(599 P.2d 959)
No. 78-1101Colorado Court of Appeals.
Decided May 10, 1979. Rehearing denied June 14, 1979. Certiorari granted August 27, 1979.
In action seeking a declaratory judgment to determine the status of a lease, lessees appealed judgment which found their attempted extension of the lease ineffective.
Reversed
1. LANDLORD AND TENANT — Only Condition Precedent — Extension Must Be Timely — Where Satisfied — Option Exercisable — Despite Lessees’ Default.
Where the only condition precedent imposed for the right to exercise an option to extend the term of a lease was that notice in writing be given not less than 30 days prior to the end of the base period and such condition precedent was satisfied, the option could be exercised even though, at the time of that exercise, the lessees were in default as to certain increased amounts of taxes due from them.
Appeal from the District Court of the City and County of Denver, Honorable Harold D. Reed, Judge.
Law Offices of Bernard D. Morley, for plaintiffs-appellants
cross-appellees.
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Hobbs Waldbaum, P.C., Leonard N. Waldbaum, William E. Brayshaw, for defendants-appellees cross-appellants.
Division I.
Opinion by JUDGE COYTE.
Plaintiffs filed suit seeking a declaratory judgment to determine the status of a lease held by them on property of the defendants. The trial court found that plaintiffs were in default at the expiration of the lease period and that their attempt to exercise their option to extend the lease was ineffective and ordered the issuance of a writ of restitution in favor of defendants on their counterclaims. We reverse.
Plaintiffs leased the property from defendants’ predecessors in title, for three years commencing on July 31, 1974. The lease provided that, in the event of an increase in taxes, plaintiffs, who leased only a portion of defendants’ property, would pay their proportionate share of the increase. An addendum to the lease executed on February 28, 1975, clarified a letter agreement executed the same date as the lease, which granted plaintiffs an option to extend the lease for a period of five years from July 31, 1977. The only condition to plaintiff’s exercising the option was that they were required to give defendants notice in writing not less than 30 days prior to the end of the base period.
On May 6, 1977, plaintiffs received a notice from defendants that taxes had increased on the leased property and that plaintiffs owed 11% of the increase or $775. Plaintiffs’ attorney responded to this letter on May 13 advising that plaintiffs had not been advised previously of any increase in taxes and wanted to determine whether the increase was attributable to anything other than the general increase in taxes.
On June 3, 1977, plaintiffs’ attorney notified defendants that plaintiffs were exercising their option to extend the term of the lease for an additional five years in accordance with the addendum to the lease.
On July 1, defendants caused a notice to be served upon plaintiffs advising them that their lease would expire July 31, 1977, and demanding possession of the property at the expiration of the lease. Plaintiffs mailed the July rent check in the amount of $977 to defendants on July 1st. This payment did not include the increase for taxes. This check did not reach defendants on the date due, so defendants served a notice on plaintiffs which demanded payment of rent in the amount of $977 within three days or possession. The demand contained a statement: “Lessor does not waive claim for additional rent due to increased taxes.” The $977 was
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paid within the three day period.
This action for declaratory judgment was commenced by plaintiffs on July 28, 1977. After trial to the court, it held that there had never been an extension of the lease period because plaintiffs were in default at the time of the expiration of their lease and accordingly the option to extend the lease could not be exercised. We disagree.
[1] Plaintiffs admit that they owed 10% of the increased taxes, and we agree with the trial court that there was no excuse for failure to tender this amount into court or to the defendants. Nevertheless, on June 3, 1977, when plaintiffs gave defendants notice of the exercising of their option, the lease was by that act extended. There were no contingencies in the lease agreement on plaintiffs’ right to exercise the option to extend the lease. Cf. Hall Hotel Co. v. Stille, 76 Colo. 165, 230 P. 125. At the time the option was exercised, there was a dispute as to the amount of taxes due, but there had been no notice of default under the lease. Thus, even though money for the extra rent was unpaid and delinquent on June 3, 1977, the lease was extended for five years from July 31, 1977. Tumbarello v. Byers, 37 Colo. App. 61, 543 P.2d 1278.Had defendants so chosen, they could have served a proper three day demand for payment or possession of premises. If plaintiffs had failed to pay the extra rent within the three days, the rights of plaintiffs under the lease would have terminated. This could have been done either before or after the option was exercised, § 13-40-104, C.R.S. 1973, but without such termination they could not prevent the extension of the lease.
As a condition to the stay of judgment entered in the trial court, the trial court required plaintiffs to pay certain sums of money into court and to pay monthly rental to defendants. The court also required defendants to pay the damage and security deposit being held by them in the amount of $1475 into the court. Since the lease is still in full force and effect, this damage and security deposit should be forthwith returned to defendants to be held by them in accordance with the provisions of the lease.
The addendum to the lease provides that a new lease will be based on the agreed rental and any increase in the consumer price index. The trial court found that the consumer price index had increased between 21 and 24%. This figure is too indefinite. The court must determine the exact amount of the increase in the consumer price index and resulting rent increase, as well as the increase in rents caused by the increase of taxes. From the funds paid into court by plaintiff the court should deduct the amount owed by plaintiffs to defendants for the additional rent as above determined and have the same paid over to the defendants, with the balance of the escrow funds, if any, refunded to plaintiffs. If additional funds must be paid by plaintiffs to bring them current in their obligations under the lease, judgment should be entered against plaintiffs for such amount.
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The judgment is reversed and the cause is remanded with directions to the trial court to proceed as herein directed.
JUDGE VAN CISE concurs.
JUDGE STERNBERG dissents.
JUDGE STERNBERG dissenting:
The trial court found that the tenants were in default under the terms of the lease and that the default was intentional. These findings, based as they are on the evidence in the record, are binding on review. The trial court concluded that, being in default, the tenants could not exercise the renewal option. I agree with this conclusion and therefore dissent from the majority opinion.
The lease provided that the landlord would pay all real property taxes but,
“that in the event of an increase in real property taxes, the increase prorated according to land and floor space occupied shall be added to the annual rent, reduced to monthly installments.”
On May 6, 1977, pursuant to this provision, the landlord notified the tenants of a rent increase occasioned by an increase in taxes and demanded $775 to cover the tax increase for 1975 and 1976. The notice specified that the space occupied by the tenants amounted to 11% of the premises. On May 13, the tenants responded, contending that they occupied 10% of the premises, not 11%. They neither paid nor tendered any amount due for taxes for 1975 and 1976. And, while they made their base rent payments for June and July 1977, they included nothing in those installments for the tax increase.
On this state of the record the trial court found, “that there was a failure to pay rent — by that I mean the additional rent due for the increase in taxes — in the months of June and July 1977.” Further, the court determined this to constitute “a violation of the lease-agreement, as such was intentionally done, and is substantial.” The above findings should be binding on review, Linley v. Hanson, 173 Colo. 239, 477 P.2d 453
(1970), and in my view are determinative of the case.
The option to renew the lease is found in an addendum dated June 4, 1974. In the recital clause in that document, the addendum is stated to be “in consideration of the keeping and performance of the covenants and agreements . . .” of the lease. In the body of the addendum, just before the paragraph referring to the renewal option, it is provided that “all terms and conditions contained in the [lease] not inconsistent with this addendum, are incorporated herein and made a part hereof as though fully set forth.” The lease contains a covenant, “to pay the rent.” The tenants, being in willful default of the covenant to pay rent, should be precluded from exercising the renewal option.
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Even though the landlord held a security deposit, he is not required to use it to cure the default in rent payments. Barlow v. Hoffman, 103 Colo. 286, 86 P.2d 239 (1938). And, contrary to the tenants’ contention, their filing of this declaratory judgment action seeking to resolve the dispute over their liability for either 10% or 11% of the tax increase does not serve as a substitute for tender. To so hold would permit one to be relieved from performing a contract, while still enjoying the benefits thereof, by the mere expediency of filing an action for declaratory relief. Nor does the fact that there was a dispute over the amount due the landlord justify the tenants in paying no part of the increase. A similar contention was held to be “without merit” and “specious” in Miller v. Carmody, 152 Colo. 353, 384 P.2d 77 (1963). Contrary to the situation in Kimmick v. Santilli, 42 Colo. App. 341, 596 P.2d 1223 (1979), the tenants’ default here was willful. Thus, that case is distinguishable.
Being in willful default, the tenants could not exercise their renewal option. The trial court found, on supporting evidence, that the tenants had been notified to vacate the premises as of the end of the lease term, July 31, 1977. Consequently, the tenants have no right to possession of the property and the judgment should be affirmed.