5ASR3d204

Series: 5ASR3d | Year: () | 5ASR3d204
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J.M. GEBAUER, INC., and KEPAOA DEVELOPMENT CORPORATION, Plaintiffs,

 

v.

 

AMERICAN SAMOA POWER AUTHORITY, Defendant.

 

High Court of American Samoa

Trial Division

 

CA

No. 139-00

 

December

7, 2001


 

 

[1]

When lessor’s conditional notice of default unambiguously provides definite

date of termination, it can function as termination of lease if its terms are

not met.  However, notice merely expressing

conditional retaking of leased premises upon failure to cure default can be too

indeterminate to convey intent to terminate lease.

 

[2]

When lessor’s notice of default in rent payments demanded that defendant cure

default and set specific date for beginning of eviction proceedings but did not

set specific date for termination of lease, notice conveyed intent to continue

with terms of lease rather than intent to terminate lease.  As notice of default did not terminate lease,

defendant’s relinquishment of premises constituted abandonment of lease.

 

[3]

Unless otherwise agreed, upon abandonment of lease, lessor may (a) accept

lessee’s offer of surrender and terminate lease or (b) attempt to mitigate loss

of rents by leasing premises to another lessee.  If lease is terminated, lessee is liable for

rent accrued before acceptance of surrender and for damage caused by

abandonment.  If premises are leased to

another party, original lessee is liable only for difference between promised

rent and rents obtained.

 

[4] Whether lessor’s reentry onto

premises constitutes acceptance of surrender is question of fact.

 

[5] Considering notice of default, when lessors reentered for

their own purposes, they in effect accepted surrender of premises.

 

[6] From

beginning of lease, lessee openly used area beyond leased premises. Use was so

obvious and extended in time that lessors impliedly gave permission for use and

could not recover rent for extra space.

 

[7] Object is

fixture if it is treated as part of premises, which may not be removed except

by owner of property.

 

[8]

Improvements made on real estate without direct consent of owner of land become

part of realty.  Unauthorized removal or

destruction of improvement is act of waste.

 

[9] Person who

makes improvements on land in good-faith belief that owner authorized him to

build improvements is entitled to compensation for their value. 

 

[10] Equity

will not allow landowner to be unjustly enriched by taking improvements that

tenant constructed on land.

 

[11] By not

completely removing improvements, leaving premises in disheveled state and less

valuable than when it was leased, defendant committed waste maliciously and is

liable for compensatory and exemplary damages.

 

[12] When rent

is fixed at definite sum, recovery for failure to pay rent is that sum plus

interest and costs of suit, less any duty to mitigate.

 

[13] Damages

for lessee’s waste can be measured by (a) diminution in value of property

resulting from waste or (b) cost of repairing or restoring property to its former

condition.  Since there is no universal

test for determining which measure of damages to apply, method must be decided

on facts of each case.

 

[14] Although lessee’s improvements were made at its expense under lease

provision, lessee is not entitled to recover on claim of improving premises due

to circumstances of lease termination.

 

Before RICHMOND, Associate Justice, and LOGOAI, Chief Associate Judge.

 

Counsel:         

For Plaintiffs, Katopau T. Ainu`u

 For Defendant, Roy J.D. Hall, Jr.

 

OPINION

AND ORDER

 

On November 21, 2000, plaintiffs J.M. Gebauer, Inc.,

(“JMG”) and Kepaoa Development Corporation (“Kepaoa”) filed this action against

defendant American Samoa Power Authority (“ASPA”) to recover damages for breach

of a lease agreement between JMG and ASPA, unauthorized use of unleased

adjacent area, and injuries to the leased premises. On December 27, 2000, ASPA

filed its answer and counterclaim against JMG and Kepaoa to recover unpaid

utility charges and the value of improvements made to the leased premises.  Trial took place on July 12, 2001.  Both counsel were present.

 

Facts

 

By

the written instrument dated November 5, 1997, JMG leased to ASPA the building

in Nu`uuli, American Samoa, commonly referred to as the “Aiga Basket” (“the

premises”), for a term of 20 years commencing on November 1, 1997, with a

renewal provision of another 20 years. 

On or about January 27, 2000, Kepaoa assumed from JMG the lessor’s

rights and obligations under the lease. 

ASPA issued checks to either JMG or both JMG and Kepaoa to pay the rent

until September 2000 when it completely stopped paying rent.

 

In

a letter dated October l8, 2000, Kepaoa notified ASPA of the default in rent

payments and demanded the problem be remedied within 30 days. ASPA, from the

beginning of the lease, also used approximately 272 square feet beyond the

leased premises, without paying rent for this extra space.  In the October 18 letter, Kepaoa also

notified ASPA that it had 30 days to remedy the lost rent for this extra space.

 

Without

responding to the letter and without written notice, ASPA quit the premises

around November 14, 2000.  In the course

of moving, ASPA caused substantial structural damage to the premises, which JMG

and Kepaoa repaired at their own expense. 

ASPA acted deliberately and maliciously in causing this damage.

 

Discussion

 

A.

Abandonment

 

The

default clause in the lease of the premises provides JMG and Kepaoa with two

options upon ASPA’s default: (1) retake possession of the premises after a 10-

or 30-day notice of default or (2) require that ASPA cure the lease

default.  Under either option, JMG and

Kepaoa retain the right to charge ASPA for associated costs or damages.

 

[1]

The lease uses language of reentry rather than termination to effect

cancellation of the lease.  The only condition

to reentry is that the lessee be given 10 days’ notice in the case of financial

default or 30 days’ notice in the case of other default.  Where a lessor’s conditional notice is

unambiguously conveyed, providing a definitive date of termination, it can

function as a termination of the lease if its terms are not met.  Hodel

Co. v. Sutherland, 415

N.E.2d 517, 521 (Ill. 1981).  A notice

merely expressing a conditional retaking of leased premises upon failure to

cure a default can be too indeterminative to convey intent to terminate a

lease. See Kaplan v. McCabe, 532 So. 2d 1354, 1357 (Fla. 1988)

(conditional notice to pay rent or quit premises raises presumption landlord

intends for tenant to remain under terms of lease); Ostlund v. Hendricks,

615 P.2d 327, 330 (Or. 1980).

 

[2] The question, then, is

whether the October 18th letter, of itself or in conjunction with later

actions, conveyed an intent to exercise the right to reenter.  The determination relies in part on the

specific language of the letter.  The

letter establishes a condition precedent—eviction proceedings will not be

instituted until default continues for another 30 days.  While a specific date is set for the

beginning of proceedings, no specific date for termination is set—there is no

unambiguous date by which ASPA must quit the premises.  If JMG and Kepaoa intended the October 18th

letter to terminate the lease, the letter would have provided a definitive date

for termination, rather than the ambiguous threat of beginning proceedings. The

letter conveys an intent to continue with the terms of the lease and a demand

for ASPA to cure payment according to those terms, rather than an intent to

terminate the lease.  See Kaplan, 532 So. 2d at

1357.

 

As the letter alone did not terminate

the lease, ASPA’s relinquishment of the premises constitutes an abandonment of

the lease.  See 49 Am. Jur. 2d

Landlord and Tenant § 250 (1995) (“Abandonment generally occurs when the

lessee leaves the rented premises vacant with the clear intention not to pay

rent or to be bound by the lease.”). 

ASPA’s conduct and letter of October 18, 2000, clearly indicate that it

was voluntarily vacating the premises with no intent to pay rent.

 

B.  Acceptance

 

[3] Except to

the extent the parties agree otherwise, a lessor may, upon a lessee’s

abandonment, (1) accept the lessee’s offer of surrender and terminate the

lease, leaving lessee liable only for rent accrued before the acceptance and

damage caused by the abandonment or (2) attempt to lease the premises to

another lessee as a means of mitigating the loss of rents, in which case the

original lessee is liable for the difference between promised rent and rents

obtained.  Restatement (Second) of Property §

12.1 (1977); Noce v. Stemen, 419 P.2d 450, 451 (N.M. 1966) (a lessor may

enter premises which have been abandoned for the purpose of making ordinary and

necessary repairs without affecting the lessee’s liability for future rent); Pague

v. Petroleum Prod., Inc., 461 P.2d 317, 320 (Wash. 1969) (a lessor

may re-enter abandoned premises to prepare them for a prospective lessee

without accepting the abandonment; the abandoning lessee remains responsible

for rent).

 

[4] Whether a lessor’s reentry onto the premises constitutes

acceptance of surrender is a question of fact. 

See Riggs v. Murdock, 458 P.2d 115, 118 (Ariz. Ct. App.

1969) (the trier of fact must “determine whether the dominion and control

exercised by the landlord was for the landlord’s own benefit or for the benefit

of and on behalf of the original tenant”).

 

Here, JMG and Kepaoa argue that when they reentered

the premises, they did so to prevent further damage to the building caused by

ASPA’s removal of fixtures, not with an intent to release ASPA from its lease

obligations.  However, clearly the

efforts of JMG and Kepaoa were directed toward profits to be gained from new

lessees—not in protecting the relationship with ASPA.

 

[5] While preventing further

damage to the premises was certainly one motivating factor for the reentry by

JMG and Kepaoa, clearly they were acting for their own benefit as well.  Taken in conjunction with the October 18th

letter, the reentry constituted a legal reentry and retaking of the

premises.  Accordingly, once JMG and Kepaoa

reentered for their own purposes, they in effect accepted ASPA’s unambiguous

surrender of the premises.

 

 

 

C.  The 272

Square Feet

 

ASPA asserts that JMG and Kepaoa had positively

granted permission to ASPA to use the extra 272 square feet without paying

extra rent, and that it was only when Ryanny Oebauer, representing JMG and

Kepaoa, and Gary Sword, representing ASPA, had a disagreement that JMG and

Kepaoa demanded rent.

 

[6] The use of the extra 272

square feet was quite difficult to miss, and occurred from the beginning of the

lease.  Whether JMG and Kepaoa granted

permission to use this property or not, ASPA’s use was so obvious and extended

that JMG and Kepaoa at the very least impliedly gave permission for ASPA’s

use.  JMG and Kepaoa did not demand

compensation for ASPA’s use until October 18, 2000—nearly three years after the

lease began.  ASPA quit the premises

before 30 days had passed after this demand. 

Because the use before October 18, 2000 was permissive, and no improper

use took place afterward, ASPA is not liable for any rent for use of the extra

272 square feet.

 

D. 

Fixtures

 

[7-9] The issue of ASPA’s

improvements and then removal of some improvements from the premises must be

assessed under the law of fixtures and improvements.  An object is a fixture if it is treated as

part of the premises; it may not then be removed except by the owner of the

property.  See 35 Am. Jur. 2d Fixtures § 2 (1995).  Improvements made on real estate without the

direct consent of the owner of the land interest become a part of the

realty—rendering removal or destruction of the improvement an act of

waste.  See 41 Am. Jur. 2d

Improvements § 3

(1995).  A person who makes improvements

on the land in the good-faith belief that the owner authorized him to build the

improvements is entitled to compensation for their value.  See

Leapagatele v. Nyel, 17

A.S.R.2d 201, 204 (1990) (no entitlement to compensation where no good-faith

belief landowner has given permission).

 

[10-11] Equity will not allow a

landowner to be unjustly enriched by taking improvements a tenant constructed

on his land.  41 Am. Jur. 2d Improvements § 3.  However, ASPA did not attempt to take the

improvements in such a way that left the premises in their original state.

Rather, by taking apart but not completely removing the improvements, ASPA left

the premises in such a condition that JMG and Kepaoa by necessity had to expend

funds to make the premises rentable.  JMG

and Kepaoa cannot be faulted for choosing to expend funds to replace the

removed fixtures rather than expending funds to tear down what was left. By

leaving the premises in a state more disheveled and less valuable than they had

found it, ASPA committed waste maliciously. 

JMG and Kepaoa are therefore entitled to both compensatory and exemplary

damages.

 

E.  Damages

 

[12] The acceptance by JMG and

Kepaoa of ASPA’s abandonment did not free ASPA from its obligations under the

lease up until that point. Where the amount of rent is fixed at a definite sum,

the recovery for failure to pay rents is that sum, plus interest and the costs

of the suit, less any duty to mitigate.  See 49 Am.

Jur. 2d Landlord and Tenant § 791 (1995).  ASPA

has a legal obligation to pay previously unpaid rents causing the original

default as well as rents between the October 18, 2000 letter and the reentry of

JMG and Kepaoa.  However, ASPA has established

that it has paid the back rents through November of 2000, when reentry took

place.

 

[13] The destruction ASPA caused

to the property upon its departure is compensable.  A lessor’s recovery for a lessee’s waste can

be measured by the diminution in the value of the property resulting from the

waste. Johnson v. Nw. Acceptance Corp., 485 P.2d 12, 17 (Or.

l971); 49 Am. Jur. 2d Landlord

and Tenant § 847.  Damages for a lessee’s waste are also

frequently measured by the cost of repairing or restoring the property to its

former condition.  Johnson, 485

P.2d at 17.  There is no universal test

for determining which measure of damages to apply—the method must be decided on

the facts of each case.  Id. (where

injury is easily repairable, cost of repair is the preferred amount).  JMG and Kepaoa have already made efforts to

put the premises back in its original condition.  Calculating the approximate value of the

property would involve another complex factual determination which we will not

undertake.  Thus, we will use the

cost-to-repair theory of damages.  JMG

and Kepaoa have established an estimate for these repairs at $21,626.26.  This amount is an appropriate measure of

their compensatory damages caused by ASPA. 

In addition, ASPA will be assessed $5,000.00 in exemplary damages.

 

[14] ASPA counterclaims for

unpaid electrical and water service and reimbursement for alleged improvements

to the premises.  ASPA has established

the unpaid electrical and water charges at $25,000.  However, ASPA’s expenditures on improvements

were made at its expense, under the provision in the lease for remodeling or

making structural improvements, and it is therefore not entitled to recover on

its claim of improving the premises in the amount of $50,000, or any other

amount, upon the circumstances of the lease termination.  Rather, as discussed above, ASPA maliciously

caused and is responsible for the damage to the premises which JMG and Kepaoa

had to repair at their own expense.

 

Order

 

We award JMG and Kepaoa $21,626.26 in compensatory

damages and $5,000.00 in exemplary damages, a total of $26,626.26, and ASPA

$25,000 in relief.  Accordingly, ASPA

shall pay JMG and Kepaoa the net sum of $l,626.26, plus post-judgment interest

on this amount at the rate of 6% per annum. 

The parties shall bear their respective costs of suit and attorney’s

fees, under the circumstances of this case.

 

It is so

ordered.