Michael S. & Betty S. Kennard, App. v. Captain Jack Jr.'s Family Center, Inc., Res.

• Court: Court of Appeals of Washington
• Decided: July 21, 2014
• Docket: 70038-3
• Status: Unpublished

Opinion

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

MICHAEL S. KENNARD and BETTY S. KENNARD, husband and wife, DIVISION ONE

Appellants, No. 70038-3-1

UNPUBLISHED OPINION

CAPTAIN JACK JR.'S FAMILY ENTERTAINMENT CENTER, INC.; STACY STANG and MICHAEL STANG, wife and husband, c=>

Respondents. FILED: July 21, 2014 C_

1— -ij ro

Dwyer, J.—Michael and Betty Kennard appeal the trial court's order • .-"I .-,* • :*-» i-t - - " •• '

denying a writ of restitution in an unlawful detainer proceeding involving up 1.>to rv> -_.' -J

i-O "•" •< commercial property. After a bench trial, the trial court concluded that the

tenants were not in default due to unpaid rent because the parties agreed to

modify provisions ofthe lease. The court's findings are supported by substantial evidence. We affirm the judgment and the award of attorney fees to the tenants 0OEAST T OfUC RT under the lease.

I

In February 2012, Michael and Stacy Stang, owners of Captain Jack Jr.'s

Family Entertainment Center, entered into a 5-year lease for commercial property owned by Michael and Betty Kennard (collectively, Kennard). The Stangs leased No. 70038-3-1/2

the property in order to open a new business—a restaurant with a play area for

children. Kennard's property was suitable with regard to size and location, but

was previously used as warehouse space and required substantial modifications

to prepare it to be used for the Stangs' proposed business.

The lease allowed the Stangs to occupy the premises immediately in order

to proceed with repairs and renovations, and to pay only utilities until May 2012,

when the Stangs anticipated they would begin operating the business. The first

rent payment of $4,630.42 was due on May 1, 2012. The rental amount

remained the same for the first 12 months of the lease and then increased each

year for the next 5 years. As consideration for the tenants' agreement to install a

heating, ventilation, and air conditioning (HVAC) system, the lease did not

require a security deposit or prepaid rent.

The lease also divided responsibility between the landlord and tenants for

certain improvements required to operate the tenants' business. Exhibit B of the

lease designated seven items to be completed by Kennard. The major

improvement Kennard agreed to undertake was the installation of a fire

suppression sprinkler system meeting the requirements of local building codes

and as required by the City of Bellingham in order to secure a certificate of

occupancy. The Stangs could not open for business without first obtaining an

occupancy permit. In addition to the fire suppression system, Kennard also

agreed to remove rubbish and debris, pressure wash the building, repair doors,

windows, and siding, and to install an access ramp. No. 70038-3-1/3

Exhibit B also set forth eleven items for which the tenants were

responsible. The Stangs agreed to install an HVAC system, kitchen, and

bathrooms, to upgrade plumbing and wiring, to remove a shed and a fence, paint

the building, install a new awning, and remodel the inside of the building. The

lease did not include a deadline for completion of any projects but, according to

Michael Stang, Kennard intended to complete the work before the projected

opening in May 2012.

The Stangs took possession of the property upon signing the lease in

February and immediately proceeded with improvements and modifications.

Recognizing the importance of installing the fire suppression system right away,

Kennard secured a bid and authorized the work to begin in March. It was not

until August 3, however, that the system passed inspection and was fully

complete.

Apartfrom the fire suppression sprinkler system, Kennard did not

complete any of the items assigned to the landlord in Exhibit B. Kennard did, however, allow the Stangs to complete or arrange and pay for some of the work

he was supposed to do. The items completed by the Stangs on behalf of the landlord included pressure washing, clean up, window repairs, and construction

of an access ramp.

The Stangs did not pay rent, and Kennard did not demand rent, in May,

June, July, or August. The City issued the occupancy permit the day that the fire suppression system passed inspection and the business opened the following

day, on August 4. At the end of August, Kennard requested a meeting with Stacy No. 70038-3-1/4

Stang to discuss rent. During that meeting, Stacy Stang presented invoices for

work performed on behalf of Kennard, which totaled approximately $25,000, and

requested reimbursement. Kennard objected to the amounts, refused to pay,

and demanded overdue rent for May through August.

On September 10, 2012, Kennard sent the Stangs a 5-day notice to

comply or quit the premises under a provision of the lease, seeking $25,855.70 in

past due rent, fees, and interest. On September 20, Kennard mailed and posted

a 3-day pay or vacate notice pursuant to RCW 59.12.030. On September 27,

2012 and on October 2, 2012 the Stangs mailed monthly rent checks to

Kennard.1

Kennard filed a complaint for unlawful detainer in October 2012. The

Stangs filed an answer, asserted affirmative defenses and a counterclaim for

breach of contract, and sought equitable relief and attorney fees under the lease.

The court set the matter for trial.

Michael Kennard, Stacy Stang and Michael Stang testified at trial.

Kennard testified that he never told the Stangs that they would not be

responsible for rent between May and August. However, he testified that

because he saw that the Stangs were struggling to finish work on the building

and "scrambling to get open," he "didn't hound them" for rent during that time.

He also agreed that he owed money to the Stangs for work for which he was

responsible but for which they had arranged and paid for, and admitted that, at

1The Stangs tendered subsequent rent payments into the court registry.

4 No. 70038-3-1/5

some point, he told the Stangs that the "previous month's rent should more than

cover" the cost of the work.

Stacy Stang testified that she had several conversations with Kennard

during the summer of 2012 regarding the status of the fire suppression system

and other work Kennard had agreed to do. Stacy Stang testified that she

telephoned Kennard in May, specifically to express her concern that they could

not obtain an occupancy permit and open for business until the fire suppression

system was complete and operable. She said Kennard told her he was having

trouble securing financing for the project, but not to "worry about rent" and that

they would "settle up" later. According to the Stangs, Kennard assured them that

rent would be deferred at least until the sprinkler system was complete.

Following trial, the court denied Kennard's request for a writ of restitution,

concluding that he failed to meet his burden to establish default based on the

nonpayment of rent. The court found that the parties made oral agreements

between February and August 2012 that primarily concerned the Stangs'

payment for repairs and improvements Kennard had previously agreed to

perform and that the parties "intended their oral agreements for repair and improvement of the property to modify their respective financial obligations." The

court found that the "[tjenants' duty to pay rent was modified by oral agreements

made by the parties after the lease was executed." The court also determined

that until late August 2012, the tenants "reasonably believed that Landlord would

permit them to defer payment of any rent due for the months of May through No. 70038-3-1/6

August 2012, after reduction of repairs and improvements Tenants had made,

until the parties had agreed upon their respective financial responsibilities."

The court found that the "Plaintiff landlord is entitled to rent for the months

of May through August 2012, and Tenant is entitled to compensation, in cash or

as a set off to this rent, for the expenses incurred and the labor expended by

Tenant in effecting the repair and improvements which were the subject of the

parties' oral agreements." The court determined, however, that the evidence

presented at trial was insufficient to determine the amount of rent owed to

Kennard and reimbursement owed to the Stangs. The court encouraged the

parties to reach agreement on that issue out of court, but also set a fixed date for

the court to resolve the issue in case the parties were unable to do so. Also,

having denied the writ of restitution, the court awarded attorney fees of

approximately $16,300 to the Stangs under a provision of the lease which

provides for attorney fees to the "prevailing party" in the event of litigation.

Kennard appeals.

II

Kennard acknowledges that there was evidence to establish that (1) he

agreed to reimburse the Stangs for improvements and repairs done on his behalf after all work was completed, and (2) he agreed to consider offsetting the

amounts paid by the Stangs against one rental payment. However, Kennard

contends there was no evidence of an agreement to defer the payment of rent.

He contends that the Stangs' subjective expectation that they would be allowed

to postpone payments and deduct amounts they expended in excess of one No. 70038-3-1/7

month's rent is insufficient to demonstrate mutual intent. And, absent such an

agreement to postpone and reduce the amount of rent, Kennard claims that the

Stangs' defense was merely a counterclaim for damages, independent of their

obligation under the lease to pay rent. Consequently, according to Kennard, the

trial court lacked authority to consider the Stangs' defense within the narrow

scope of the unlawful detainer proceeding. See Munden v. Hazelrigg, 105 Wn.2d

39, 45, 711 P.2d 295 (1985) (to protect the summary nature of unlawful detainer

proceedings, other claims, including counterclaims, are generally not allowed

unless an affirmative defense or setoff excuses the tenant's failure to pay rent).

Kennard's argument on appeal hinges on the evidentiary support for the

trial court's finding that the parties agreed to modify provisions of the lease

governing the tenants' payment of rent. We review the trial court's findings of

fact for substantial evidence following a bench trial. Pardee v. Jolly, 163 Wn.2d

558, 566, 182 P.3d 967 (2008). Substantial evidence is "a sufficient quantum of

evidence in the record to persuade a reasonable person that a finding of fact is

true." Pardee, 163 Wn.2d at 566. When substantial evidence exists, a reviewing

court must not "substitute its judgment for that of the trial court." Pardee, 163

Wn.2d at 566. We defer to the trier of fact "[i]n evaluating the persuasiveness of

the evidence and the credibility of witnesses." In re Marriage of Akon, 160 Wn.

App. 48, 57, 248 P.3d 94 (2011).

Kennard maintains that the parties' agreement to "settle up" later extended

only to amounts the Stangs paid for improvements. But Stacy Stang's testimony

supports the court's determination that the parties' intent in agreeing to "settle up" No. 70038-3-1/8

was to defer resolution of all financial issues until work was complete and the

business was open, including the calculation of how much rent was owed after

deducting the amounts Kennard owed to the Stangs. Stacy Stang described

discussions with Kennard about the delay in the installation of the fire

suppression system, the effect of that delay, and the outstanding invoices. In

light of these issues, Stacy Stang said that Kennard agreed to "square it away

later" on all accounts and specifically told her that no rent would be due before

the sprinkler system was operational. While he denied expressly agreeing to

modify the rent provisions of the lease, Kennard's conduct was consistent with

such an agreement in that he admittedly did not demand any rent until after the

business was operating. And Kennard admitted some amount of debt to the

Stangs and informed them of his belief that waiving one month's rent would

satisfy the debt.

Based on the testimony about the events that unfolded after the parties

entered into the lease, the trial court determined that the parties modified the

lease provisions pertaining to the responsibility for specific improvements and the

payment of rent. Because substantial evidence in the record supports the court's

finding, we reject Kennard's argument that the trial court lacked statutory

authority to consider the Stangs' defense to the unlawful detainer action.

Ill

Relying on a provision of the unlawful detainer statute, RCW 59.12.170,

and this court's decision in Indigo Real Estate Services, Inc. v. Wadsworth, 169

Wn. App. 412, 280 P.3d 506 (2012), Kennard contends that the trial court was

8 No. 70038-3-1/9

required and failed to calculate the amount of rent due. Neither authority

supports his assertion.

RCW 59.12.170 pertains to the judgment entered by the court upon a

finding that the tenant has unlawfully detained the premises. The statue

provides, in pertinent part:

If upon the trial... the finding of the court be in favor of the plaintiff and against the defendant, judgment shall be entered for the restitution of the premises; and if the proceeding be for unlawful detainer after neglect or failure to perform any condition or covenant of a lease or agreement under which the property is held, or after default in the payment of rent, the judgment shall also declare the forfeiture of the lease, agreement, or tenancy. . . . [T]he court. . . shall also assess the damages occasioned to the plaintiff by any forcible entry, or by any forcible or unlawful detainer. . . and, if the alleged unlawful detainer be after default in the payment of rent, find the amount of any rent due, and the judgment shall be rendered against the defendant... for twice the amount of damages thus assessed and of the rent, if any, found due.

RCW 59.12.170.

The statute does not apply. The trial court did not find in favor of the

landlord, declined to restore possession to Kennard, and found that the tenants

were not in default. In entering the judgment, the trial court was not, therefore,

compelled by RCW 59.12.170 to calculate the amount of rent owed to the

landlord.

Kennard's reliance on Indigo Real Estate is also unavailing. That case

involved a tenant receiving a rent subsidy under the federally-funded section 8

program. Hertenancy was terminated by the landlord in an unlawful detainer proceeding without a determination of material noncompliance with the lease, which was required to terminate the lease under the rules governing the federal No. 70038-3-1/10

housing program. We concluded that where a landlord has accepted the

substantial financial benefits of the program, the landlord must abide by the rules

of that program in any unlawful detainer action and our state's unlawful detainer

statute is thus limited by those rules. Indigo Real Estate, 169 Wn. App. at 422-

23. Because of its legal ruling that the provisions of section 8 were inapplicable,

the trial court in Indigo Real Estate had declined to reach the issue of whether

there was good cause to terminate the lease. We remanded for the trial court to

resolve the outstanding factual issue. Indigo Real Estate, 169 Wn. App. at 426.

The facts of this case bear no resemblance to those in Indigo Real Estate.

Moreover, the trial court herein did not decline to reach the issue of amounts

owed between the parties. Rather, the court determined that the evidence

presented in the unlawful detainer proceeding was sufficient to resolve the issue

of possession, but insufficient to precisely calculate the amounts owed. The

court set the issue over, encouraging the parties to negotiate and settle the

matter, but also stated that the court would determine the respective financial

obligations if the parties could not agree.

Kennard suggests that because the trial court failed to determine the

amounts owed, it could not resolve the issue of default because the tenants

would be in default if the offsets were less than the amount of outstanding rent.

But even assuming this were the case and the Stangs still owed rent after

deductions, this would not affect the court's determination of default because the

court found that the parties agreed to postpone the payment of rent until the work

10 No. 70038-3-1/11

was finished and they reached agreement on the amount of reimbursement and

rent, which they failed to do.

The trial court's findings are supported by the evidence. The trial court did

not err by entering judgment on the unlawful detainer complaint without

calculating rent. Nor did the court err by determining that the Stangs prevailed

and awarding them attorney fees in accordance with the lease. The Stangs are

also entitled under the lease to reasonable attorney fees on appeal. Upon

compliance with RAP 18.1, a commissioner of this court will enter an appropriate

order.

Affirmed.

We concur: