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Landlord/Tenant — Lessor Can’t Collect ‘Future’ Rent

By: Deborah Elkins//July 22, 2015

Landlord/Tenant — Lessor Can’t Collect ‘Future’ Rent

By: Deborah Elkins//July 22, 2015

Elderberry of Weber City LLC v. Living Centers – Southeast Inc. (Lawyers Weekly No. 001-138-15, 23 pp.) (Gregory, J.) No. 13-2176, July 21, 2015; USDC at Lynchburg, Va. (Moon) 4th Cir.

Holding: In this litigation involving a nursing home lease, assignment of the lease and nonpayment of rent, in which the district court awarded plaintiff owner $2.74 million for breach of the lease and abandonment of the nursing home, the lessor did not have a right to future rent, and 4th Circuit vacates the damages award and remands for recalculation of rent and non-rent damages.

Plaintiff Elderberry of Weber City LLC sued for breach of a lease by defendants Living Centers – Southeast Inc., FMSC Weber City Operating Company and ContiniumCare of Weber City; and breach of a guaranty contract against defendant Mariner Health Care Inc. Mariner filed a separate action in Georgia federal court, seeking a declaration that it had no obligations under the guaranty. The two suits were consolidated for trial in Virginia. The district court found defendants jointly and severally liable for accrued and future damages of $2,742,029.50, plus pre- and post-judgment interest.

Because the district court erred in awarding damages that accrued after the termination of the lease, we vacate in part and remand for the district court to recalculate damages.

Virginia Law

The lease states, and the parties agree, that it is governed by Virginia law. Under that law, when a tenant abandons a lease, a landlord may sue for rent due on the balance of the lease term only if the landlord does not terminate the lease. The choice belongs to the landlord.

Although Virginia law does not provide for recovery of future damages for the lessor’s losses arising from the abandonment of a lease contract, the parties are not barred from providing for such a recovery through forfeiture provisions in the lease. Here, paragraph 7(3) of the lease does not affirmatively state that the remedial provisions are cumulative. It is only under para. 7(3)(b), “in the event of the reentry,” that the lessee remains liable for future rent and fees. This language puts para. 7(3)(a) and para. 7(3)(b) in tension with one another. Whereas para. 7(3)(a) explicitly terminates the lease contract, para. 7(3)(b) explicitly leaves the terms of the lease contract and the possibility of receiving future rent and fees in place. It does not make sense to allow simultaneously the termination of the lease and the continued application of the lease. The better reading, and the one we adopt here, is that, upon exercising its right to terminate the lease, Elderberry extinguished any right that it had to future rent.

Our reading of Virginia case law suggests there is a presumption against excluding statutory or legal rights absent a clear waiver of such rights, and our construction of the lease here comports with that presumption. We hold that Elderberry lost its right to rent that accrued after it terminated the lease on Aug. 24, 2012. Elderberry is, however, entitled to any rent that accrued prior to termination of the lease.

Turning to the non-rent damages, upon termination of a lease, a landlord is entitled to recover liabilities accrued up to the point of termination. Aside from rent payments, the lease here includes covenants requiring the lessee to pay for utility services, sales and use taxes, general real estate taxes and special assessments and insurance premiums. The lease also requires the premises to be returned to Elderberry in the same condition as when demised, and compliant with code provisions. Each of these covenants serves as a source of damages that potentially accrued prior to the termination of the lease.

Defendants merely ask this court to reduce the judgment to $220,576.94, the amount of unpaid rent that accrued prior to the termination of the lease. They have thus waived any argument with respect to those non-rent damages. We hold that Elderberry is entitled to non-rent damages that accrued prior to termination of the lease. We remand for the district court to recalculate rent and non-rent damages that accrued prior to Aug. 24, 2012.

Georgia Law

Defendants argue the district court erred in finding that the guaranty satisfies the Georgia statute of frauds. Georgia case law suggests that omitting a required name or piece of information from a guaranty does not render the guaranty unenforceable if the omitted name or information can be readily ascertained when the guaranty is read in conjunction with documents incorporated by reference, or with documents physically attached to and contemporaneously executed with the guaranty. The guaranty in this case, though containing a significant number of blanks, can be construed together with the lease amendment. In addition, using the parol evidence rule here to consult extrinsic evidence, it is clear the principal debtor at the relevant time was Continium. Continium stopped paying rent after March 2012 until Elderberry terminated the lease on Aug. 24, 2012. These are the relevant rent payments for which Continium was the principal debtor and which Mariner guaranteed.

We hold the guaranty satisfies the Georgia statute of frauds.

Affirmed in part, vacated in part and remanded.

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