections, Landlord’s contractors corrected these
deficiencies at Landlord’s expense, and the fire wall installation passed
subsequent inspections, including the final inspection.
Country Mile and Well North offered into evidence certain invoices
from David Wyles Construction, LLC, purporting to show the costs
incurred by Tenant in completing the work Landlord had not completed.
(Ex. 7.) From the testimony of Zac Pennington, Kerry Hosford, and Jerry
Caldwell, as well as the contents of the invoices themselves, the Court
concludes the expenses actually incurred by Tenant to complete work
allocated under the Tenant Agreement to Landlord are as follows:
a. “Interior Plumbing -- M(Sinks, toilets and plumbing material used
in the install of these items)” $3,474.10
b. “Interior Plumbing -- S(Labor required to install all sinks and
toilets)” $3,450.00
c. “Electrical Work -- S(Completed final trim out and panel schedule
for the breakers and the main breaker that were required for tenant to
install light fixture and other electrical apparatus)” $9,548.09
d. “Interior Finishes -- M(Trim work to cover incomplete drywall by
Caldwell Builders” $172.50
e. “02 00 00.1 -- Existing Conditions -- M(Repairs to drywall due to
drywall not being ready for paint. Drywall mud, tape, corner bead,
trim and sand paper)” $243.06
f. “02 000 00.2 -- Existing Conditions -- L(2 man crew used to the
drywall that was left unfinished by Caldwell Builders)” $1,150.00
22
Other invoices submitted by Tenants are not compensable because
they represent: (a) work arising out of Well North’s change orders, and (b)
work not allocated to Landlord.
Tenant obtained a certificate of occupancy effective August 1, 2016
(Ex. 11), and opened for business shortly thereafter. Tenant began
advertising its anticipated opening by way of signage on the Leased
Premises in the fall of 2015, shortly after entering into the Tenant
Agreement and well before submitting its building plans to the City for
review and approval. This advertising was revised a number of times in
order to project later expected opening dates. Eventually, Tenant targeted
August 2016 for opening and revised its advertising signage accordingly.
Tenant also began telephone solicitation of membership subscriptions as
early as January 2016. (Ex. 45.)
The original letter of intent (Ex. 18) anticipated membership pre-sale
activity would take place on the premises eight weeks prior to opening for
business. A franchisee consultant for Anytime Fitness, Inc. who worked
with Zac Pennington, advised Mr. Pennington that a realistic pre-sale goal
was to obtain between 200 and 300 membership subscriptions.14 Well
North achieved this goal.15
By the time Anytime Fitness opened for business in August 2016,
Tenants believed Landlord had breached its obligations under the Tenant
Agreement by failing to complete the work allocated to Landlord. Tenants
also took the position Landlord had failed to turn the Leased Premises over
to Tenants in a timely manner and they were entitled to an abatement of
rent under Section 4 of the Tenant Agreement. Therefore, Tenant did not
remit any rent payments. Landlord placed Tenants on notice of default by
letter dated August 19, 2016, from Robert C. Ashworth, Esq., to Zac and
Dean Pennington. (Ex. 5.) Mr. Ashworth advised the Penningtons that
Cameron Properties intended to terminate the lease and file a detainer
action to recover possession of the Premises unless Tenants cured their
default. In addition, Mr. Ashworth’s letter conditioned forbearance of a
detainer action upon Tenants paying Hosford Electric’s May 16, 2016
invoice for relocating the electrical panels; payment of September’s rent in
advance; and execution of a new lease agreement with additional personal
guarantees.
14
Testimony of Zac Pennington.
15
Id. The contents of Ex. 45 do not support Well North’s claim for consequential damages.
23
On August 29, 2016, Thomas Boylan, Esq., Tenants’ counsel,
replied to Mr. Ashworth and disputed Landlord’s claim of breach. (Ex. 33.)
Tenants also took the position that “final stamped drawings from City of
Franklin were delivered to Cameron Properties on approximately February
21, 2016,” and that the certificate of occupancy was issued on August 1,
2016. From these two data points, Tenants asserted they were “well within
their right to occupy the building rent free for the first three months of the
Lease, which they have elected to do.”
Tenants also rejected Landlord’s demand for payment of the Hosford
Electric invoice and countered that they had incurred $39,302.71 of
expense to David Wyles Construction, LLC, for the completion of work
assigned to Landlord under the Tenant Agreement. In support of this
assertion, Tenants enclosed four invoices from David Wyles Construction,
LLC. (Ex. 33.)
CONCLUSIONS OF LAW
Throughout the course of this action, each of the parties has asserted
multiple claims for breach of contract, pursuant to the terms of the Tenant
Agreement. In the original detainer action, which began in General
Sessions Court, Landlord claimed Tenant breached the Tenant Agreement
by failing to pay rent. Pursuant to the terms of the Tenant Agreement,
Landlord sought monetary damages, together with interest accrued on the
amount owed and attorney’s fees. Landlord later added, in its Amended
Answer to Tenant’s Verified Complaint, a Counterclaim for Rescission of
the Tenant Agreement based upon a theory of mutual mistake, as evidenced
by the apparent confusion over which entity was, in fact, the Tenant of the
Leased Premise.
In its post-trial Proposed Findings of Fact and Conclusions of Law,
Landlord recasts this argument in terms other than rescission. Instead,
Landlord argues Country Mile directly breached the Tenant Agreement by
assigning the Tenant Agreement to Well North without Landlord’s
authorization. Based on said breach, Landlord seeks to terminate the
Tenant Agreement and expel Tenant through a writ of possession, pursuant
to Landlord’s right set forth in Section 17 of the Tenant Agreement.
In their original action, Tenants assert claims against Landlord for
breach of contract. Tenants seek damages for expenses incurred in
24
completing the Landlord’s construction work, as well as consequential
damages in the form of lost business revenue. Specifically, Tenants claim
that Landlord breached the Tenant Agreement, by failing to hand over the
Leased Premises in a timely fashion, which resulted in 83 potential
members cancelling or failing to subscribe their membership because of the
delay in operation. Tenants submit, as a result of Landlord’s delay in
construction, that they were entitled to an abatement of the rent.
As an affirmative defense, Landlord contends each of the
Defendants lack sufficient standing to bring a claim for breach of contract.
Landlord argues that neither Well North nor the Penningtons, in their
individual capacities, have standing to bring claims for breach of contract
because they are not parties to the Tenant Agreement. Landlord contends
the proper tenant, as set forth in the Tenant Agreement, is Country Mile.
However, because all of the expenses incurred in completing Landlord’s
construction work were paid by Well North, Country Mile has not suffered
any damages; and thus Country Mile can show no injury capable of being
redressed.
A. Standing
***
The Tenant Agreement was entered into by Country Mile and
Cameron Properties in September 2015. Cameron Properties agreed to
lease the premises to Country Mile for the purpose of operating any [sic]
Anytime Fitness franchise on the Leased Premise. (Ex. 1.) At that time,
Country Mile owned and operated eleven other Anytime Fitness franchise
locations. Country Mile entered into a joint venture with Well North for
the purpose of operating the Anytime Fitness franchise located on the
Leased Premises.
Country Mile and Well North’s relationship was not concealed from
Cameron Properties. Rather, Cameron Properties had actual knowledge of
Well North’s participation in the joint venture. Early on, Cameron
Properties knew Zac Pennington was involved in the business and operation
of this Anytime Fitness franchise. Someone even attempted, after the fact,
to include Zac Pennington’s name in the Tenant Agreement. Indeed,
Cameron Properties executed waiver and disclaimer agreements with Key
Equipment Finance in order to facilitate Well North’s financing of exercise
equipment to be installed and used on the Leased Premises. (Ex. 2.)
25
Cameron Properties was fully aware of the fact that Well North was
going to operate the Anytime Fitness business on the Leased Premises.
There is no evidence that Cameron Properties attempted to amend the
Tenant Agreement, or the guarantee to conform to the reality of Country
Mile’s joint venture with Well North until Cameron Properties made its
demand that Tenants cure the rent payment default from August 2016. (Ex.
5.) Well North’s participation in the operation of the Anytime Fitness
franchise does not change Landlord’s obligations, or make Country Mile’s
rights under the Tenant Agreement less secure.
1. Country Mile’s Standing
Cameron Properties argues Country Mile lacks sufficient standing
because Well North actually incurred all the costs allegedly expended to
fully satisfy Landlord’s construction obligations; thus, Country Mile has
not sustained any actual damages from Landlord’s alleged failures.
Cameron Properties also argues Well North is the assignee of the Anytime
Fitness franchise agreement, and consequently, that Country Mile cannot
claim to have suffered any injury from Cameron Properties’ alleged failure
to deliver the Leased Premises by the Handover Date. For these reasons,
Cameron Properties argues Country Mile lacks standing due to its inability
to demonstrate either injury-in-fact or redressability.
Country Mile is the Tenant identified in the Tenant Agreement.
Landlord’s performance obligations under the Tenant Agreement are
contractually owed to Country Mile. Dean Pennington, as a member of
Well North and Country Mile, and as guarantor of Country Mile’s
obligation to pay rent under the Tenant Agreement, has a stake in the
success of the business located on the Leased Premises. The ability for the
business to succeed hinges upon sufficient completion of the improvements
for the Leased Premises.
If Landlord breached its construction obligations, Tenants would be
required to perform remedial work in order to mitigate consequential
damages. Country Mile could incur the costs of said remedial work
directly, in which case it would have a claim for its own loss; or Country
Mile could indirectly incur the costs through Well North, in which case
Country Mile would still have a claim for compensation to which Well
North would be subrogated. Either way, Landlord faces the prospect of
liability to Country Mile.
26
In the present matter, Country Mile has chosen to indirectly incur
costs through Well North. Well North has written checks for certain
Tenant obligations such as the security deposit and the completion of
Tenant’s build-out. In doing so, Well North has spent funds which had
been contributed to Well North by Mr. Pennington and/or Country Mile. If
Well North was spending its own funds, independent of any monetary
infusion from Country Mile, Well North would be entitled to
reimbursement from Country Mile for expending costs for Country Mile’s
benefit. Irrespective of how Country Mile and Well North balance their
individual accounts with one another, Country Mile has standing to assert a
claim against Landlord for damages caused by Landlord’s breach of
contract.
2. Well North’s Standing
Relying on the express terms of the Tenant Agreement, Cameron
Properties argues Well North is not a party to the Tenant Agreement, has no
legally protected interest in Cameron Properties’ performance of the Tenant
Agreement, and therefore, lacks standing to sue for breach. Tenants
respond by arguing Landlord is estopped from denying Well North is a
Tenant because it accepted the security deposit check written by Well
North, and acknowledged Well North’s status as “Lessee” of the Leased
Premises in the Equipment Waiver and Disclaimer (Ex. 2.)
In some circumstances, a party may be estopped from asserting
contractual defenses in the interest of equity and fairness. Estoppel arises
when one party voluntarily acts in a manner inconsistent with rights the
party subsequently asserts, and the other party has relied in good faith on
those actions to its detriment. See generally, 11 Tenn. Juris. ESTOPPEL §
11 (2015). In this case, Well North claims it relied upon Landlord’s
acceptance of the security deposit and execution of the Equipment Waiver
and Disclaimer, and consequently, incurred costs associated with the build-
out of the Leased Premises.
Well North’s estoppel argument has a certain plausible appeal;
however, Well North has not considered the consequences of its assertion.
Well North is not arguing it is a Tenant under the Tenant Agreement. Well
North does not contend Cameron Properties consented to an assignment of
the Tenant Agreement by Country Mile to Well North, nor is it undertaking
or assuming liability for making the rent payments. Well North instead
27
argues Cameron Properties is equitably estopped from denying it is
contractually obligated to Well North, and has sued Cameron Properties for
direct and consequential damages it contends were caused by Landlord’s
failure to complete construction work and deliver the Leased Premises on
time. Estoppel does not run in only one direction. Well North wants to be
treated as equitably entitled to sue for damages. Equity will require Well
North bear exposure for liability arising out of Tenants’ breach of the
Tenant Agreement.
Well North’s standing is coextensive with that of Country Mile.
Country Mile is a necessary party. Well North could not bring a claim for
breach of contract against Landlord without joining Country Mile to the
action.
B. Breaches of Contract
Landlord contends Tenants breached the Tenant Agreement by (1)
assigning the Tenant Agreement to Well North without authorization, and
(2) improperly abating the rent. Tenant claims Landlord breached the
agreement by (1) failing to adequately complete its construction
obligations, and (2) failing to meet the Handover Date. The Court
concludes: (i) Tenants are entitled to damages from Landlord’s failure to
complete its allocated portion of construction responsibility; (ii) Landlord
did not breach the obligation to hand the Leased Premises over to Tenant in
a timely manner; (iii) Tenants breached their obligation to pay rent; and (iv)
Landlord is not entitled to cancel the Tenant Agreement.
***
1. Tenant’s Unauthorized Assignment of the Tenant Agreement
The Tenant Agreement, which was signed by Country Mile, lists
Country Mile as the “Tenant.” Well North was not a party to the original
agreement, but later became heavily involved in the operation of the
business on the Leased Premises through its joint venture with Country
Mile. In furthering the objectives of the joint venture, Country Mile
assigned the Anytime Fitness franchise agreement, which originally existed
between Country Mile and Anytime Fitness, Inc., to Well North on
November 4, 2015. Country Mile had no obligation to obtain Cameron
Properties’ consent to assign the Franchise Agreement to Well North.
28
Under the terms of the Tenant Agreement, Country Mile agreed “not
to assign or sublet” the Leased Premises “or in any other manner transfer
the Lease” without Cameron Properties’ written consent. (Ex. 1.) The
assignment of the franchise agreement is not the same as an assignment of
the Lease. The Tenant Agreement does not restrict the business structure
employed by the Tenant to operate the business, rather, it restricts only the
type of activity permitted on the premises, which in this case is limited to a
“24-hour, 7 days per week” fitness center. (Ex. 1.) Even if, as Cameron
Properties argues, assigning the franchise agreement was tantamount to
assigning the lease, Cameron Properties likewise agreed that its consent to
an assignment would not be “unreasonably withheld.” (Id.) Irrespective of
whether an assignment took place, Cameron Properties knew of Well
North’s involvement in the joint venture. Cameron Properties accepted
Well North’s check as the security deposit and acknowledged Well North
as the “Lessee” in the Equipment Waiver and Disclaimer agreements with
Key Equipment Finance. (Ex. 2.) Under these circumstance [sic], it would
be unreasonable for Cameron Properties to withhold its consent if Tenants
asked for it.
Landlord has no right to cancel or terminate the Lease upon either
the Tenants’ failure to request consent to the alleged assignment of the
Lease to Well North or Tenants’ failure to pay rent. As explained supra,
Landlord is equitably estopped to assert that Country Mile breached the
non-assignment clause in its business structure with Well North. Second,
Landlord committed the first material breach of the Tenant Agreement by
failing to complete Landlord’s assigned construction work and therefore
cannot enforce the terms of the contract against Country Mile.
***
2. Landlord’s Failure to Complete Construction
Cameron Properties breached the Tenant Agreement by failing to
complete the construction work allocated to it by Exhibit C to the Tenant
Agreement. Specifically, (a) Landlord failed to complete the installation of
drywall, sanded and ready for paint; (b) Landlord failed to install breakers,
cutoffs, plugs, connectors, electrical boxes, receptacles and covers needed
for Tenant to install its own light fixture or apparatus; and (c) Landlord
failed to install all toilets and sinks.
29
Tenant’s damages are measured by the costs incurred in finalizing
the work Landlord failed to complete. The proof demonstrates that the total
amount of damages caused by Landlord’s breach is $18,037.75. Tenants
failed to carry their burden of proof that their damages exceeded
$18,037.75.
3. Landlord’s Handover of the Leased Premise.
The Handover Date is the date by which Landlord was required to
complete its work and deliver the Leased Premises to Tenant so Tenant can
complete its build-out work. This is clear from the terms of Sections 3 and
4 of the Tenant Agreement, which must be read in harmony with one
another in order to give proper effect to both. The Court has found, as a
matter of fact and law, that the Handover Date defined by Section 4 of the
Tenant Agreement was July 15, 2016.
Tenants’ argument claiming that the Handover Date was March 16
lacks merit because it ignores the timing of the submission of revised
electrical plans, necessitated by Tenants’ decision to change the location of
the fan control switches. Tenants’ argument that the term “final stamped
drawings” equates to the initial set of approved construction plans is a non
sequitur that ignores factual reality and creates the potential for an absurd
result. Tenants’ interpretation would allow Tenants to unilaterally prolong
the construction process with changes to the plans in order to obtain rent
abatement based on the resulting delay, leaving the landlord with no
recourse.
In this case, Landlord gave Tenant access to the Leased Premises
while Landlord was still within the time window under the Tenant
Agreement for Landlord to complete its assigned work. This was necessary
due to the parties’ overlapping construction obligations. Consequently, the
handover in fact happened before Landlord’s completion window closed.
The Court concludes Landlord did not breach the Tenant Agreement by
failing to meet the contractually required Handover Date.
With respect to Tenant’s claim for consequential damages, even if
the Court ignored the fact Landlord voluntarily provided Tenant access to
the Leased Premise prior to the Handover Date in order for Tenant to
complete its construction work, and thus held Landlord responsible for
delays up to the date of occupancy, Tenant would still not be entitled to any
additional damages. Any delay in the Handover Date is limited to the
30
sixteen day period from July 15, 2016, to August 1, 2016; Tenant’s claim
for consequential damages is likewise limited to lost business opportunities
caused by the sixteen-day delay.
Tenants have failed to carry the burden of proof to demonstrate they
sustained consequential damages as a result of Landlord’s breach of its
contractual obligations. Tenants offered no evidence of any lost business
opportunity caused by either the failure to complete construction or the
delay between the actual Handover Date and Tenant’s occupancy. The
evidence is undisputed Well North met the subscription pre-sale goal set for
it by Anytime Fitness, Inc.’s franchisee consultant. The term sheet
presented to Landlord’s negotiating agent only anticipated an eight-week,
on-site presale effort before opening. Instead, Tenants began marketing
efforts, including advertising and telephone solicitation of membership
presales in 2015, well before they submitted building plans to the City for
approval. Landlord bears no responsibility for the success or failure of the
presale of Tenants’ membership subscriptions. In any event, as previously
stated, Tenants achieved the presale goal given to them by the franchisor.
Tenants have thus failed to prove they actually sustained any consequential
damages.
4. Tenant’s Improper Abatement of the Rent
According to the Tenant Agreement, the duty rested with Landlord
to hand over the Leased Premises to Tenant no later than sixty (60) days
after the final stamped drawings were received; likewise, Tenants’ rent
obligation began sixty (60) days after the Handover Date even if Tenant has
not yet received its occupancy permit. Tenant was entitled to rent
abatement, however, if the Handover was delayed for a minimum of ninety
(90) days.
The certificate of occupancy was issued on August 1, 2016, and
Tenants immediately opened for business and began operations. Therefore,
the provision of the Tenant Agreement granting Tenant a rent abatement for
improper delay was never triggered.16 Thus, Tenant was obligated to pay
16
The Court notes Section 4 of the Tenant Agreement which grants Tenant “1 month free rent” for “every
30 days over the initial 60 days Landlord fails to handover the space,” conflicts with Section 5 of the
Tenant Agreement which states Tenant’s obligation to pay rent is “without deduction, set-off or prior
notice or demand.” Because the Court finds Tenant received the premises within two weeks of the
Handover Date, Tenant’s right to “1 month free rent” never arose. Therefore, the Court does not have to
resolve the apparent contradiction between Sections 4 and 5. Were the Court required to do so, however,
31
rent starting in August 2016; Tenants breached the Tenant Agreement by
failing to remit rent payments beginning at that time. Tenants’ rent
obligation was not subject to any rights of deduction or set-off. Tenants
could only withhold rent if Landlord failed to turn over the Premises within
90 days of the receipt of final stamped drawings approved by the city.
Tenants had no right to withhold rent payments notwithstanding the dispute
with Landlord over costs incurred in completing the construction work
because the Hand Over was not delayed.
***
While typical circumstances surrounding a landlord-tenant
commercial lease might permit a tenant to abate rent based on the
landlord’s first material breach of the contract, the plain language of the
Tenant Agreement involved in this case illustrates that the parties
anticipated such a situation and agreed otherwise. The “First Material
Breach” rule does not bar Landlord from suing to collect rent because the
payment of rent is expressly agreed to be free from any rights of
“deductions” or “set off.”
***
Consequently, by electing to withhold rent premised upon a faulty
interpretation of the contract, Tenants breached an explicit term of the
Tenant Agreement, and one which is enforceable irrespective of Landlord’s
prior breach.
Tenant breached the Tenant Agreement by failing to pay rent for the
period spanning August 2016 through December 2016. Tenant has
attempted to cure its breach by tendering delinquent rent in the total sum of
$42,333.35. Pursuant to Section 23 of the Tenant Agreement, Landlord is
entitled to interest at 10% per annum on unpaid rent. Since January 2017,
Tenant has remitted current monthly rent payments via checks which
Landlord has voluntarily chosen not to cash. Landlord is not entitled to
interest on rent payments timely remitted. The total sum of all rent
payments due and remitted through the date of this Memorandum and
Order is $84,666.70 (See Notice of Stipulation filed May 15, 2017).
the Court would construe the rent abatement in Section 4 to be a provision of specific application, which
therefore would take precedence over the general prohibition against deduction or set-off in Paragraph 5.
32
In addition, Landlord is entitled to reimbursement of reasonable
attorney’s fees incurred “to enforce collection of the rents agreed to be paid,
or to enforce compliance with any of the covenants and agreements” in the
Tenant Agreement. (Ex. 1.) Thus, Landlord is entitled to reasonable
attorney’s fees incurred for the purpose of (1) enforcing collection of the
rents; and (2) defending against Tenant’s claim predicated upon Tenant’s
incorrect interpretation of the Hand Over Date set out in the Tenant
Agreement.
Because the Court concluded Country Mile’s joint venture
arrangement with Well North, including its assignment of the franchise
agreement, was not a breach of the Tenant Agreement, Cameron Properties
is not entitled to attorney’s fees incurred in its efforts in this litigation
seeking cancellation of the Lease predicated upon that theory.
CONCLUSION
For the foregoing reasons, the Court ORDERS as follows:
1. Cameron Properties is entitled to deposit all rent payments previously
tendered by Tenants. Cameron Properties is likewise entitled to a
judgement [sic] against Country Mile, Well North, and Dean Pennington,
as guarantor, jointly and severally for interest at 10% on the delinquent
portion of the rent in the amount of $1,058.27 and reasonable attorney’s
fees incurred in enforcing collection of the rent.17
2. Except with regard to Dean Pennington’s status as a guarantor, there
being no evidence that Dean Pennington and Zac Pennington acted in any
capacity other than through their disclosed limited liability business
entities, Cameron Properties’ claims against Dean Pennington and Zac
Pennington are hereby dismissed pursuant to Tenn. Code Ann. § 48-217-
101(a).
3. Country Mile and Well North are jointly entitled to a judgment against
Cameron Properties in the total sum of $18,037.75, representing damages
17
The monthly rent for the Leased Premises is $8,466.67. (See Notice of Stipulation filed May 15,
2017); monthly interest calculated at a rate of 10% per annum would thus be $70.56 for every month that
the rent is delinquent. The time period during which Tenant remained delinquent on rent payments
included the five months between August and December 2016. Therefore, August’s rent remained
delinquent for five months, accruing to $352.77 in interest; September’s rent remained delinquent for four
months, accruing to $282.20 in interest; October’s rent remained delinquent for three months, accruing to
$211.65 in interest; November’s rent remained delinquent for two months, accruing to $141.10 in interest;
and December’s rent remained delinquent for one month, accruing to $70.55 in interest. Thus, the total
amount due in interest equals $1,058.27.
33
incurred in order to remedy Cameron Properties’ breach of its construction
obligation. Notwithstanding the provisions of Tenn. Code Ann. § 25-1-
103, Country Mile and Well North have no right of deduction or set-off
against future rent obligations under the Tenant Agreement.
4. Cameron Properties is entitled to a judgment in its favor with respect to
Country Mile and Well North’s claims seeking damages for Cameron
Properties’ alleged failure to comply with the Hand Over obligation of the
Tenant Agreement. Country Mile and Well North’s claim for breach of
contract on this alleged ground is dismissed and Cameron Properties is
entitled to an award of reasonable attorney’s fees incurred in enforcing its
rights under the Hand Over provisions of the Tenant Agreement.
5. Not later than twenty-one (21) days following the entry of this
Memorandum and Order, Cameron Properties shall submit a request for
assessment of its reasonable attorney’s fees incurred (i) to enforce the
collection of rents; and (ii) enforce its rights under the Hand Over
provision. If Country Mile opposes Cameron Properties’ fee request, it
shall file and serve a written opposition not later than fourteen (14) days
following its receipt of Cameron Properties’ request. The Court will decide
the issue of attorney’s fees on the papers without a hearing, unless either
party, for good cause, requests to be heard.
6. Costs compiled by the Clerk in the bill of costs pursuant to Rule 54.04(2)
are taxed to the parties equally.
7. The cash bond lodged by Country Mile and Well North is hereby
released. The Circuit Court Clerk shall return the bond funds to Country
Mile and Well North in a check payable jointly to Country Mile, LLC, and
Well North, LLC.
8. Cameron Properties’ petition for writ of possession is hereby denied.
(footnotes in original but renumbered). By order entered August 25, 2017, the Trial
Court awarded Landlord reasonable attorney’s fees in the amount of $15,500.00.
Landlord appeals to this Court.
Discussion
Although not stated exactly as such, Landlord raises six issues on appeal: 1)
whether Country Mile and Dean have standing to bring the action against Landlord; 2)
whether Country Mile and Well North have standing to bring the action against Landlord;
3) whether Dean has standing to bring an action on behalf of Well North; 4) whether
Tenants breached the Contract by failing to pay rent; 5) whether the Trial Court erred in
awarding judgment against Landlord in the amount of $18,037.75; and, 6) whether
Landlord is entitled to an award of all of its attorney’s fees. Tenants raise two issues on
34
appeal, which we restate as: 1) whether Landlord timely appealed the detainer action;
and, 2) whether dismissal of a complaint for lack of standing may be raised for the first
time on appeal.
We first will address the issues raised by Tenants as the holding as to either issue
could be dispositive. Tenants ask us to consider whether Landlord timely appealed the
detainer action. Tenants argue in their brief on appeal that the detainer action and the
breach of contract action are two separate actions which were consolidated only for
purposes of trial and that because Landlord failed to timely file an appeal of the detainer
action that Landlord has waived issues pertaining to that action. Tenants are mistaken.
The Trial Court entered an order on December 16, 2016 consolidating the detainer
action “for all purposes into the [breach of contract action].” The order instructed: “All
future filings in this action, or which would have been made in [the detainer action], shall
henceforth be made under the caption of [the breach of contract case].” The Trial Court
clearly consolidated the detainer action into the breach of contract action “for all
purposes” making the two cases into one case under one case number, Case No. 2016-
471. The Trial Court did not simply consolidate the two cases for purposes of trial.
Landlord timely appealed Case No. 2016-471, which included both the breach of contract
action and the detainer action. This issue is without merit.
We next consider whether dismissal of a complaint for lack of standing may be
raised for the first time on appeal. In their brief on appeal, Tenants assert that the issue of
standing was not raised until post-trial in the post-trial proposed findings of fact and
conclusions of law filed by Landlord. Tenants are mistaken.
The issue of standing was raised by counsel for Landlord during trial, at which
time the Trial Court instructed counsel: “Because of the interlocking, kind of fluid
burdens of proof here, we may not be at a clean cut stage anywhere for a Rule 41.02
motion. But at the conclusion of the proof you can certainly submit your legal
argument.” Counsel for Landlord did just that when submitting its post-trial brief.
Furthermore, the Trial Court addressed the issue of standing quite comprehensively in its
final judgment. Given all this, we cannot find that the issue of standing was not properly
presented to and addressed by the Trial Court.
Additionally, we note that this Court has explained that “because standing ‘is a
component of subject matter jurisdiction,’ Tenn. R. App. P. 13(b) requires us to consider
it even if the trial court did not have the opportunity.” In re Lyric A., 544 S.W.3d 341,
343 (Tenn. Ct. App. 2017) (quoting Osborn v. Marr, 127 S.W.3d 737, 740 (Tenn. 2004)).
Thus, Tenants’ assertion in their brief on appeal that standing cannot be raised for the
first time on appeal is without merit.
35
As the issues raised by Tenants are not dispositive of this appeal, we now turn to
the issues raised by Landlord. Landlord’s first three issues have to do with standing.
We, therefore, begin our discussion of Landlord’s issues by addressing standing. As our
Supreme Court has explained:
The doctrine of standing is used to determine whether a particular
plaintiff is entitled to judicial relief. Knierim v. Leatherwood, 542 S.W.2d
806, 808 (Tenn. 1976). It is the principle that courts use to determine
whether a party has a sufficiently personal stake in a matter at issue to
warrant a judicial resolution of the dispute. SunTrust Bank, Nashville v.
Johnson, 46 S.W.3d 216, 222 (Tenn. Ct. App. 2000). Persons whose rights
or interests have not been affected have no standing and are, therefore, not
entitled to judicial relief. Lynch v. City of Jellico, 205 S.W.3d 384, 395
(Tenn. 2006).
State v. Harrison, 270 S.W.3d 21, 27-28 (Tenn. 2008).
In its brief on appeal, Landlord asserts that Country Mile and Dean lack standing
to bring the action against Landlord because Country Mile and Dean failed to prove that
they suffered any damages or suffered a distinct and palpable injury. Landlord argues
that the proof shows that Well North paid the security deposit, Well North paid David
Wyles Construction for the work Landlord allegedly failed to complete, and Well North
tendered the rent payments to Landlord. As such, Landlord argues that the proof showed
that while Well North may have suffered an injury and damages, Country Mile and Dean
failed to show that they suffered any injury or incurred any damages.
With regard to this issue, the Trial Court specifically found and held:
The Tenant Agreement was entered into by Country Mile and
Cameron Properties in September 2015. Cameron Properties agreed to
lease the premises to Country Mile for the purpose of operating any [sic]
Anytime Fitness franchise on the Leased Premise. (Ex. 1.) At that time,
Country Mile owned and operated eleven other Anytime Fitness franchise
locations. Country Mile entered into a joint venture with Well North for
the purpose of operating the Anytime Fitness franchise located on the
Leased Premises.
Country Mile and Well North’s relationship was not concealed from
Cameron Properties. Rather, Cameron Properties had actual knowledge of
Well North’s participation in the joint venture. Early on, Cameron
36
Properties knew Zac Pennington was involved in the business and operation
of this Anytime Fitness franchise. Someone even attempted, after the fact,
to include Zac Pennington’s name in the Tenant Agreement. Indeed,
Cameron Properties executed waiver and disclaimer agreements with Key
Equipment Finance in order to facilitate Well North’s financing of exercise
equipment to be installed and used on the Leased Premises. (Ex. 2.)
Cameron Properties was fully aware of the fact that Well North was
going to operate the Anytime Fitness business on the Leased Premises.
There is no evidence that Cameron Properties attempted to amend the
Tenant Agreement, or the guarantee to conform to the reality of Country
Mile’s joint venture with Well North until Cameron Properties made its
demand that Tenants cure the rent payment default from August 2016. (Ex.
5.) Well North’s participation in the operation of the Anytime Fitness
franchise does not change Landlord’s obligations, or make Country Mile’s
rights under the Tenant Agreement less secure.
1. Country Mile’s Standing
Cameron Properties argues Country Mile lacks sufficient standing
because Well North actually incurred all the costs allegedly expended to
fully satisfy Landlord’s construction obligations; thus, Country Mile has
not sustained any actual damages from Landlord’s alleged failures.
Cameron Properties also argues Well North is the assignee of the Anytime
Fitness franchise agreement, and consequently, that Country Mile cannot
claim to have suffered any injury from Cameron Properties’ alleged failure
to deliver the Leased Premises by the Handover Date. For these reasons,
Cameron Properties argues Country Mile lacks standing due to its inability
to demonstrate either injury-in-fact or redressability.
Country Mile is the Tenant identified in the Tenant Agreement.
Landlord’s performance obligations under the Tenant Agreement are
contractually owed to Country Mile. Dean Pennington, as a member of
Well North and Country Mile, and as guarantor of Country Mile’s
obligation to pay rent under the Tenant Agreement, has a stake in the
success of the business located on the Leased Premises. The ability for the
business to succeed hinges upon sufficient completion of the improvements
for the Leased Premises.
If Landlord breached its construction obligations, Tenants would be
required to perform remedial work in order to mitigate consequential
37
damages. Country Mile could incur the costs of said remedial work
directly, in which case it would have a claim for its own loss; or Country
Mile could indirectly incur the costs through Well North, in which case
Country Mile would still have a claim for compensation to which Well
North would be subrogated. Either way, Landlord faces the prospect of
liability to Country Mile.
In the present matter, Country Mile has chosen to indirectly incur
costs through Well North. Well North has written checks for certain
Tenant obligations such as the security deposit and the completion of
Tenant’s build-out. In doing so, Well North has spent funds which had
been contributed to Well North by Mr. Pennington and/or Country Mile. If
Well North was spending its own funds, independent of any monetary
infusion from Country Mile, Well North would be entitled to
reimbursement from Country Mile for expending costs for Country Mile’s
benefit. Irrespective of how Country Mile and Well North balance their
individual accounts with one another, Country Mile has standing to assert a
claim against Landlord for damages caused by Landlord’s breach of
contract.
Thus, the Trial Court found that Country Mile and Well North had entered into a
joint venture, that Country Mile had incurred costs due to Landlord’s breach of its
contractual obligations, and that Country Mile had chosen to pay those costs via Well
North. The evidence in the record on appeal, as discussed more fully above, does not
preponderate against these findings made by the Trial Court. We find no error in the
Trial Court’s determination that Country Mile and Dean had standing.
Landlord next asserts that Country Mile and Well North lack standing to bring the
action against Landlord. We discussed the issue of standing as to Country Mile above
and need discuss it no further. As to Well North’s standing, the Trial Court specifically
found and held:
2. Well North’s Standing
Relying on the express terms of the Tenant Agreement, Cameron
Properties argues Well North is not a party to the Tenant Agreement, has no
legally protected interest in Cameron Properties’ performance of the Tenant
Agreement, and therefore, lacks standing to sue for breach. Tenants
respond by arguing Landlord is estopped from denying Well North is a
Tenant because it accepted the security deposit check written by Well
38
North, and acknowledged Well North’s status as “Lessee” of the Leased
Premises in the Equipment Waiver and Disclaimer (Ex. 2.)
In some circumstances, a party may be estopped from asserting
contractual defenses in the interest of equity and fairness. Estoppel arises
when one party voluntarily acts in a manner inconsistent with rights the
party subsequently asserts, and the other party has relied in good faith on
those actions to its detriment. See generally, 11 Tenn. Juris. ESTOPPEL §
11 (2015). In this case, Well North claims it relied upon Landlord’s
acceptance of the security deposit and execution of the Equipment Waiver
and Disclaimer, and consequently, incurred costs associated with the build-
out of the Leased Premises.
Well North’s estoppel argument has a certain plausible appeal;
however, Well North has not considered the consequences of its assertion.
Well North is not arguing it is a Tenant under the Tenant Agreement. Well
North does not contend Cameron Properties consented to an assignment of
the Tenant Agreement by Country Mile to Well North, nor is it undertaking
or assuming liability for making the rent payments. Well North instead
argues Cameron Properties is equitably estopped from denying it is
contractually obligated to Well North, and has sued Cameron Properties for
direct and consequential damages it contends were caused by Landlord’s
failure to complete construction work and deliver the Leased Premises on
time. Estoppel does not run in only one direction. Well North wants to be
treated as equitably entitled to sue for damages. Equity will require Well
North bear exposure for liability arising out of Tenants’ breach of the
Tenant Agreement.
Well North’s standing is coextensive with that of Country Mile.
Country Mile is a necessary party. Well North could not bring a claim for
breach of contract against Landlord without joining Country Mile to the
action.
The evidence in the record on appeal, as discussed more fully above, does not
preponderate against the Trial Court’s findings and determination that Well North has
standing.
We next consider the issue raised regarding whether Dean has standing to bring an
action on behalf of Well North. In its brief on appeal, Landlord argues that Dean does
not have standing to bring an action on behalf of Well North because he would have
needed to file a derivative action to do so, which he did not. While Landlord may be
39
correct in this assertion, and we make no finding whether Landlord is or is not correct as
to this statement, Landlord has misconstrued the situation in this case. As discussed
above, Landlord filed a detainer action in the General Sessions Court against Country
Mile, Dean, Zac, and Well North. When Tenants filed their breach of contract action
against Landlord, however, the named plaintiffs were Country Mile and Dean. Well
North was not a named plaintiff in the breach of contract action brought by Tenants.
Thus, Dean has not attempted to bring an action on behalf of Well North. Instead,
Landlord brought Well North into the suit by filing the detainer action against it. As
discussed above, the appeal of the detainer action then was consolidated into the breach
of contract action. As Dean has not attempted to bring an action on behalf of Well North,
we find Landlord’s argument to be without merit.
The Trial Court discussed the issue of standing quite comprehensively and made
specific findings of fact relative to this issue. The evidence in the record on appeal does
not preponderate against these findings. Likewise, we find no error by the Trial Court in
its application of these findings to the law. As such, we find no error in the Trial Court’s
holdings as to standing.
We next consider the issue raised by Landlord regarding whether Tenants
breached the Contract by failing to pay rent. In its brief on appeal, Landlord argues that
because the Trial Court found Tenants had breached the Contract by failing to pay rent
that the Trial Court erred in not recognizing Landlord’s right to terminate the lease and
regain possession of the Premises.
The Trial Court indeed did find that Tenants had breached the Contract by failing
to pay rent. The Trial Court, however, also found that Landlord had breached the
Contract prior to Tenants breaching the Contract. As such, the Trial Court applied the
first breach rule. This Court has discussed the first breach rule stating:
The Defendants seek to assert the first-to-breach rule, namely: “A
party who has materially breached a contract is not entitled to damages
stemming from the other party’s later material breach of the same contract.”
McClain v. Kimbrough Constr. Co., 806 S.W.2d 194, 199 (Tenn. Ct. App.
1990). We note, however, that “[a] party owed performance may . . . waive
its right to assert the first uncured material breach as a bar to recovery on its
own subsequent breach.” Madden Phillips Constr., Inc. v. GGAT Dev.
Corp., 315 S.W.3d 800, 812 (Tenn. Ct. App. 2009). A party “waive[s] its
right to assert first material breach as a bar to recovery if it accepts the
benefits of the contract with knowledge of the breach.” Id. at 813. Under
some circumstances, a party’s failure to assert the “first” breach may not
result in waiver. In Madden Phillips Constr., the Court explained this
40
principle and gave examples of situations in which a party’s failure to assert
a breach may not result in waiver:
Ordinarily, a party who first materially breaches may not
recover under the contract. United Brake Sys. [v. AEP ], 963
S.W.2d [749] at 756 [ (Tenn. Ct. App. 1997) ]. A non-
breaching party may nevertheless waive its right to assert first
material breach as a bar to recovery if it accepts the benefits
of the contract with knowledge of a breach. Aero Squadron,
169 S.W.3d at 635–36 (citing 17 Am.Jur.2d Contracts § 447
(1964)); see also SMR Techs., Inc. v. Aircraft Parts Int'l
Combs, Inc., 141 F. Supp. 2d 923, 934 (W.D. Tenn. 2001),
vacated for lack of subject matter jurisdiction, No. 00–2563,
2004 WL 595010 (W.D. Tenn. Mar. 23, 2004). But there are
circumstances where acceptance of contractual benefits does
not constitute waiver. For example:
[M]ere efforts on the part of an innocent party
to persuade the promisor, who repudiates his
agreement, to reject that repudiation and
proceed honorably in the performance of his
agreement have been held not to involve a
waiver of the innocent party’s right to avail
himself of the breach after the efforts finally
prove unsuccessful. Moreover, it has been held
that the fact that a party did not act upon a
breach but negotiated with the other party for a
new contract does not constitute an
acquiescence in the breach where such action
was induced by misrepresentation by such other
party. A defendant is precluded from claiming
a waiver of breach of contract where he
fraudulently induces the plaintiff to permit him
to continue and thereafter violates the promises
he made to induce the plaintiff to give such
permission.
W.F. Holt Co. v. A & E Elec. Co., 665 S.W.2d 722, 733-34
Tenn. Ct. App. 1983) (alteration in original) (quoting 17
Am.Jur.2d Contracts § 447 (1964)).
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Id. at 813. Thus, where a party to a contract fails to assert the other party’s
breach for reasons such as fraudulent inducement or the party’s attempt to
convince the breaching party to comply with the contract, the failure to
assert the breach may not constitute waiver.
White v. Empire Express, Inc., 395 S.W.3d 696, 715-16 (Tenn. Ct. App. 2012).
The Trial Court found that Landlord was the first to breach the Contract. As such,
Landlord is not entitled to damages stemming from Tenants’ later breach of the Contract.
While Tenants at first did not waive the breach as shown by the fact that they asserted a
right to forego payment of rent as a result of Landlord’s breach, the Trial Court held, in
effect, that Tenants waived Landlord’s breach because Tenants continued to accept the
benefits of the Contract with knowledge of the breach. The Trial Court’s judgment
resulted in the Landlord receiving its rent plus interest as provided for by the Contract.
Thus, the Trial Court did find that Tenants had breached the Contract, but found that
Landlord had breached the Contract first. The Trial Court then ultimately required both
Tenants and Landlord to satisfy their respective obligations under the Contract.
Next, we consider whether the Trial Court erred in awarding judgment against
Cameron in the amount of $18,037.75. With regard to this issue, the Trial Court
specifically found and held:
Country Mile and Well North offered into evidence certain invoices
from David Wyles Construction, LLC, purporting to show the costs
incurred by Tenant in completing the work Landlord had not completed.
(Ex. 7.) From the testimony of Zac Pennington, Kerry Hosford, and Jerry
Caldwell, as well as the contents of the invoices themselves, the Court
concludes the expenses actually incurred by Tenant to complete work
allocated under the Tenant Agreement to Landlord are as follows:
a. “Interior Plumbing -- M(Sinks, toilets and plumbing material used
in the install of these items)” $3,474.10
b. “Interior Plumbing -- S(Labor required to install all sinks and
toilets)” $3,450.00
c. “Electrical Work -- S(Completed final trim out and panel schedule
for the breakers and the main breaker that were required for tenant to
install light fixture and other electrical apparatus)” $9,548.09
d. “Interior Finishes -- M(Trim work to cover incomplete drywall by
Caldwell Builders” $172.50
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e. “02 00 00.1 -- Existing Conditions -- M(Repairs to drywall due to
drywall not being ready for paint. Drywall mud, tape, corner bead,
trim and sand paper)” $243.06
f. “02 000 00.2 -- Existing Conditions -- L(2 man crew used to the
drywall that was left unfinished by Caldwell Builders)” $1,150.00
Other invoices submitted by Tenants are not compensable because
they represent: (a) work arising out of Well North’s change orders, and (b)
work not allocated to Landlord.
***
Cameron Properties breached the Tenant Agreement by failing to
complete the construction work allocated to it by Exhibit C to the Tenant
Agreement. Specifically, (a) Landlord failed to complete the installation of
drywall, sanded and ready for paint; (b) Landlord failed to install breakers,
cutoffs, plugs, connectors, electrical boxes, receptacles and covers needed
for Tenant to install its own light fixture or apparatus; and (c) Landlord
failed to install all toilets and sinks.
Tenant’s damages are measured by the costs incurred in finalizing
the work Landlord failed to complete. The proof demonstrates that the total
amount of damages caused by Landlord’s breach is $18,037.75. Tenants
failed to carry their burden of proof that their damages exceeded
$18,037.75.
Dean asserted during his testimony that Tenants ended up spending $39,000
“exclusively for finishing what Cameron Properties was delinquent in doing.” The Trial
Court, however, did not award Tenants $39,000 in damages. The Trial Court carefully
considered the testimony of Zac, Hosford, and Caldwell along with the invoices
submitted and specifically set out in its order exactly which of the alleged charges
constituted compensable damages under the Contract. The evidence in the record on
appeal, as discussed more fully above, does not preponderate against the Trial Court’s
findings. We find no error in the Trial Court’s determination that: “the total amount of
damages caused by Landlord’s breach is $18,037.75. Tenants failed to carry their burden
of proof that their damages exceeded $18,037.75.”
We next consider whether Cameron is entitled to an award of all of its attorney’s
fees. Landlord contends that it is entitled to attorney’s fees pursuant to paragraph 23 of
the Contract, which provides:
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23. ATTORNEY’S FEES AND INTEREST. In the event it becomes
necessary for Landlord to employ an attorney to enforce collection of the
rents agreed to be paid, or to enforce compliance with any of the covenants
and agreements, herein contained, Tenant shall be liable for reasonable
attorney’s fees, costs and expenses incurred by Landlord, and in addition,
shall be liable for interest at ten percent (10%) per annum on the sum
determined to be due by reason of breach of this Lease, such interest to run
from the date of breach of the Lease, whether or not litigation is involved.
Landlord did have to sue to collect its rent because Tenants improperly attempted
to forego payment of rent while accepting the benefits under the Contract. The Contract
provided for an award of “reasonable attorney’s fees.” The Contract does not provide
that Landlord is entitled to an award of all attorney’s fees. The Trial Court did grant
Landlord an award of reasonable attorney’s fees in the amount of $15,500.00. We note,
that in making its award of attorney’s fees, the Trial Court correctly considered the
factors listed in Tennessee Supreme Court Rule 8, R.P.C. 1.5. In its brief on appeal,
Landlord provides no argument whatsoever as to why it should be awarded more than the
amount of attorney’s fees as found and awarded by the Trial Court as reasonable. This
issue is without merit.
Conclusion
Finding no error, we affirm the Trial Court’s May 22, 2017 judgment and August
25, 2017 order awarding attorney’s fees. The judgment of the Trial Court is affirmed,
and this cause is remanded to the Trial Court for collection of the costs below. The costs
on appeal are assessed against the appellant, Cameron Properties, and its surety.
__________________________________
D. MICHAEL SWINEY, CHIEF JUDGE
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