IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA18-845
Filed: 7 May 2019
Jackson County, No. 17 CVS 439
CRYSTAL COGDILL and JACKSON’S GENERAL STORE, INC., Plaintiffs,
v.
SYLVA SUPPLY COMPANY, INC., DUANE JAY BALL and IRENE BALL,
Defendants.
Appeal by Plaintiffs from order entered 16 April 2018 by Judge Mark E. Powell
in Jackson County Superior Court. Heard in the Court of Appeals 31 January 2019.
The Law Firm of Diane E. Sherrill, PLLC, by Diane E. Sherrill, for Plaintiffs-
Appellants.
Coward, Hicks, & Siler, P.A., by Andrew C. Buckner, for Defendants-Appellees.
COLLINS, Judge.
Plaintiffs appeal the trial court’s order granting summary judgment in favor of
Defendants as to Plaintiffs’ action alleging seven claims, including breach of contract.
Plaintiffs’ claims all stem from their assertion that they possessed a valid and
enforceable Right of First Refusal to purchase the property at issue at the time
Defendant Sylva Supply Company, Inc., conveyed the property to Defendants Duane
Jay and Irene Ball. Plaintiffs and Sylva had entered into a written lease agreement,
which was subsequently assigned to Plaintiff Jackson’s General Store, Inc., which
contained a Right of First Refusal. However, the written lease had expired and,
COGDILL V. SYLVA SUPPLY COMPANY, INC.
Opinion of the Court
pursuant to this Court’s opinion in Ball v. Cogdill, COA17-409, 2017 N.C. App. LEXIS
1074 (N.C. Ct. App. December 19, 2017) (unpublished), Plaintiffs were holdover
tenants under a year-to-year tenancy created by operation of law. The question posed
by this appeal is whether the year-to-year tenancy created by operation of law
included the Right of First Refusal contained in the expired written lease. We hold
that it did not.
I. Procedural History and Factual Background
On 19 May 1999, Crystal Cogdill1 (Cogdill) and Sylva Supply Company, Inc.
(Sylva), entered into a “Buy-Sell and Lease Agreement” (Original Lease) by which
Sylva leased the building located at 582 West Main Street (Property) to Cogdill. The
lease was for a period of five years and included an option to renew for a single,
additional period of five years. To exercise the option to renew, Cogdill had to provide
written notice to Sylva no later than thirty days before the expiration of the first, five-
year period. The renewal terms were to be determined at the time of renewal;
however, the terms of the renewed lease were to be determined by the parties at least
ninety days before the expiration of the first, five-year lease period.2 The first, five-
year period expired on 31 May 2004.
1 Then Crystal Cogdill Jones.
2 The apparent internal incongruency of this term has no significance in this appeal.
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Opinion of the Court
The Original Lease granted Cogdill a Right of First Refusal to purchase the
Property, should Sylva wish to sell the Property. Sylva was required to notify Cogdill
by certified mail of the option to purchase the Property at the lowest price and on the
same terms and conditions Sylva was willing to accept from other purchasers. If,
within fifteen days of receiving Sylva’s offer, Cogdill did not mail Sylva notice that
she intended to exercise her Right of First Refusal to purchase the Property, Sylva
had the right to sell the Property to other purchasers.
On 1 June 1999, a “Memorandum of Lease and Right of First Refusal”
memorializing the Original Lease was recorded in the Jackson County Public
Registry. On 1 July 1999, Cogdill assigned the Original Lease to Jackson’s General
Store, Inc. (Jackson’s), a business incorporated by Cogdill.
On 7 June 2001, Cogdill and Sylva executed an “Amendment to Lease
Agreement” (Lease), which amended the original rental period from five years to
seven years and, thus, extended the original rental period end date from 31 May 2004
to 31 May 2006. If Sylva opted to renew the Lease for an additional, seven-year
period, the new rental period would run from 1 June 2006 to 31 May 2013. The
amendment also modified the amount of rent to be paid. All other terms remained
unmodified.
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Opinion of the Court
No written notice was given to renew the Lease beyond the expiration of the
initial seven-year period, which ended 31 May 2006. However, Plaintiffs
continuously remained in tenancy.
On 7 May 2015, without first giving Plaintiffs an option to the buy the
Property, Sylva sold the Property to Duane Jay and Irene Ball (the Balls). In June
2016, the Balls instituted a summary ejectment action against Plaintiffs. Both the
small claims court and district court ruled in favor of Plaintiffs and dismissed the
action. The Balls appealed to the Court of Appeals.
While the appeal was pending, Plaintiffs filed the complaint in the present
action. In the complaint, Plaintiffs alleged causes of action for breach of contract,
fraud, constructive fraud, civil conspiracy, claim to set aside deed, tortious
interference with contract, and unfair and deceptive acts or practices. These claims
were based on Plaintiffs’ assertion that they were wrongfully denied the right to
exercise their Right of First Refusal to purchase the Property. Plaintiffs also filed a
notice of lis pendens.
On 8 September 2017, Defendants moved to dismiss the complaint under Rule
12(b)(6) of the North Carolina Rules of Civil Procedure. On 19 December 2017, this
Court issued Ball v. Cogdill,3 holding as follows: “Where [Cogdill and Jackson’s]
remained in tenancy after the expiration of their lease, the lease became a year-to-
3The Balls were the plaintiffs while Cogdill and Jackson’s were the defendants in the summary
ejectment action. The parties’ roles are reversed on this appeal. Sylva was not a party.
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Opinion of the Court
year tenancy. Because [the Balls] failed to provide the necessary 30 days’ notice, the
trial court did not err in denying [the Balls’] summary ejectment complaint.” Id. at
*1.
On 24 January 2018, Defendants filed an amended motion to dismiss, citing
this Court’s opinion in Ball as further support for dismissal. On 19 February 2018,
Plaintiffs filed a motion for partial summary judgment, also citing this Court’s
opinion in Ball as support for its motion.
The trial court heard Defendants’ original motion to dismiss, but did not
consider this Court’s opinion in Ball, and entered an order on 12 March 2018 denying
the motion. On 16 March 2018, Defendants filed an answer to Plaintiffs’ motion for
partial summary judgment and raised the doctrine of collateral estoppel as a defense
to Plaintiffs’ claims.
On 2 April 2018,4 the trial court heard Plaintiffs’ motion for partial summary
judgment and Defendants’ amended motion to dismiss. Defendants’ motion was
converted to a motion for summary judgment because the trial court considered the
Court of Appeals’ opinion in Ball, a matter outside the pleadings. On 16 April 2018,
the trial court entered its order denying Plaintiffs’ motion for partial summary
4 The order states that this cause of action was “heard before the undersigned judge presiding
over the March 26, 2018 civil session of the Superior Court of Haywood County[.]” However, both
parties stipulated that the “Order appealed from was the result of a hearing held during the April 2,
2018 civil session of the Superior Court of Haywood County[.]”
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Opinion of the Court
judgment and granting Defendants’ motion for summary judgment. From this order,
Plaintiffs appeal.
II. Jurisdiction
The trial court’s 16 April 2018 order granting Defendants’ motion for summary
judgment was a final judgment. Jurisdiction of this appeal is therefore proper under
N.C. Gen. Stat. § 7A-27(b)(1) (2018) and N.C. Gen. Stat. § 1-271 (2018).
III. Discussion
A. Court of Appeals’ opinion in Ball v. Cogdill
We begin this discussion with a summary of this Court’s opinion in Ball v.
Cogdill, which involved the same background facts and the same parties, except
Sylva, as the case presently before us. In Ball, this Court rejected the Balls’ argument
that the trial court erred by denying their complaint for summary ejectment because
the trial court erroneously concluded that Cogdill and Jackson’s were under a lease
when the Balls attempted to summarily evict them from the Property. This Court
noted, and Cogdill and Jackson’s conceded, that no written notice had been given to
renew the Lease beyond the expiration of the first, seven-year period. Id. at *4. This
Court explained, however, that the “failure to renew a lease does not automatically
result in ejectment of a tenant.” Id. The record reflected that Cogdill and Jackson’s
had “remained in tenancy” after the expiration of the Lease and paid rent every
month to the Balls, and the Balls had accepted the payment. Id. at *5-6. Citing our
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Opinion of the Court
Supreme Court’s opinion in Coulter v. Capitol Fin. Co., 266 N.C. 214, 217, 146 S.E.2d
97, 100 (1966), this Court concluded the Lease had thus become a year-to-year
tenancy created by operation of law, terminable by either party upon giving the other
thirty days’ notice directed to the end of the year of such new tenancy. Id. at *5. As
the Balls had failed to give Cogdill and Jackson’s the requisite thirty days’ notice
before demanding they vacate the Property, the Balls could not summarily eject
Cogdill and Jackson’s after they refused to vacate. Id. at *6.
B. Present Appeal
The parties agree that, pursuant to Ball, Plaintiffs were under a year-to-year
tenancy created by operation of law when Sylva sold the Property to the Balls.5 The
parties disagree, however, as to the legal import of the Ball decision regarding the
Right of First Refusal contained in the written Lease. Plaintiffs argue that all of their
rights and duties under the Lease, including their Right of First Refusal, continued
in effect after the Lease expired and became a year-to-year tenancy created by
operation of law. Defendants argue that following the expiration of the written Lease,
the Right of First Refusal did not become part of the new year-to-year tenancy created
by operation of law. Thus, the issue before us is whether the year-to-year tenancy
created by operation of law included the Right of First Refusal contained in the
written Lease. We hold that it did not.
5 The parties each argue the doctrine of collateral estoppel to support this shared conclusion.
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Opinion of the Court
C. Standard of Review
Summary judgment is proper “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that any party is entitled to a
judgment as a matter of law.” N.C. Gen. Stat. § 1A-1, Rule 56(c) (2018). The standard
of review of an appeal from summary judgment is de novo. In re Will of Jones, 362
N.C. 569, 573, 669 S.E.2d 572, 576 (2008).
D. Analysis
When a lease for a fixed term of a year, or more, expires, a tenant holds over,
and “the lessor elects to treat him as a tenant, a new tenancy relationship is created
as of the end of the former term.” Kearney v. Hare, 265 N.C. 570, 573, 144 S.E.2d
636, 638 (1965). “This is, by presumption of law, a tenancy from year to year, the
terms of which are the same as those of the former lease in so far as they are
applicable . . . .” Id. Our appellate courts have not squarely addressed whether a
right of first refusal, which “creates in its holder . . . the right to buy land before other
parties if the seller decides to convey it[,]” Smith v. Mitchell, 301 N.C. 58, 61, 269
S.E.2d 608, 610-11 (1980), is a term “applicable” to a year-to-year tenancy created by
operation of law after the expiration of a written lease. Our appellate courts have,
however, addressed this issue in the context of an option to purchase property in a
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Opinion of the Court
written lease agreement. Id. (explaining that a right of first refusal is analogous to
an option to purchase, which creates in its holder the power to compel sale of land).
This Court concluded in Vernon v. Kennedy, 50 N.C. App. 302, 273 S.E.2d 31
(1981), that an option in the written lease to purchase the leased property could not
be construed as “applicable” to the tenancy from year to year created by operation of
law. Id. at 304, 273 S.E.2d at 32. The one-year lease in Vernon included an option to
extend the lease for an additional, one-year period. The lease thus provided, “at an
absolute maximum, for a term of two years” and could not remain “in force after 30
April 1973.” Id. at 303, 273 S.E.2d at 32. The lease also included an option for
plaintiffs to purchase the property “at any time during the term of this lease or
extended period thereof . . . .” Id.
On 21 November 1979, plaintiffs in Vernon brought an action for specific
performance of the option to purchase contained in the written lease. This Court
explained that upon the expiration of the written lease, a new tenancy relationship
had been created by operation of law, and thus, plaintiffs “were at best tenants from
year to year under the applicable terms of the expired lease.” Id. This Court held
that the option to purchase could not be construed as “applicable” to the tenancy from
year to year because by its own terms, the option was “limited to ‘the term of this
lease or the extended period thereof.’” Id. at 304, 273 S.E.2d at 32 (quoting the
contract at issue). “Since the lease, again by its own terms, could not be extended
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Opinion of the Court
beyond 30 April 1973, an attempt to exercise the option in 1979 would come outside
the extended term of the lease.” Id.
A similar result was reached in Hannah v. Hannah, 21 N.C. App. 265, 204
S.E.2d 212 (1974), where this Court held that defendant’s obligation under a written
lease to purchase plaintiff’s stock and equipment at the end of the lease did not
remain in effect throughout the period the plaintiff was permitted to hold over after
the expiration of the lease. Id. at 267, 204 S.E.2d at 214. By written agreement,
defendant leased his filling station to the plaintiff for a five-year period and agreed
that “‘[i]f at the end of five years, [defendant] should want possession of said filling
station,’ he would ‘purchase all stock and equipment at 20% discount . . . .’” Id.
Defendant did not want possession at the end of five years, but permitted plaintiff to
hold over and remain in possession as his tenant for more than fifteen additional
years. Id. When defendant proposed to raise plaintiff’s rent, plaintiff demanded that
defendant comply with the provisions of the lease agreement to purchase the stock
and equipment. Defendant refused.
On appeal, this Court looked at the “express language of the original lease
[which] brought the purchase agreement into play only if ‘at the end of five years,’ the
landlord should want possession.” Id. at 267-68, 204 S.E.2d at 214. As the original
lease term was also for a period of five years, “obviously the parties contemplated the
possibility that there might be a holding over or an extension after the initial five-
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Opinion of the Court
year term, but nothing in the language indicate[d] that the parties intended the
purchase obligation to remain in effect throughout whatever holdover or extended
period might occur.” Id. Accordingly, this Court held “that defendant’s obligation to
purchase as contained in the . . . written agreement was no longer in effect when,
more than twenty years thereafter, he was called upon to fulfill it.” Id. at 268, 204
S.E.2d at 214.
In a slightly different factual scenario, the Court in Davis v. McRee, 299 N.C.
498, 263 S.E.2d 604 (1980), concluded that an option to purchase was incorporated
into an express extension of an original lease. The parties entered into a written,
one-year lease agreement, which contained an option for defendants to purchase the
property during the lease period. When the agreement expired on 31 January 1974,
defendants continued in tenancy and continued to make rental payments until 13
August 1974. On that date, the parties met and added the following language to the
end of the original lease agreement: “The term of this lease shall be from Jan. 31,
1974 through Jan. 31, 1976.” Id. at 500, 263 S.E.2d at 605.
In the fall of 1975, defendants indicated their intention to exercise the option
to purchase. They arranged to borrow the purchase money, and plaintiffs executed a
deed to the property. The parties ultimately disagreed on the sale price, and plaintiffs
instituted an action to cancel the deed. In court, plaintiffs argued that the option to
purchase had died with the expiration of the term of the original lease and that the
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Opinion of the Court
new agreement was not effective to revive the option. Id. at 501, 263 S.E.2d at 606.
Our Supreme Court noted, “Where the parties have made a separate agreement
extending the lease, the agreement must be examined in light of all the circumstances
in order to ascertain the meaning of its language, with the guide of established
principles for the construction of contracts, and in the light of any reasonable
construction placed on it by the parties themselves.” Id. at 502, 263 S.E.2d at 606-07
(quotation marks and citation omitted). The Court held it was “evident from the
conduct of the parties here that they intended to incorporate the option to purchase
in their August agreement to extend the lease.” Id. at 503, 263 S.E.2d at 607.
As in Vernon and Hannah, Defendants’ obligation to offer Plaintiffs the Right
of First Refusal to purchase the Property was not applicable to the year-to-year
tenancy created by operation of law, and did not remain in effect throughout the
period in which Plaintiffs were permitted to hold over after the expiration of the
Lease. By written agreement, the Lease expired by its express terms on 31 May 2006,
unless timely renewed for a second, seven-year period. Prior to the expiration of the
Lease on 31 May 2006, Plaintiffs failed to timely exercise their option to renew the
Lease for a second, seven-year period. Additionally, prior to the expiration of the
Lease on 31 May 2006, Plaintiffs did not exercise their Right of First Refusal as
Defendants did not desire to sell the Property. Moreover, even if timely notice to
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Opinion of the Court
renew had been given, the Lease provided, at an absolute maximum, for a period of
fourteen years and could not remain in force after 31 May 2013.
As in Vernon, upon the expiration of the written Lease, a new tenancy
relationship was created by operation of law, and thus, Plaintiffs were tenants from
year to year under the applicable terms of the expired lease. Ball at *5. Although
the Right of First Refusal clause itself does not specifically reference the Lease
expiration dates, the Lease by its own terms could not be extended beyond 31 May
2013. Thus, an attempt to enforce the Right of First Refusal in 2015 “would come
outside the extended term of the lease.” Vernon, 50 N.C. App. at 304, 273 S.E.2d at
32.
Moreover, unlike in Davis, the parties in this case did not expressly extend the
Lease after its expiration and Plaintiffs’ attempt to exercise their Right of First
Refusal was not made during such extended term, but was made nine years after the
Lease’s expiration. Furthermore, while the parties’ conduct in Davis evidenced an
intent to incorporate the purchase option into the express extension of the lease
agreement, the parties’ conduct in entering into the Lease in this case did not. The
terms of the Lease specifically did not provide for incorporation of the Right of First
Refusal as the renewal terms were to be determined by the parties at least ninety
days before the expiration of the first, seven-year lease period. See Hannah, 21 N.C.
App. at 268, 204 S.E.2d at 214 (“nothing in the language indicate[d] that the parties
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Opinion of the Court
intended the purchase obligation to remain in effect throughout whatever holdover
or extended period might occur”).6 Accordingly, Defendants’ obligation to offer
Plaintiffs the Right of First Refusal contained in the written Lease was no longer in
effect when, approximately nine years thereafter, they were called upon to do so. See
Vernon, 50 N.C. App. at 304, 273 S.E.2d at 32; Hannah, 21 N.C. App. at 268, 204
S.E.2d at 214; see also Atlantic Product Co. v. Dunn, 142 N.C. 471, 471, 55 S.E. 299,
300 (1906) (holding that an option to renew a lease or purchase property contained in
a written lease can “be exercised only while the lease was in force”); Smyth v. Berman,
242 Cal. Rptr. 3d 336 (Cal. App. 5th 2019) (holding that a right of first refusal
contained in an expired written lease was not an essential term which carried over
into the holdover tenancy); Bateman v. 317 Rehoboth Ave., LLC, 878 A.2d 1176, 1185
(Del. Ch. 2005) (holding that a right of first refusal in a lease agreement does not
presumptively carry over into a holdover tenancy).
This result is supported by the public policy purposes that statutory and
common law holdover tenancies were generally created to address, as explained by
Vice Chancellor Strine of the Court of Chancery of Delaware:
Historically, in our legal tradition, when tenants continued
to occupy property beyond the expiration of a lease,
landlords were entitled to treat holdover tenants as
trespassers, or to summarily evict them. The doctrine of
6 The dissent’s analysis relies upon testimonial evidence contained in a transcript from a prior
case, concerning a different issue, before this Court. That transcript is not part of this record on
appeal. Our “review is solely upon the record on appeal, the verbatim transcript of proceedings . . .,
and any other items filed pursuant to this Rule 9.” N.C. R. App. P. 9(a) (2018).
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Opinion of the Court
‘self-help’ arose in the interest of landlords and incoming
tenants, allowing landlords to promptly recover possession
of leased property from tenants who held it improperly.
Not surprisingly, widespread use of ‘self-help’ remedies led
to concerns for the endangerment of persons and property,
and breaches of the peace. Statutory [and common law]
holdover tenancies emerged as a means of protecting
tenants from self-help by landlords who were legally
entitled to treat them as trespassers -- that is, to keep
people from being dumped out on the street. [Holdover
tenancies] attempt to maintain the status quo of a tenant’s
occupancy and use of leased property for a short period of
time during which a landlord can pursue summary
eviction. This approach balances the policy objectives of
permitting landlords and incoming tenants to recover
possession of property in a timely fashion and permitting
outgoing tenants to move out in an orderly manner,
thereby ‘improving the prospects for preserving the public
peace.’
Bateman, 878 A.2d at 1182-83. “Holdover tenancies are therefore not intended to
prolong the existence of legal rights between the landlord and tenant, such as rights
of first refusal, that are otherwise unrelated to occupancy and use of property.” Id.
at 1183. Moreover, “[u]nlike an option to purchase property, which an option holder
can proactively exercise, a right of first refusal can be exercised only when the holder
of property entertains an offer from a third party to purchase the property.” Id. at
1183-84. Thus, “the extension of a right of first refusal beyond the termination of the
contract that conveyed that right makes little sense, given the ease with which the
exercise of such a right could be frustrated.” Id. at 1184.
If a right of first refusal presumptively carried forward into
a holdover tenancy, a landlord wishing to nullify that right
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Opinion of the Court
could easily do so by evicting the holdover tenant and
selling the property one day later, both of which would be
within its rights as the landlord of a holdover tenant. This
creates an incentive for landlords to evict holdover tenants
as soon as possible [], a result at odds with the stability of
commercial tenancies. The contrary rule that carries such
purchase options forward only if the parties so specify
avoids this result, thereby making holdover tenancies more
stable.
Smyth, 242 Cal. Rptr. 3d at 345 (internal quotation marks and citation omitted).
Plaintiffs cite no authority for their assertion that the Right of First Refusal
provided under the Lease continued in effect when Plaintiffs failed to renew the Lease
and continued to inhabit the Property as holdover tenants on a year-to-year basis,
beyond Ball’s inclusion of this quote from Coulter v. Capitol Fin. Co.:
“Nothing else appearing, when a tenant for a fixed term of
one year or more holds over after the expiration of such
term, the lessor has an election. He may treat him as a
trespasser and bring an action to evict him and to recover
reasonable compensation for the use of the property, or he
may recognize him as still a tenant, having the same rights
and duties as under the original lease, except that the
tenancy is one from year to year and is terminable by either
party upon giving to the other 30 days’ notice directed to
the end of any year of such new tenancy.”
Ball at *4-5 (quoting Coulter, 266 N.C. at 217, 146 S.E.2d at 100) (emphasis added).
However, Coulter relied on Kearney v. Hare, cited above, which more precisely
explains that when a lease for a fixed term of a year, or more, expires, a tenant holds
over, and “the lessor elects to treat him as a tenant, a new tenancy relationship is
created as of the end of the former term.” Kearney, 265 N.C. at 573, 144 S.E.2d at
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Opinion of the Court
638. “This is, by presumption of law, a tenancy from year to year, the terms of which
are the same as those of the former lease in so far as they are applicable . . . .” Id.
To be sure, there is precedent from several states holding that rights of first
refusal (or other purchase options) presumptively carry forward into holdover
tenancies. See Smyth, 242 Cal. Rptr. 3d at 345 (listing cases discussing presumptive
rights and options in holdover tenancies). However, the majority rule is the rule
supported by our case law and general policy that we apply today. See id. The Right
of First Refusal in this case was not “applicable” to the year-to-year tenancy created
by operation of law after the expiration of the Lease.
IV. Conclusion
For the reasons stated above, the Right of First Refusal in the written Lease
was not a term applicable to the year-to-year tenancy created by operation of law
upon the expiration of the written Lease. Accordingly, Plaintiffs were not entitled to
be given the Right of First Refusal to purchase the Property prior to Sylva’s sale of
the Property to the Balls. Because of our holding, we need not reach Plaintiffs’
argument that the Right of First Refusal did not violate the rule against perpetuities.
As there was no genuine issue of material fact and Defendants were entitled to
judgment as a matter of law, the trial court’s order granting summary judgment in
favor of Defendants is affirmed.
AFFIRMED.
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Opinion of the Court
Judge ZACHARY concurs.
Judge TYSON dissents by separate opinion.
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No. COA18-845 – Cogdill v. Sylva Supply Company, Inc.
TYSON, Judge, dissenting.
The majority’s opinion erroneously concludes as a matter of law the tenant’s
right of first refusal to purchase the property, included in the original lease between
Plaintiffs and Defendant Sylva Supply Co. Inc., is not a term or provision that is
applicable to or enforceable by Plaintiffs’ during their year-to-year tenancy. The trial
court’s grant of summary judgment in favor of Defendants is error. Whether the
Plaintiffs’ right of first refusal in this case applies to the year-to-year tenancy or is a
wholly independent, stand-alone agreement between the parties, rests upon the
intent of the parties and raises genuine issues of material fact. Summary judgment
is inappropriate in this circumstance. I vote to reverse the trial court’s order and
remand for a trial on the merits. I respectfully dissent.
I. Standard of Review
Summary judgment is proper “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that any party is entitled to a
judgment as a matter of law.” N.C. Gen. Stat. § 1A-1, Rule 56(c) (2017). “[T]he party
moving for summary judgment ultimately has the burden of establishing the lack of
any triable issue of fact.” Pacheco v. Rogers & Breece, Inc., 157 N.C. App. 445, 447,
579 S.E.2d 505, 507 (2003) (citation omitted).
A defendant may show entitlement to summary judgment
by (1) proving that an essential element of the plaintiff’s
case is non-existent, or (2) showing through discovery that
COGDILL V. SYLVA SUPPLY CO.
TYSON, J., dissenting
the plaintiff cannot produce evidence to support an
essential element of his or her claim, or (3) showing that
the plaintiff cannot surmount an affirmative defense.
Summary judgment is not appropriate where matters of
credibility and determining the weight of the evidence
exist.
Draughon v. Harnett Cty. Bd. of Educ., 158 N.C. App. 208, 212, 580 S.E.2d 732, 735
(2003) (citations and internal quotation marks omitted). Defendants cannot meet
this standard.
II. Right of First Refusal
The parties are operating under a year-to-year tenancy, pursuant to this
Court’s holding in Ball v. Cogdill, __ N.C. App. __, 808 S.E.2d 617, 2017 N.C. App.
LEXIS 1074 (2017) (unpublished). Our Supreme Court has stated that when a
landlord continues to accept rent from a tenant after the express term of the lease
expires, a tenancy from year-to-year is created, “the terms of which are the same as
those of the former lease in so far as they are applicable, in the absence of a new
contract between them or of other circumstances rebutting such presumption.”
Kearney v. Hare, 265 N.C. 570, 573, 144 S.E.2d 636, 638 (1965).
The majority’s opinion concludes a right of first refusal is not an “applicable”
term of the lease as a matter of law to affirm summary judgment. Based upon
controlling North Carolina contract law and cases involving option and first refusal
contracts, the intent of the parties is a question of fact and summary judgment is
inappropriate in this case. On the merits and as a question of law, a review of
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COGDILL V. SYLVA SUPPLY CO.
TYSON, J., dissenting
jurisdictions which have ruled on this issue supports a conclusion that a right of first
refusal survives and applies in year-to-year tenancies.
A. North Carolina Law
A right of first refusal is a preemptive right, which “creates in its holder only
the right to buy land before other parties if the seller decides to convey it.” Smith v.
Mitchell, 301 N.C. 58, 61, 269 S.E.2d 608, 610-11 (1980). Though distinguishable
from a unilateral option contract, our Supreme Court has held review of preemptive
rights and options can be analogous. Id. at 63, 269 S.E.2d at 612 (“Just as the
commercial device of the option is upheld, if it is reasonable, so too the provisions of
a preemptive right should be upheld if reasonable, particularly here where the
preemptive right appears to be part of a commercial exchange, bargained for at arm’s
length.”). The right of first refusal can be an express, unitary agreement or can be
contained within a lease, option, covenant, or other agreement.
“[T]he same principles of construction applicable to all contracts apply to option
contracts.” Lagies v. Myers, 142 N.C. App. 239, 247, 542 S.E.2d 336, 341 (2001). If
the terms of the contract are clear, the contract “must be enforced as it is written,
and the court may not disregard the plainly expressed meaning of its language.”
Catawba Athletics, Inc. v. Newton Car Wash, Inc., 53 N.C. App. 708, 712, 281 S.E.2d
676, 679 (1981). “Where the language of a contract is ambiguous, courts consider
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COGDILL V. SYLVA SUPPLY CO.
TYSON, J., dissenting
other relevant and material extrinsic evidence to ascertain the parties’ intent[.]”
Lagies, 142 N.C. App. at 247, 542 S.E.2d at 342.
Ambiguous terms are conditions or provisions that are “fairly and reasonably
susceptible to either of the constructions asserted by the parties.” Glover v. First
Union National Bank, 109 N.C. App. 451, 456, 428 S.E.2d 206, 209 (1993). In
reviewing and construing contracts, ambiguous terms are to be “construed against
the drafting party.” Lagies, 142 N.C. App. at 248, 542 S.E.2d at 342.
The majority’s opinion erroneously purports to base the outcome of this case
on Vernon v. Kennedy, 50 N.C. App. 302, 273 S.E.2d 31 (1981), and Hannah v.
Hannah, 21 N.C. App. 265, 204 S.E.2d 212 (1974). Neither of those cases are
applicable to the facts before us nor are controlling to the outcome of this case.
Vernon construed an option to purchase, as opposed to a right of first refusal,
whose express and explicit terms stated the right could not be construed to survive
expiration of the lease term or be “applicable” to the subsequent year-to-year tenancy:
The option term in paragraph 7 of the lease cannot be
construed as “applicable” to the tenancy from year to year
for the reason that by its own terms, paragraph 7 is limited
to ‘the term of this lease or the extended period thereof.’
Since the lease, again by its own terms, could not be
extended beyond 30 April 1973, an attempt to exercise the
option in 1979 would come outside the extended term of the
lease.
Vernon, 50 N.C. App. at 304, 273 S.E.2d 32 (emphasis supplied).
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COGDILL V. SYLVA SUPPLY CO.
TYSON, J., dissenting
The issue presented in Hannah was similar. A lease of a filling station
included the provision: “If at the end of five years, [the tenant] should want possession
of said filling station, he would purchase all stock and equipment at 20% discount,
and not over 2 years bills.” Hannah, 21 N.C. App. at 267, 204 S.E.2d at 214 (internal
quotation marks omitted) (emphasis supplied). The tenant remained in possession of
the premises for over fifteen years after the lease expired. Id. at 267, 204 S.E.2d at
214. This Court held that the express term “at the end of five years” could not be
construed to include the end of any renewal or extension, and the obligation to
purchase was extinguished. Id. at 268, 204 S.E.2d at 214.
Unlike in Vernon and Hannah, neither the right of first refusal paragraph in
Plaintiffs’ lease nor the “Memorandum of Lease and Right of First Refusal”
(“Memorandum”) contain any express limitation restricting the right to a specific
term or event. Paragraph XI states that if the landlord desires to sell the property
“it shall offer” the option to purchase to the tenant. The majority’s opinion asserts
the terms of the lease restrict the right of first refusal to the dates of the lease and
one additional seven year extension. Without express language limiting the
applicability of the right of first refusal upon the expiration of the lease as in Vernon
or to a specific time as in Hannah, the applicability of the right is, at minimum,
ambiguous.
The Memorandum states:
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COGDILL V. SYLVA SUPPLY CO.
TYSON, J., dissenting
The undersigned hereby declare that they have
entered into a Lease and Right of First Refusal Agreement
dated May 19, 1999, which contains a right of first refusal
conveyed by Sylva Supply Company, Inc. to Crystal Cogdill
Jones, upon the property located at 582 West Main Street,
Sylva, North Carolina, known as the Sylva Supply
Company Building.
The undersigned further state that the written
instrument of lease and right of first refusal and any
amendments thereto will be kept for safekeeping at the
office of Sylva Supply Company, Inc. . . .
(Emphasis supplied). This written Memorandum is express in its terms and meets
all the requirements of the Statute of Frauds for “the party to be charged.” N.C. Gen.
Stat. § 22-2 (2017). At minimum, genuine issues of material fact exist on the intent
of the parties of the provisions and Memorandum.
The majority’s opinion purports to distinguish our Supreme Court’s holding in
Davis v. McRee, 299 N.C. 498, 263 S.E.2d 604 (1980), though the facts of that case
are clearly more applicable here than either Vernon or Hannah. The majority
opinion’s analysis hinges upon the parties in Davis having retroactively extended
their lease beyond the original term after a holdover, and attempted to exercise their
option to purchase during that retroactively extended renewal term. However, the
terms of the lease in Davis were deemed to be ambiguous, and our Supreme Court’s
analysis of how to construe ambiguous option terms is instructive and controlling
here:
[T]he ultimate test in construing any written agreement is
to ascertain the parties’ intentions in light of all the relevant
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COGDILL V. SYLVA SUPPLY CO.
TYSON, J., dissenting
circumstances and not merely in terms of the actual
language used.
...
The parties are presumed to know the intent and meaning
of their contract better than strangers, and where the
parties have placed a particular interpretation on their
contract after executing it, the courts ordinarily will not
ignore that construction which the parties themselves have
given it prior to the differences between them.
Davis, 299 N.C. at 502, 263 S.E.2d at 606-07 (emphasis supplied).
Our Supreme Court in Davis looked to the actions of the parties because the
Court deemed the language and applicability of the lease extension to be ambiguous.
Id. at 502-03, 263 S.E.2d 607. The subsequent actions of both parties indicated their
intention to abide by and extend the option: the defendants exercised their option and
the plaintiffs had the deed of purchase drawn up. Id.
Here, the terms of the lease and the signed and recorded Memorandum,
viewed in the light most favorable to Plaintiffs, are ambiguous, as there is no
expressed limitation on or termination of the right of first refusal. We also take
judicial notice of subsequent behavior by parties, which also suggests the recorded
right of first refusal survived the expiration of the lease, with or without the year-to-
year tenancy, and shows ambiguity. See N.C. Gen. Stat. § 8C-1, Rule 201 (2017) (a
fact that is “capable of accurate and ready determination by resort to sources whose
accuracy cannot reasonably be questioned” can be judicially noticed “at any stage of
the proceeding”); see also West v. Reddick, Inc., 302 N.C. 201, 202-03, 274 S.E.2d 221,
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COGDILL V. SYLVA SUPPLY CO.
TYSON, J., dissenting
223 (1981) (“This Court has long recognized that a court may take judicial notice of
its own records in another interrelated proceeding where the parties are the same,
the issues are the same and the interrelated case is referred to in the case under
consideration . . . . on any occasion where the existence of a particular fact is
important, as in determining the sufficiency of a pleading”).
As noted in the record when this case was previously before this Court, Sylva
Supply Company, Inc., provided Ms. Cogdill with an opportunity to purchase the
property during the year-to-year tenancy in 2012, though the transaction did not
close. This proffer indicates the owner/landlord’s recognition of the continued
viability and its intent to continue honoring the tenant’s express right of first refusal,
either as stated in the lease or the recorded Memorandum. However, the 2015 sale
of the property that is before us, closed without seller-landlord offering Plaintiffs the
first refusal to exercise their right to purchase the property, which injects ambiguity
into the intent and actions of the parties.
Further, W. Paul Holt, Jr., the attorney who drafted the original lease,
amendment, and recorded Memorandum, and maintained possession of the lease in
his office, was also the closing attorney and drafted the 2015 deed for the sale of the
property to the Balls. This deed warrants the premises were free from all
encumbrances on 7 May 2016. Not only are ambiguous terms construed against the
drafter, see Lagies, 142 N.C. App. at 248, 542 S.E.2d at 342, the lease is also construed
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COGDILL V. SYLVA SUPPLY CO.
TYSON, J., dissenting
against the original drafter’s successor-in-interest. See Mosley & Mosley Builders,
Inc. v. Landin, Ltd., 97 N.C. App. 511, 525, 389 S.E.2d 576, 584 (1990).
The ambiguity present in the language of the contract, in the express language
contained in the Memorandum, and in the subsequent actions of the parties presents
and shows genuine issues of material fact exist, which precludes disposition of this
case by summary judgment. See Pacheco, 157 N.C. App. at 447, 579 S.E.2d at 507.
The trial court’s order is properly reversed.
B. Other Jurisdictions
The genuine issues of material facts of the parties’ intent existing in this case
do not require a determination on whether rights of first refusal are “applicable”
terms under a year-to-year lease. The express terms and provisions of the signed and
recorded Memorandum preclude summary judgment for Defendants. I also disagree
with the majority opinion’s analysis of how North Carolina law determines this issue.
The majority’s opinion cites a purported “majority” rule, which holds the right
of first refusal presumptively does not carry forward, as the rule that is supported by
North Carolina case law and general public policy. A closer reading of states which
have decided this issue indicates North Carolina does not agree with nor follow their
decisions.
The majority’s opinion cites Smyth v. Berman, 242 Cal. Rptr. 3d 336 (Ct. App.
2 Dist. 2019), which provides a survey of states that have ruled on the issue of
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COGDILL V. SYLVA SUPPLY CO.
TYSON, J., dissenting
whether rights of first refusal carry forward into holdover tenancies after the lease
term expires. Id. at 345-46. The opinion in Smyth characterizes North Carolina as
part of the “majority” rule, based upon the ruling in Vernon. As discussed above and
in other jurisdictions, Vernon is distinguishable “based on . . . [the court’s]
interpretation of the particular [and express] lease terms presented.” Kutkowski v.
Princeville Prince Golf Course, LLC, 289 P.3d 980, 992 (Haw. Ct. App. 2012), rev’d on
other grounds, 300 P.3d 1009 (Haw. 2013); see also Peter-Michael, Inc. v. Sea Shell
Assocs., 709 A.2d 558, 563 & n.6 (Conn. 1998).
Kutkowski held that “[w]hen a lease for a specified term is not extended or
renewed, and the lessee holds over after the expiration of the lease, unless otherwise
agreed, the law implies that the parties’ rights and obligations with respect to that
holdover tenancy continue as set forth in the expired lease agreement.” Id. at 994
(emphasis supplied). This principle “states the common law followed in Hawai‘i and
most every other jurisdiction surveyed, and sets forth the common understanding and
rules applicable to the dealings of landlord and tenant after the termination of their
express agreement, but effectuates, as the law must, the parties’ right to agree to the
contrary.” Id. This analysis and conclusion follows the common law of our state. See
Kearney, 265 N.C. at 573, 144 S.E.2d at 638; see also Coulter v. Capitol Fin. Co., 266
N.C. 214, 217, 146 S.E.2d 97, 100 (1966).
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COGDILL V. SYLVA SUPPLY CO.
TYSON, J., dissenting
The majority’s opinion from this “error correcting court” cites Bateman v. 317
Rehoboth Ave., LLC, 878 A.2d 1176, 1183 (Del. Ch. 2005), to explain the purported
“public policy” reasons behind its holding. The Chancery Court of Delaware noted
that
Statutory holdover tenancies emerged as a means of
protecting tenants from self-help by landlords who were
legally entitled to treat them as trespassers – that is, to
keep people from being dumped out on the street. Statutes
such as § 5108 attempt to maintain the status quo of a
tenant’s occupancy and use of leased property for a short
period of time during which a landlord can pursue
summary eviction. This approach balances the policy
objectives of permitting landlords and incoming tenants to
recover possession of property in a timely fashion and
permitting outgoing tenants to move out in an orderly
manner, thereby “improving the prospects for preserving
the public peace.” Holdover tenancies are therefore not
intended to prolong the existence of legal rights between
the landlord and tenant, such as rights of first refusal, that
are otherwise unrelated to occupancy and use of property.
Id. at 1183. For lease terms of a year or more in Delaware, the holdover “term shall
be month-to-month, and all other terms of the rental agreement shall continue in full
force and effect.” Del. Code Ann. tit. 25, § 5108 (2009).
Similarly, California courts also declined to presumptively extend the right of
first refusal into the holdover period in order to make “holdover tenancies more
stable.” Smyth, 242 Cal. Rptr. 3d at 345. Like Delaware, California prescribes an
express month-to-month term for a holdover period, generally. Cal. Civ. Code § 1945
(West 2010).
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COGDILL V. SYLVA SUPPLY CO.
TYSON, J., dissenting
Delaware and California’s rule, and thus their “public policy” support for this
rule, is inapplicable to North Carolina. As stated by our Supreme Court, the “common
understanding and rules applicable to the dealings of landlord and tenant after the
termination” of a lease agreement in North Carolina is:
Nothing else appearing, when a tenant for a fixed term of
one year or more holds over after the expiration of such
term, the lessor has an election. He may treat him as a
trespasser and bring an action to evict him and to recover
reasonable compensation for the use of the property, or he
may recognize him as still a tenant, having the same rights
and duties as under the original lease, except that the
tenancy is one from year to year and is terminable by either
party upon giving to the other 30 days’ notice directed to
the end of any year of such new tenancy.
The parties to the lease may, of course, agree upon a
different relationship.
Coulter, 266 N.C. at 217, 146 S.E.2d at 100 (citations omitted) (emphasis supplied).
The parties can also reach an express, independent agreement irrespective of the
lease for a right of first refusal as is contained in the signed and recorded
Memorandum. Further, in Spinks v. Taylor, our Supreme Court held that a landlord
maintains the right of peaceful self-help to evict a holdover tenant and to regain
possession of the premises, at least in a non-residential lease. Spinks v. Taylor, 303
N.C. 256, 262, 278 S.E.2d 501, 504 (1981). The lease before us is a commercial lease
between parties of relatively equal bargaining power.
In deciding the applicability of rights of first refusal to holdover tenancies, if
the agreement before us is wholly dependent upon the lease, North Carolina should
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TYSON, J., dissenting
consider persuasive authority from states with similar holdover tenancy structures.
Wisconsin enacted a statute which “gives the landlord the election to treat the
holdover tenant as a tenant from year to year under the lease and gives both the
landlord and the tenant the right to terminate such lease at the end of any year upon
30-days-written notice.” Last v. Puehler, 120 N.W.2d 120, 122 (Wis. 1963). In its
consideration of rights of first refusal, the Wisconsin Supreme Court stated:
We consider an option to purchase or right of a first refusal
to be an integral part of the lease and one of its terms
within the meaning of this section. It is not an uncommon
practice to insert an option to purchase or a right of first
refusal in a lease. In many cases no lease would be entered
into by the tenant without such protection.
The interpretation commanded by the language of this
section is both logical and fair. Upon the expiration of the
written lease the tenant has the duty to surrender the
property. If he holds over, he runs the risk of being
considered a holdover tenant with all the burdens of the
lease. The pinpointed question in this case is whether he
also runs the risk, if it is one, of acquiring all the benefits
which the lease might provide. Conversely, the landlord
may eject the tenant, make a new agreement mutually
satisfactory to him and the tenant, or elect under sec.
234.07, Stats. By such an election the landlord receives the
benefits of the lease from year to year but likewise incurs
its obligations and the tenant is then bound from year to
year both as to the advantages and disadvantages to him
of the lease. It is logical to believe the legislature intended
by the operation of this section to leave the parties as they
were under the original lease after the landlord elected to
come under the section. We cannot construe the statute to
mean that by the election of the landlord a common law
tenancy is created free and clear from some terms of the
lease but not from others.
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TYSON, J., dissenting
Id. at 122-23 (emphasis supplied).
This analysis and logic presumes a right of first refusal or other option to
purchase carries forward into a holdover tenancy unless a contrary intent appears.
Unlike in both Vernon and Hannah, the lease in this case contained no language
indicating the right of first refusal did not carry into the year-to-year tenancy. The
applicable law to these facts should be applied under this analysis.
III. Conclusion
The Defendants failed to meet their burden to be awarded summary judgment,
as factual questions of intent of the parties remain. I disagree with the majority
opinion’s holding and with its application of policies from states with disparate
holdover tenancy rules. Also, the recorded Memorandum contains an express right
of first refusal agreement between the parties, which is not tied to nor dependent
upon the lease.
Genuine issues of material facts exist of the parties intent and actions. I vote
to reverse summary judgment and remand to the trial court for a hearing on the
merits. I respectfully dissent.
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Cogdill v. Sylva Supply Co.
Court: Court of Appeals of North Carolina
Date filed: 2019-05-07
Citations: 828 S.E.2d 512, 265 N.C. App. 129
Copy CitationsCombined Opinion