Brady Sullivan Millworks, LLC v. Lifeshare Liquidation Company, Inc. & a.

THE STATE OF NEW HAMPSHIRE

SUPREME COURT

In Case No. 2013-0761, Brady Sullivan Millworks, LLC v.
Lifeshare Liquidation Company, Inc. & a., the court on March
12, 2015, issued the following order:

Having considered the briefs and oral arguments of the parties, the court
concludes that a formal written opinion is unnecessary in this case. The
defendants, Lifeshare Liquidation Company, Inc. and Lifeshare Management
Group, Inc. (collectively, Lifeshare), appeal an order of the Superior Court
(Garfunkel, J.) granting the summary judgment motion of the plaintiff, Brady
Sullivan Millworks, LLC (Brady), and denying Lifeshare’s cross-motion for
summary judgment. We affirm in part, reverse in part, and remand.

The following facts are drawn from the trial court’s order or are otherwise
undisputed. In May 2006, Lifeshare entered into a lease agreement with
Tokena Corporation (Tokena), which owned a building at 95 Eddy Road in
Manchester. The agreement stated, in pertinent part, that Lifeshare would
lease from Tokena for a period of five years:

7,500 square feet of interior space [of the building at 95 Eddy Road] . . .
(hereinafter referred to as the “Leased Premises”). Plus [Lifeshare]’s
obligation to lease 3,750 square feet of the Leased Premises, identified as
Contingent Space . . . shall be contingent on [Lifeshare] executing a
sublease for its existing leasehold at 225 Eddy Road, Manchester, NH
and, upon satisfaction of such contingency, the Leased Premises shall
automatically be deemed to include the Contingent Space without further
act of the parties.

Accordingly, Lifeshare would initially occupy the 7,500 square-foot space
(Initial Space), and it would occupy the 3,750 square-foot Contingent Space
after subleasing its location at 225 Eddy Road. Tokena agreed to “fit up” both
the Initial Space and the Contingent Space at its own expense, and the term of
the lease would commence once the fit up of the Initial Space occurred.

A month later, in June 2006, Tokena entered into a purchase and sale
agreement with Brady for the building at 95 Eddy Road. Tokena and Brady
agreed that Tokena would complete the fit up of the Initial Space for Lifeshare,
and Brady would, upon closing, assume Tokena’s other obligations under the
lease with Lifeshare.

In August 2006, Lifeshare sublet its space at 225 Eddy Road, effective
September 1, and notified Tokena of the sublease. Tokena subsequently
completed the fit up of the Initial Space, and Lifeshare commenced occupancy
of that space on September 15. The sale of the building to Brady closed on
November 16.

Beginning in December 2006, representatives of Brady met with
Lifeshare to discuss selling, rather than leasing, the Initial Space to Lifeshare.
On numerous occasions during the negotiations, Lifeshare informed Brady
that, if the parties were unable to reach a purchase agreement, it expected the
Contingent Space to be fit up and leased to it. Brady stated that it did not
intend to fit up or lease the Contingent Space. Subsequently, in May 2007,
Brady notified Lifeshare that it would lease Lifeshare the Contingent Space
with the fit up performed at Lifeshare’s expense and with the lease rate to be
negotiated.

Although the parties entered into a purchase and sale agreement for the
Initial Space in August 2007, the deal did not close. Thereafter, Lifeshare
notified Brady that, pursuant to the lease, it wanted the Contingent Space fit
up at Brady’s expense. Brady refused, and, in December 2008, Lifeshare
vacated, and ceased paying rent for, the Initial Space.

Brady then sued Lifeshare. Thereafter, the parties filed cross-motions for
summary judgment. In ruling on the cross-motions, the trial court first
determined that Brady’s obligation to lease the Contingent Space was not a
condition of the lease because the contingency — Lifeshare’s subleasing of its
space at 225 Eddy Road — occurred before the lease became effective. The
court concluded that “from day one the lessor was obligated by the terms of the
lease to provide the ‘Leased Premises,’ including both the [Initial Space] as well
as the Contingent Space.” The trial court explained that Brady’s “failure to fit
up and lease the Contingent Space was therefore simply a failure to provide the
entirety of the Leased Premises bargained for in the lease.”

Nonetheless, the trial court determined that, based upon “the
independent covenants rule,” Lifeshare was obligated to continue to pay rent
for the Initial Space, pursuant to the lease, despite Brady’s failure to fit up and
lease the Contingent Space. The court observed that its ruling yielded a harsh
result, but noted that it was bound by Matte v. Shippee Auto, 152 N.H. 216,
220-22 (2005), in which we reaffirmed the independent covenants rule. The
court also noted that Lifeshare could have lessened the harsh outcome by
maintaining its counterclaims against Brady rather than voluntarily nonsuiting
them with prejudice. Accordingly, the trial court granted Brady’s summary
judgment motion and denied Lifeshare’s cross-motion for summary judgment.

In reviewing the trial court’s rulings on cross-motions for summary
judgment, we consider the evidence in the light most favorable to each party in

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its capacity as the nonmoving party and, if no genuine issue of material fact
exists, we determine whether the moving party is entitled to judgment as a
matter of law. Granite State Mgmt. & Res. v. City of Concord, 165 N.H. 277,
282 (2013). “If our review of that evidence discloses no genuine issue of
material fact and if the moving party is entitled to judgment as a matter of law,
then we will affirm the grant of summary judgment.” Id. (quotation omitted).

On appeal, Lifeshare presents three separate arguments to support its
contention that the trial court erred when it ruled that Lifeshare was obligated
to continue paying rent for the Initial Space. Lifeshare argues that: (1) the
independent covenants rule does not apply because the Contingent Space
provision in the lease was a condition and not a covenant; (2) even if we deem
the Contingent Space provision to be a covenant, Lifeshare’s obligation to pay
rent for the Initial Space was dependent upon Brady’s fulfillment of its
obligation to fit up and lease the Contingent Space; and (3) even if we deem the
Contingent Space provision to be a covenant, and even if the independent
covenants rule applies, Brady’s failure to fit up and lease the Contingent Space
“constituted a partial actual eviction that entitled Lifeshare to cease payment of
rent and cancel the lease.” Lifeshare further urges us to abandon the
independent covenants rule and, instead, adopt the doctrine of dependent lease
covenants. Lifeshare also contends that, because Brady violated the terms of
the lease when it failed to provide the Contingent Space, and because no
reasonable fact-finder could conclude that Lifeshare waived its right to lease
the Contingent Space, the trial court erred in denying its motion for summary
judgment.

In response, Brady maintains that the independent covenants rule
should not be abandoned, applies here, and is dispositive. Brady also argues
that Lifeshare did not properly preserve its “partial actual eviction” argument
for our review, and that, even if it did, Lifeshare could not have been “partially
actually evicted as [Lifeshare] was never in possession of the Contingent
Space.” Brady further asserts that Lifeshare is not entitled to summary
judgment in its favor because “the case would necessarily have to be remanded
. . . as there is a factual dispute involving Lifeshare’s waiver of the right to
demand fit-up and occupancy of the Contingent Space.”

As a threshold matter, we recognize that, in the trial court, neither the
parties nor the court specifically addressed the issue of whether Brady’s
actions constituted a partial actual eviction. Ordinarily, we will not review
arguments that were not timely raised before the trial court. Camire v.
Gunstock Area Comm’n, 166 N.H. 374, 377 (2014). “This rule, however, is not
absolute.” Id. “As we have previously recognized, preservation is a limitation
on the parties to an appeal and not the reviewing court.” Id. The issue of
whether Brady’s actions constituted a partial actual eviction presents a
question of law. See id. Moreover, because the facts material to disposition of
the partial actual eviction issue are not in dispute, our consideration of the

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issue does not require additional fact finding by the trial court. Therefore, in
the interest of judicial economy, and because both parties fully addressed the
issue in their briefs and during oral argument before us, we will consider it.
See id.

We agree with Lifeshare that, regardless of whether the Contingent Space
provision was a condition or a covenant, Brady’s failure to fit up and lease the
Contingent Space entitled Lifeshare to cease paying rent for the Initial Space.
Therefore, we need not address Lifeshare’s challenge to the viability of the
independent covenants rule.

Lifeshare first argues that the Contingent Space provision was a
condition, rather than a covenant, of the lease agreement.

The primary distinction between a covenant and condition [in a lease]
pertains to the remedy in case of a breach; the breach of a condition
upon which a leasehold estate is granted results in automatic
termination or forfeiture of the estate, whereas the breach of a covenant
does not automatically terminate the estate, but instead subjects the
breaching party to liability for monetary damages in an action at law or,
in extraordinary circumstances, the remedy of a conditional decree of
cancellation.

49 Am. Jur. 2d Landlord and Tenant § 58, at 98-99 (2006). Arguably, fitting
up and leasing the Contingent Space was a condition upon which the entire
leasehold was granted. See id. Under the terms of the lease, once Lifeshare
sublet its existing leasehold, “the Leased Premises [were] automatically . . .
deemed to include the Contingent Space without further act of the parties.”
Accordingly, if the Contingent Space provision was a condition, Brady’s failure
to fit up and lease the Contingent Space constituted a breach thereof, the lease
was automatically terminated, and, therefore, Lifeshare was entitled to cease
paying rent for the Initial Space. See id.

On the other hand, if Lifeshare’s obligation to pay rent for the Initial
Space was a covenant that was dependent upon Brady’s obligation to fit up and
lease the Contingent Space, Lifeshare would likewise prevail because Brady
failed to perform its obligation. See Matte, 152 N.H. at 220 (noting that, under
the dependent covenant theory, “the tenant’s obligation to pay rent [is]
dependent upon the landlord’s performance of some or all of the landlord’s
obligations under the lease”).

Finally, if the Contingent Space provision was a covenant independent of
Lifeshare’s obligation to pay rent, Lifeshare would prevail because Brady’s
failure to fit up and lease the Contingent Space constituted a partial actual
eviction. The independent covenants rule is a “common law rule that the
covenants of a lease are independent, and only an actual or constructive

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eviction will relieve a tenant of his obligation to pay rent.” Id. An actual
eviction can be either total or partial. See Echo Consulting Services v. North
Conway Bank, 140 N.H. 566, 568 (1995). “A partial actual eviction occurs
when the landlord deprives the tenant of physical possession of some portion of
the leased property, including denial of access to the leased premises.” Id.

Here, Brady did not fit up and lease the Contingent Space despite
Lifeshare’s fulfillment of the contingency in the lease agreement prior to the
inception of the lease. According to the clear and unambiguous terms of the
lease, “upon satisfaction of such contingency, the Leased Premises [were]
automatically . . . deemed to include the Contingent Space without further act
of the parties.” As the trial court correctly noted, Brady’s failure to fit up and
lease the Contingent Space was a failure to provide the entire leased premises
to Lifeshare as provided in the lease agreement. It is irrelevant that Lifeshare
never occupied the Contingent Space because, by denying Lifeshare access to
the Contingent Space, Brady deprived Lifeshare of “physical possession of some
portion of the leased property,” which constituted a partial actual eviction. Id.
Accordingly, Lifeshare was relieved of its obligation to pay rent for the Initial
Space. See Matte, 152 N.H. at 220.

In sum, regardless of which analytical framework applies in this case,
Lifeshare was not obligated to continue paying rent to Brady for the Initial
Space. Accordingly, the trial court’s decision to the contrary was erroneous,
and we reverse the trial court’s grant of Brady’s motion for summary judgment.

This does not mean, however, that Lifeshare is entitled to entry of
summary judgment in its favor. Brady argues that, because a factual dispute
exists regarding whether Lifeshare waived its right to the fit up and lease of the
Contingent Space, summary judgment in favor of Lifeshare is not warranted
and that we should remand. We agree. A “waiver requires an actual intention
to forego a known right.” Duke/Fluor Daniel v. Hawkeye Funding, 150 N.H.
581, 584 (2004) (quotation omitted). “Such a waiver should not be presumed;
a clear expression of intent to waive the right must exist.” Id. (quotation
omitted). Here, the trial court did not reach the waiver issue, and there exists
a genuine issue as to whether Lifeshare waived its right to demand the fit up
and lease of the Contingent Space. Therefore, we remand for further
proceedings regarding the waiver issue.

Affirmed in part; reversed
in part; and remanded.

DALIANIS, C.J., and HICKS, CONBOY, and BASSETT, JJ., concurred.

Eileen Fox,
Clerk

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