Southern Real Estate and Financial Co. v. City of St. Louis

758 S.W.2d 75, 1988 Mo. App. LEXIS 1232, 1988 WL 74051

• Court: Missouri Court of Appeals
• Decided: July 19, 1988
• Docket: No. 51632
• Status: Published

Opinions

SMITH, Judge.

Plaintiff, Southern Real Estate and Financial Company, appeals from a judgment declaring that defendant, City of St. Louis, as a lessee was authorized under its lease to demolish a parking garage on the leased premises. We affirm.

Southern is the owner of the property. In 1953 it leased the property to Wayco Petroleum. The property comprises two-thirds of city block 131 bounded by Chestnut, Seventh, Sixth, and Market Streets in downtown St. Louis. It is located in the Gateway Mall which is being gradually developed by the City and private developers. The lease called for a fixed rental of $50,-000 per year. No other rental is provided for. Its initial term was twenty-five years and six months. There were provisions for three successive renewals of 25 years each. In order to be entitled to exercise the first renewal (and therefore the subsequent ones) the lessee was required to make improvements (exclusive of resurfacing) costing at least $150,000. The lease provided the lessee with the “right at any time and from time to time .. without the consent of lessor” to sublet or assign the lease. Pursuant to this provision Wayco assigned the lease to May Department Stores (also a defendant herein) and Southern released Wayco from further liability.

In 1954, May constructed an underground garage on the leased premises at a cost of $306,000. In 1978, May exercised its right of renewal. In August 1982, May transferred its lease to the City. In the instrument of assignment May expressly stated its obligation to pay the rent if the City failed to do so. Revenue from the garage was sufficient to meet the rental obligation. The City continued to operate the garage until March 1986 when this suit was filed.

In the interim, after May’s assignment of the lease and prior to this litigation, the City and Southern had been in communication regarding the rumored destruction by the City of the parking garage. Southern advised the City that the lease prohibited such destruction and proposed that the parties jointly bring a declaratory judgment to determine the legal interpretation of the lease. This was not done. Southern then filed its action for declaratory judgment and an injunction to prohibit the destruction of the garage and the construction by the city of a public park including an open air amphitheater. The City filed an answer and counterclaim which sought a declaration that City had the right to demolish the garage, that the City could use the leased premises for any lawful purpose, and could construct any lawful improvements on the premises. The trial court refused Southern’s request for a temporary restraining order and two days before commencement of the scheduled hearing on plaintiffs petition and defendant’s counterclaim the City commenced destruction of the garage. Southern then served a notice of termination of the lease, filed an unlawful de-tainer action against City in Associate Circuit Court, and dismissed without prejudice its declaratory judgment and injunctive relief petition against City.² The trial proceeded on City’s counterclaim. The trial court entered extensive findings of fact and conclusions of law upholding the right of City under the lease to demolish the garage and to erect its proposed improvements and declaring the lease in full force and effect. This appeal followed.

Southern has raised five contentions of error on appeal. One challenges the trial courts finding of express authorization in the lease for City’s action, one raises statutory waste, one raises equitable waste, one challenges the “radical change in use” of the premises, and one challenges the finding that the lease was not terminated by City’s actions. All of the contentions, however, are reduced to a determination of whether the lease authorizes the City’s actions.

As we stated in Crestwood Plaza, Inc. v. The Kroger Co., 520 S.W.2d 93 (Mo.App.1974) [1, 2] quoting from Leggett v. Missouri State Life Ins. Co., 342 S.W.2d 833[11-12] (Mo. banc 1960):

“If the terms of a contract are clear and unambiguous the contract will be enforced or given effect in accordance with its terms, and without resort to construction to determine the intention of the parties. ... When the language of a contract is plain, there can be no construction because there is nothing to construe.”

We turn to the provisions of the lease. The lease provides for a fixed rent ($50,-000) for every year of its potential 100 year term. There is no provision for increase of that amount based upon income generated. It further provides:

“At any time and from time to time during the demised term and any extension thereof, Lessee shall have the right (but shall not be required) to erect on the demised premises at its own cost and expense such improvements, if any, in such form, size and character, at such cost and for such uses and purposes as Lessee shall determine, provided the same shall comply with all laws and ordinances. Any and all improvements may at Lessee’s option cover portions or all of the demised premises and may constitute an integral part or parts of a building or buildings or other structures covering the whole or any part of one or more parcels of adjoining premises.” (Emphasis supplied).

Because the extension provision is only available if an improvement occurs prior to the end of the original term, it is obvious that this provision authorizes construction after the original improvement. By its express language it authorizes erection of improvements at anytime during the lease term in a form, size and character and for the uses determined solely by the Lessee. The only restriction imposed is that the improvement must comply with the laws and ordinances. No contention is advanced here that City’s intended use is unlawful.

The lease further provides:

“Lessee shall maintain the leased premises in good condition and repair, ordinary wear and tear excepted, at its own cost and expense and may at any time and from time to time at its own cost and expense reconstruct, alter or replace any improvements then existing in such manner as Lessee shall desire.” (Emphasis supplied).

This provision again is unlimited as to when and in what manner the Lessee may make improvements to the leasehold. As we held in Crestwood Plaza Inc. v. Kroger Co., supra, [7-14] absent express restrictions, a lessee is free to use the premises in any lawful manner. A restriction or covenant will not be implied merely because without it the contract would be unwise. The parties negotiated the lease and intentionally imposed as a restriction only that the use be lawful. We do not rewrite contracts to supply a negative covenant. So-Good Potato Chip Co. v. Frito-Lay, Inc., 462 F.2d 239[4, 5] (8th Cir.1972).

Southern attacks this result on several theories. Initially it contends that the requirement of improvements in order to generate the extensions was placed in the lease to protect lessor’s reversionary interest in those improvements and that rever-sionary interest is damaged by the City’s actions. It is logical to assume that the entire renewal provision was included so that the lessee could make improvements with the knowledge that it could utilize the leasehold and the improvements for at least 75 additional years after the initial term. In that sense the renewal provision is a protection to both the lessee and the lessor. If the renewal provision is separated into two parts, i.e. extension and improvement, then separate benefits can presumably be found. It is difficult to believe that the reversionary interest was a prime concern of this provision in view of a minimum expenditure of $150,000 to be utilized over as much as a 100 year period. The lease provides that subsequent damage or destruction or deterioration of the improvements shall not affect the lessee’s options to renew. There is an exception that if damage or destruction occur from fire or casualty, lessee is required to restore to the leased premises improvements of a value at least that of the depreciated value of the improvements damaged or destroyed. Lessee is required to maintain insurance for that purpose and required to utilize that insurance “to the restoration of such improvements or to the erection of new improvements, as Lessee may elect.” Lessee has no obligation to restore or replace improvements which have deteriorated as the result of wear and tear and depreciation or obsolescence. The lease specifically provides that at the expiration of the lease “as extended” the improvements “if any” revert to the lessor. These provisions clearly evidence the signatories’ recognition that there might be no improvements of value extant at the time of reversion.

But to the degree that the extension requirements may have been intended to protect the reversion, it is clear that the signatories did not attempt to delineate the nature of the improvements required other than their cost. The only limitation on the quality of the improvement necessary is that it must constitute more than resurfacing. Southern makes no contention that City’s development plan is only resurfacing. The lease does not require that the improvement be commercial nor does the lease at any point reflect it is a commercial lease or that the use thereunder be commercial.

Southern also contends that the court’s order authorizes demolition but does not require replacement. We do not so interpret the order. The order authorized demolition and replacement of the demolished improvement with City’s planned development costing several million dollars. Obviously demolition and replacement cannot occur simultaneously. If the City fails to go forward with its planned improvement Southern can at that point seek its remedies under the- lease.

Southern also charges the City with statutory waste, Sec. 537.420 RSMo 1986, and equitable waste. Neither contention finds support in the lease. The statute allows as a defense that the tenant had a “special license in writing to do” waste. Such license can be established by the lease itself. Lustig v. U.M.C. Industries, Inc., 637 S.W.2d 55 (Mo.App.1982)[13, 14]. The land as originally leased was vacant. The lease authorized improvement and replacement of improvements at any time and from time to time. The lease was for a lengthy term and obviously was intended to provide great flexibility to the lessee in the use of the leasehold. These are relevant considerations in regard to the question of waste. Id. [12]. What we have previously said establishes that the lease itself authorizes what the City has done and proposes to do. In essence the lease establishes what the lessee may do with the property, and that which is authorized by the lease is by definition either not waste at all or at most is waste authorized by the lessor.

“ ‘Equitable waste’ is a nebulous term — a doctrine of obscure limitations. It is such as is cognizable only in a court of equity. It is said that it has reference to cases where, by the terms of the will, deed, settlement or lease, the tenant holds the land without impeachment of waste....

Thus it is that equitable jurisdiction in this behalf seems to have been confined to wanton, malicious and unconscientious acts of the particular tenant injurious to the inheritance, in contravention of the presumed will of the creator of the limited estate.” Camden Trust Co. v. Handle, 132 N.J.Eq. 97, 26 A.2d 865 (1942) [14-23].

We are unable to conclude that the evidence supports the conclusion that the City’s actions and proposed use of the land meet that criteria. The city is a permissible tenant under the lease. It proposes to expend a substantial amount of money to create an aesthetically pleasing park environment where people can gather and relax and where performances can be held. It is difficult to conclude such use by a city can be termed “wanton, malicious, and uncon-scientious.” This is particularly true in view of the broad and elastic authority for use found in the lease. Camden Trust, supra, is cited by 93 C.J.S. Waste § 1 as holding that the equitable waste doctrine is applicable where the party aggrieved has equitable rights only as with a contingent remainderman or trust beneficiary. Southern’s rights are legal, not equitable, and are governed by the terms of the legal contract with City. We find the equitable waste doctrine inapplicable here.

Southern also challenges the conclusion that what the City proposes is an “improvement.” This argument is in turn based upon Southern’s premise that the lease contemplates commercial use of the premises. It does not. Any use not unlawful contemplates uses both commercial and otherwise. The signatories could have limited the use to commercial activities if they so intended. They did not include that word in the lease in specifying the use to be made of the premises, and we are not authorized to engraft that which they omitted. There is no basis for concluding that this lease was intended for commercial use only. Lessor was to receive a basic rental amount whether or not the property was improved. That amount does not vary regardless of whether improvement is made on the premises or what the nature of any improvement is. An improvement serves only to extend the term of the lease, it does not affect the return to the lessor. In that posture, and under the express terms of the lease, whether lessee’s construction is an improvement is in the discretion and the eye of the lessee. The lease requires only that any replacement of an improvement by lessee be an improvement over the original condition of the land as a vacant lot, not over the original improvement. The City’s planned development meets that test.³ State ex rel. Curators of the University of Missouri v. Neill, 397 S.W.2d 666 (Mo. banc 1966)[2]; Forum v. Columbia Theater Co., 20 Wash.2d 685, 148 P.2d 951 (1944)[3],

Southern also contends that what the City proposes to do is not a “replacement” and therefore not authorized by the lease. Words used in a written lease are interpreted according to their ordinary meaning unless defined in the instrument itself. Hargis v. Sample, 306 S.W.2d 564 (Mo.1957)[2]. This lease contains no definition of “replace.” The word is not ambiguous. Adams v. Covenant Security Insurance Co., 465 S.W.2d 32 (Mo.App.1971)[l]. It means to take the place of as a substitute or successor; to put something new in the place of. Webster’s Third New International Dictionary. City’s proposed development meets that definition. The lease does not restrict the lessee to “replacing” with the same or similar improvement. It authorizes improvements at any time and from time to time in such form, size and character and for such uses and purposes as lessee shall determine. Lessee may replace any improvements then existing in such manner as it may desire. It cannot be forgotten that this lease is potentially for a century. The signatories were aware of that and they obviously drafted the lease to allow maximum flexibility to the lessee in the use of the property. It may well be they did not contemplate the use to which the City intends to put the property. But the document as drafted, and which we must apply, does not prevent and in fact

authorizes the development planned by the City. We find no breach of the lease.⁴

The judgment is affirmed.

REINHARD, STEPHAN, SATZ, CARL R. GAERTNER and GRIMM, JJ., concur. CRIST and CRANDALL, JJ., concur in result only. DOWD, J., dissents in separate opinion and concurs in separate dissenting opinion of PUDLOWSKI, C.J. KELLY, J., dissents and concurs in separate dissenting opinion of DOWD, J. PUDLOWSKI, C.J., dissents in separate dissenting opinion and concurs in separate dissenting opinion of DOWD, J. SIMON and KAROHL, JJ., dissent and concur in separate dissenting opinions of PUDLOWSKI, C.J., and DOWD, J.

GARY M. GAERTNER, J., dissents.

2 . May Department Stores was a defendant in plaintiffs action and has remained a party throughout. It has taken a position in support of the City. The issues before us deal with City’s rights under the lease and we will treat City as the primary lessee and defendant. Pride Redevelopment Company and Gateway Mall Associates I were allowed to intervene in the court below on the basis that their development of neighboring land was based upon City promises that the leased premises would be developed as open space and they would suffer irreparable harm if Southern is allowed to prevent such development. They raised estoppel and laches against Southern. In the view we take of this case it is unnecessary for us to deal with inter-venor’s intriguing contention that their contractual relationship with the City can be enforced by denying Southern whatever rights it might have under the lease.

3 . We find it unnecessary to discuss whether the City’s proposed structure is capable of revenue production as nothing in the lease requires that it be so capable. We do note that the trial court, on conflicting testimony, found the facility suitable for commercial use.

4 . Some other matters raised in the dissents warrant comment. The only evidence of a tax deduction is from the deposition of Southern’s vice-president read into evidence by the inter-venors in support of their theory of laches. The question and answer were: “Q. Well, from reading the newspaper articles, did you become aware that the purpose of the donation, at least as reported in the newspapers, was to — so that the City could develop that as an open and accessible park area. A. Right, and they would get a $5 million tax deduction.” The newspaper article referred to said nothing about a tax deduction only that the gift was estimated to be worth $4 to $5 million. If offered as proof of a tax deduction, the evidence is inadmissible as double hearsay. It was not offered for its truth, but to establish Southern’s awareness of the transaction.

We have not considered the question of whether this is a “prime tract” of real estate as relevant to our decision. Today it is prime. In 1953 it was not. It was located in a depressed section of the city bordering on a "tenderloin” district containing deteriorating structures and transient hotels. The Gateway Arch was not under construction and the stadium was not

even in the discussion stage. The lease and the condition of the neighborhood would indicate that the owner was primarily interested in obtaining the best yearly income it could from an undesireable piece of real estate. It did not anticipate the dramatic rebirth of the downtown St. Louis area which viewed in hindsight makes the lease less desireable to the landowner than originally thought.

We also find nothing in the lease that the land was to be used as a parking facility. It was to be rendered into a vacant lot by the lessor (the reason for the demolition provision) for such use as the lessee desired or for no use at all as long as the rent was paid. The unlimited as-signability to anyone at the sole discretion of lessee does not evidence any particular contemplated use; it indicates rather the contrary.

If a detriment exists to the reversionary interest because a part of the improvement is on adjoining land owned by the City such detriment was fully contemplated by the signatories who specifically authorized the improvements "at the Lessee’s option” to be an "integral part or parts of a building or buildings or other structures covering the whole or any part of one or more parcels of adjoining premises.”