Background
Shayne McKinney and Jeremy Saul formed Arbor Vitae Corporation to operate a hyperbaric-pressure-treatment business and leased space from Park Plaza Properties. The three-year lease stated a February 1, 2022 effective date, required specified work by the landlord, and contained a clause requiring amendments to be written and signed. After construction delays, Park Plaza proposed by email that the lease begin first on March 1 and later on May 1. McKinney responded appreciatively, continued participating in the buildout, and did not terminate the lease.
The tenants never opened the business or paid rent and eventually vacated. Park Plaza sued for breach of contract, while the tenants counterclaimed that Park Plaza had failed to provide a working HVAC system and structurally sound premises. Following a bench trial, the circuit court found that the parties had modified the effective date to May 1, that Park Plaza had not breached, and that the tenants had breached by failing to pay rent. It awarded Park Plaza $45,736.45 in back rent and $5,600 in demolition costs but denied $143,777.60 in claimed reletting costs. The court also dismissed Park Plaza’s alternative unjust-enrichment claim.
The Court’s Holding
The Court of Appeals affirmed on McKinney’s direct appeal. It held that the parties’ words and conduct supported the circuit court’s finding that they agreed to move the lease’s effective date to May 1. McKinney continued with the project after learning of the delays, participated in design decisions, and allowed Park Plaza to spend more than $107,000 in reliance on the continued arrangement. Because modification was established through words and conduct, the court did not decide whether the emails satisfied the lease’s signed-writing requirement.
The court also upheld the findings that Park Plaza had supplied a functioning HVAC system and had not breached its obligations concerning the floors and walls. The flooring contractor described the concrete as sound, and McKinney did not provide the written notice required before Park Plaza’s repair obligation attached. With the lease effective May 1 and no landlord breach excusing performance, the tenants’ admitted failure to pay rent constituted breach.
On Park Plaza’s cross-appeal, the court reversed the denial of the claimed reletting costs. The circuit court’s conclusion that Park Plaza would recover those costs through the new tenant’s rent had no basis in the lease and improperly replaced the parties’ contractual terms with the court’s own economic analysis. The case was remanded to determine whether the expenses qualify as reasonable reletting costs under section 26 or instead are capital improvements. The court affirmed dismissal of the unjust-enrichment claim because Park Plaza had not sufficiently shown that an exception to the rule barring quasi-contractual recovery where a valid contract governs applied.
Key Takeaways
- Parties’ words and subsequent performance can establish a lease modification despite a no-oral-modification clause when the evidence of their agreement is clear and decisive.
- A court enforcing a lease may not deny contractually authorized damages based on an economic rationale that does not appear in the agreement.
- On remand, Park Plaza must establish that its claimed expenses were reasonable reletting costs covered by the lease rather than capital improvements with continuing value.
Why It Matters
The decision illustrates that parties’ conduct after a proposed change may determine whether a commercial lease was modified, even when the lease requires signed written amendments. A party that continues accepting performance after learning of a departure from the original terms may be unable to rely later on that departure as a breach.
The opinion also distinguishes enforceable reletting expenses from improvements that may benefit a landlord beyond a replacement tenancy. Trial courts must apply the lease’s damages provisions as written and make factual findings about the nature and reasonableness of the claimed costs.