[Cite as Kappa HQ & CC, Inc. v. Norman, 2012-Ohio-4816.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 97892
KAPPA HQ & CC, INC.
PLAINTIFF-APPELLEE
vs.
CARL P. NORMAN, ET AL.
DEFENDANTS-APPELLANTS
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-758341
BEFORE: Keough, J., Rocco, P.J., and Kilbane, J.
RELEASED AND JOURNALIZED: October 18, 2012
ATTORNEY FOR APPELLANTS
Terence E. Copeland
3725 Edgehill Drive
Cleveland, OH 44121
ATTORNEYS FOR APPELLEE
Gary Cook
Michael Aten
The Leader Building
526 Superior Avenue, East
Suite 455
Cleveland, OH 44114
Donald R. Murphy
12800 Shaker Blvd.
Cleveland, OH 44120
KATHLEEN ANN KEOUGH, J.:
{¶1} Defendants-appellants, Carl P. Norman and the heirs of the Estate of Clem
Norman 1 (collectively “the Normans” or “lessors”), appeal the trial court’s decision
granting judgment in favor of plaintiff-appellee, Kappa HQ & CC, Inc. (“Kappa” or
“lessee”). For the reasons that follow, we affirm.
{¶2} This case arises from a Lease Purchase Agreement (“Agreement”) entered
into on April 1, 2008, between Carl Norman and Clem Norman, as lessors, and Kappa, as
lessees, for the lease and the option to purchase commercial property located at 119
Shaker Boulevard in Cleveland, Ohio. The Agreement provided that Kappa would lease
the building beginning April 1, 2008, and expiring on March 31, 2011, at a monthly rental
rate of $3900. Additionally, the Agreement provided for an option to purchase the
property either during or at the expiration of the lease. Paragraph 4 of the Agreement
contained the option to purchase:
4. Purchase of Premises
In consideration of the sum of Twenty Thousand Dollars ($20,000.00) to be
paid by Lessee to Lessors at the commencement of the Lease and One
Hundred Forty-Six Thousand Five Hundred Eighty Dollars ($146,580.00) to
be paid by Lessee to Lessors at the expiration of the Lease, provided Lessee
is not in default of any of the provision [sic] of this Agreement, Lessors
shall convey the premises to Lessee or its nominee by Warranty Deed, free
of all liens and encumbrances, except restrictions and easements of record,
Donna P. Norman, Tammra Norman, Tisha Norman, and Torinae Norman.
1
and taxes and assessments not yet due and owing and with title guaranteed
to the Lessee by a title company acceptable to Lessee. Should the Lessee
choose to purchase the property prior to the expiration of the lease term, the
sales price will be determined by the following formula: Two Hundred and
Sixty Thousand Dollars ($260,000.00) minus the initial payment and Two
Thousand Five Hundred and Ninety-Five Dollars ($2,595.00) multiplied by
the number of rental payments made.
{¶3} The Agreement also set forth the responsibilities of the parties regarding
maintenance and upkeep of the premises. Pursuant to Section 7, Kappa was required to
provide and pay for all cleaning, janitorial services, repairs, ground maintenance, and
security of the premises. The Normans were required to pay the mortgage, insurance, and
taxes on the premises. At trial, it was revealed that Kappa received $2750 in monthly
rent and another $250 a month for the rental of the parking lot. Additionally, Kappa
could have rented the first floor of the property to collect additional rental income.
{¶4} Kappa paid the Normans the initial down-payment of $20,000 at the
commencement of the lease. Thereafter, Kappa made regular monthly lease payments of
$3900 as provided in the Agreement. Additionally, during the entire term of the lease,
Kappa expended over $26,000 in maintenance and upkeep expenses.
{¶5} On March 11, 2011, approximately three weeks prior to the expiration of the
lease, Kappa submitted a proposed Purchase Agreement to the Normans for the purchase
of the premises. This agreement proposed that the Normans would finance Kappa’s
purchase of the premises. The Normans, in a letter dated March 18, declined the
proposed purchase agreement, instead deciding to “hold to the original Lease Purchase
Agreement signed in April 2008.” The Normans proposed in the letter that “unless
otherwise stated in that Agreement, we propose that we split 50/50 the cost of the Title
Examination fee, the cost for a policy of Title Insurance, the Escrow Fee, and the
Conveyance Fee.” The letter also contained the following paragraph:
The existing Kappa Lease expires on March 31, 2011. If for any reason
the title has not transferred by April 1, 2011, your status will be considered
as a month to month tenant with rent equal to the lease for the second floor
for Dr. James Greene and Dr. Carl Norman ($2750 per month due on the
first of every month)[.] Furthermore, during the interim time between April
1st and the transfer of title, any rents paid by tenants in the building and any
parking fees should be made payable to Carl P. Norman and the Estate of
Clem B. Norman.
All possible liens and encumbrances have been eliminated. As far as I
know, the building is available for title transfer upon the timely receipt of
funds required to close this transaction.
{¶6} Thereafter, on March 24, 2011, Ray Lowe, on behalf of Kappa, sent a letter to
the Normans advising them that Kappa would exercise its option to purchase the
premises. He acknowledged that until the transfer of title, the terms of the lease would
continue on a month-to-month basis.
{¶7} On March 31, 2011, Kappa did not pay the Normans $146,580 pursuant to
Section 4 of the Agreement, and title of the property was not transferred. At trial, Dr.
James Greene, a tenant of the subject property and member of Kappa, testified that he had
a discussion with Carl Norman on March 31, 2011, where Carl told him that he needed
“today” a letter of intent from the bank or the money for the purchase of the premises.
Carl told Greene that if Kappa did not come up with a letter of intent, “you’re in breach of
contract.” During this conversation, Carl also stated that he had expended “a lot of money
to clear up all [the] liens [on the property] by today.” Greene testified that Carl told him
that “he had done all this, borrowed money, did what whatever [sic] he needed to do to
clean the liens up, because the building was ready to go.” However, evidence was
presented that the liens, in fact, had not been satisfied and still existed on the premises.
{¶8} Greene further testified that on April 1, 2011, he received a “3-day notice”2
from the Normans’ attorney indicating that the final payment to complete the purchase or
a letter of intent from the bank was due on March 31 pursuant to the Agreement, and thus
was past due. The notice also referenced Paragraph 12 of the Agreement, which allowed
Kappa 30 days to cure the defect — i.e., make the final payment of $146,580 or provide
the Normans with a letter of intent from the bank.
{¶9} Thereafter, correspondences were exchanged between the parties’ attorneys,
essentially disputing whether the Normans agreed to extend the time frame of when
Kappa was required to purchase the premises. The Normans maintained that no
extension of time, other than the cure period, was granted to Kappa to purchase the
property under the Agreement. The Normans also maintained that as early as May 16,
2011, Kappa was put on notice that if it wanted to purchase the premises, the purchase
price increased.
{¶10} On June 10, 2011, Kappa informed the Normans that it had secured
financing with Dollar Bank for the purchase of the property and that payment of the
$146,580 would be submitted at closing. Nevertheless, the sale and transfer of the
Although the notice only afforded Kappa three days to cure the defect, the parties agree that
2
30 days was the correct cure period under Paragraph 12 of the Agreement.
property did not occur and no money was placed in escrow.
{¶11} On June 24, 2011, Kappa filed suit against the Normans for specific
performance under the Agreement and injunctive relief. Following a bench trial, the trial
court entered judgment in favor of Kappa. In its written decision with findings of fact
and conclusions of the law, the trial court found that the Normans’ March 18 letter and
subsequent actions evidenced that they were willing and agreed to extend the time for a
reasonable period beyond March 31 for final payment, and that the Normans acted
unreasonably in notifying Kappa of their unwillingness to allow any additional time to
purchase the premises under the Agreement. The trial court concluded that Kappa was
entitled to equitable relief of specific performance based on the conduct of the parties, the
down payment, improvements, and repairs made by Kappa, and the lack of prejudice to
the Normans. The Normans subsequently moved for a new trial, which was denied.
{¶12} The Normans now appeal, contending in their sole assignment that the trial
court erred in “failing to enforce the commercial lease containing an option to purchase
that required the lessee to exercise its option with full payment of the purchase price by
the end of the lease term.”3
{¶13} We review a trial court’s exercise of its equity jurisdiction for an abuse of
discretion. Keybank v. MRN Ltd. Partnership, 193 Ohio App.3d 424, 2011-Ohio-1934,
The notice of appeal indicates that appellants also appealed from the trial court’s denial of
3
appellants’ motion for a new trial. However, no assignment of error or argument was raised in
appellants’ merit brief challenging this ruling. Accordingly, this court deems that issue waived.
See App.R. 12 and 16.
952 N.E.2d 532, ¶ 44 (8th Dist.), citing Sandusky Properties v. Aveni, 15 Ohio St.3d 273,
274-275, 473 N.E.2d 798 (1984). The court’s action will not constitute an abuse of
discretion unless it was arbitrary, unreasonable, or unconscionable. Id. When applying
the abuse of discretion standard, a reviewing court is not free to merely substitute its
judgment for that of the trial court. Berk v. Matthews, 53 Ohio St.3d 161, 169, 559
N.E.2d 1301 (1990), citing Kunkle v. Kunkle, 51 Ohio St.3d 64, 67, 554 N.E.2d 83
(1990).
{¶14} Recently, this court held that the equitable principles set forth in Ward v.
Washington Distribs., Inc., 67 Ohio App.2d 49, 425 N.E.2d 420 (6th Dist.1980), Benton
v. Tecumseh Corrugated Box Co., 6th Dist. No. WD-85-9, 1985 Ohio App. LEXIS 9020
(Oct. 25, 1985), and Vivi Retail Inc. v. E&A N.E. Ltd. Partnership, 8th Dist. No. 90527,
2008-Ohio-4705, applied to situations where a party fails to timely exercise its option to
purchase under the lease. Keybank at ¶ 53.
Even though a lease may be clear and unambiguous, equitable relief may
still be granted to relieve a lessee from the consequences of a failure to give
notice at the time, or in the form and manner, required as a condition
precedent to [exercise the option to purchase under the lease], where (1)
such failure results from accident, fraud, surprise, or honest mistake, and (2)
has not prejudiced the lessor.
Id. at ¶ 51, quoting Vivi Retail at ¶ 20; see also Ward at 53-54.
{¶15} It is clear from the record that Kappa failed to timely exercise its option to
purchase. It is also clear from the record that Kappa failed to prove that its failure to
exercise the option was because of accident, fraud, surprise, or honest mistake.
However, this failure is not fatal to Kappa’s case.
{¶16} In Ward, the court explained that in the absence of accident, fraud, surprise,
or honest mistake, equitable relief may still be appropriate when the “lessee has made
valuable or substantial improvements to the leased premises.” Ward at 54. Therefore,
“the lessee should not be denied equitable relief from his own neglect or inadvertence if a
forfeiture of such improvements would result — provided, there is no prejudice to the
landlord.” Ward at 54, citing Barr Hotel Co. v. Lloyd MacKeown Buick Co., 104 Ohio
App. 69, 73-74, 146 N.E.2d 879 (1957).
Since an option to renew a lease is plainly of great value to commercial
tenants, especially in an age of inflation, and is given in exchange for
valuable consideration, such a valuable benefit should be protected by
equity against a forfeiture where the lessee has faithfully met the rents and
all other substantial requirements of the lease through the entire term.
Id., citing Geo. W. Millar & Co. Inc. v. Wolf Sales & Serv. Corp., 65 N.Y. Misc.2d 585,
318 N.Y. Supp.2d 24 (1971). We find that an option to purchase is of equally great
value to commercial tenants.
{¶17} The trial court found that Kappa was negligent in its exercise of the option
to purchase. However, the trial court found that equitable relief was still warranted
based on (1) the conduct of the parties, (2) the down payment and improvements to the
premises made by Kappa, (3) the Normans’ non-compliance with the terms of Lease
Agreement by their failure to pay off all liens, and (4) the lack of prejudice to the
Normans. While one of these reasons standing alone may not warrant equitable relief,
when the reasons are coupled with the facts and circumstances of this case, they do not
render the trial court’s decision exercising its equitable jurisdiction unreasonable,
arbitrary, or unconscionable.
{¶18} When construing and interpreting lease provisions, courts apply traditional
contract principles. Vivi Retail, 8th Dist. No. 90527, 2008-Ohio-4705 at ¶ 30, citing
Myers v. E. Ohio Gas Co., 51 Ohio St.2d 121, 125, 364 N.E.2d 1369 (1977). “If the
language of a lease is clear and unambiguous, courts must enforce the instrument as
written.” Id., citing Hybud Equip. Corp. v. Sphere Drake Ins. Co., Ltd., 64 Ohio St.3d
657, 665, 597 N.E.2d 1096 (1992). However, waiver of a contract term can occur when
a party conducts itself in a manner inconsistent with an intention to insist on that term.
Id., citing Convenient Food Mart Inc. v. Atwell, 11th Dist. No. 2003-L-174,
2005-Ohio-704; see also Snowville Subdivision Joint Venture Phase I v. Home S&L of
Youngstown, 8th Dist. No. 96675, 2012-Ohio-1342.
{¶19} In this case, the trial court found that the conduct of the Normans was
inconsistent with their intention to hold Kappa to the time frame of exercising its option
to purchase the premises. In the March 18 letter, the Normans proposed additional terms
to Kappa, including “splitting the cost of the Title Examination fee, the cost for a policy
of Title Insurance, the Escrow Fee, and the Conveyance Fee.” Additionally, when Kappa
notified the Normans in its March 24 letter that it was exercising its option to purchase
the premises and that it would secure bank financing, the letter did not indicate a time
when the bank financing would be secured. The trial court found that when the Normans
did not ask for clarification, and in light of the additional terms they had added regarding
splitting the closing costs, the Normans were prepared to accept a reasonable period of
time beyond March 31 to complete the financing and transfer of property.
{¶20} Moreover, and despite the Normans’ assertion in their March 18 letter, the
liens on the property were still in existence and not paid off when the lease expired, and
they still remained after the cure period had expired. Pursuant to the terms of the
Agreement, the premises was to be free and clear of any liens and encumbrances prior to
transfer. Evidence was submitted that even at the time of trial, there were still liens on
the property. Therefore, the trial court found that Kappa showed by clear and convincing
evidence that the Normans failed to perform their duty to clear all liens, which was a duty
the lease agreement imposed on them. This finding was reasonable.
{¶21} Additionally, the trial court held that equitable relief was warranted because
Kappa made substantial repairs on the property, which normally would be the owner’s
responsibility, and a made a down payment toward the purchase. Again, this finding was
reasonable. Even concluding that Kappa’s failure to timely exercise the option to
purchase constituted negligence, it was not of sufficient magnitude to warrant a forfeiture
of the improvements Kappa had made to the premises. “An optionee ‘* * * should not
be denied equitable relief from his own neglect or inadvertence if a forfeiture of * * *
improvements would result — provided there is not prejudice to the landlord.” Benton,
6th Dist. No. C. A. NO. WD-85-9, 1985 Ohio App. LEXIS 9020, at *7, quoting Ward, 67
Ohio App.2d at 54, 425 N.E.2d 420.
{¶22} We agree with the trial court that Kappa’s delay in exercising its option to
purchase had absolutely no prejudicial effect on the Normans. “The prejudice must arise
from the delay itself.” Vivi Retail, 8th Dist. No. 90527, 2008-Ohio-4705, at ¶ 22. In
this case, there was no evidence that the Normans suffered any prejudice by Kappa’s
failure to timely exercise its option to purchase. The Normans did not present any
evidence that another buyer or tenant was interested in either buying or leasing the
premises. In fact, during opening statements at trial, counsel for the Normans stated that
“[a]t the time that this transaction was entered it was the intent of Dr. [Carl] Norman to
sell the building eventually to the Kappa organization.”
{¶23} Accordingly, we find the trial court did not abuse its discretion in granting
specific performance under the Lease Agreement and granting judgment in favor of
Kappa. The Normans’ assignment of error is overruled.
{¶24} Judgment affirmed.
It is ordered that appellee recover from appellants costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment into
execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
KATHLEEN ANN KEOUGH, JUDGE
KENNETH A. ROCCO, P.J., and
MARY EILEEN KILBANE, J., CONCUR