Shields Ltd. v. Boo Nathaniel Bradberry & 40/40 Enters.

526 S.W.3d 471

SHIELDS LIMITED PARTNERSHIP, Petitioner,

v.Boo Nathaniel BRADBERRY and 40/40 Enterprises, Respondents

No. 15-0803.

Supreme Court of Texas.

Argued March 23, 2017

OPINION DELIVERED: May 12, 2017

Rehearing Overruled September 22, 2017

John Sepehri, Austin, for Amicus Curiae Texas Apartment Association.

Dylan B. Russell, Joseph O. Slovacek, Paul Aram Pilibosian, Hoover Slovacek LLP, Houston, for Petitioner.

W. Carter Boisvert, Friedman & Feiger, L.L.P., Dallas, for Respondents.

Justice Guzman delivered the opinion of the Court.

In this forcible-detainer action,¹ a commercial landlord seeks to oust a long-term tenant claiming a superior right of immediate possession under a lease-extension option. Though the tenant frequently defaulted on the lease's rental-payment terms, the landlord regularly accepted the tenant's rental payments when tendered and without protest. The parties had agreed, however, that the landlord's "acceptance of late installment of Rent shall not be a waiver and shall not estop Landlord from enforcing that provision or any other provision of [the] lease in the future"; "all waivers" must be "in writing and signed by the waiving party"; and any forbearance of enforcement shall not be construed to constitute a waiver.²

Express contract terms notwithstanding, the tenant asserts the landlord waived the contractual nonwaiver provision by accepting late payments without protest and, therefore, cannot deny force and effect to a lease extension the tenant had the option to exercise if he had "fulfilled all of the terms and conditions" of the lease. The tenant contends the landlord's conduct in accepting late rental payments waived the contractual nonwaiver clause. The decisive issue is whether waiver of a nonwaiver provision can be anchored in the same conduct the parties specifically agreed would not give rise to a waiver of contract rights. We hold it cannot.³ A contrary conclusion could not be squared with Texas's strong public policy favoring freedom of contract⁴ or with the notion that waiver requires intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right.⁵ The lease's plain terms permit the landlord to rely on the contractual nonwaiver clause and accept due and payable, but late, rental payments without waiving its right to enforce the lease as written.

Though we do not hold a nonwaiver provision may never be waived,⁶ there must, at a minimum, be some act inconsistent with its terms.⁷ Here, the record bears no evidence the landlord acted inconsistently with the contract's express terms. Nor has the tenant identified any false or misleading representation supporting an equitable-estoppel bar to eviction, as the tenant asserts. We therefore reverse the court of appeals' judgment rejecting the landlord's forcible-detainer action, render judgment in the landlord's favor, and remand to the trial court to award attorney's fees in accordance with the parties' contract.⁸

I. Factual and Procedural Background

Shields Limited Partnership (Shields) owns commercial property housing the San Francisco Rose restaurant in Dallas, Texas. Boo Nathaniel Bradberry and 40/40 Enterprises, Inc. (collectively Bradberry) claim a superior right to immediate possession of the property as tenants under sublease and sub-sublease agreements executed in 2005. Shields argues Bradberry is merely a month-to-month holdover tenant while Bradberry counters that he effectively exercised an option to extend the lease through May 31, 2017.

The pertinent terms of the base lease, sublease, and sub-sublease provide as follows:

• Monthly rent is due "without ... prior demand" on the first day of the month. Failure to pay rent by the tenth day of the month is "an event of default" under the lease.

• "All waivers must be in writing and signed by the waiving party. Landlord's failure to enforce any provisions of this Lease or its acceptance of late installments of Rent shall not be a waiver and shall not estop Landlord from enforcing that provision or any other provision of this Lease in the future."

• "If Tenant has fulfilled all of the terms and conditions of the initial lease period [expiring May 31, 2007], he shall have the option to extend the lease for an additional 5-year period at the rate of $3,000/month [expiring May 31, 2012]. Tenant will notify Landlord's Agent in writing of his intention to exercise this option no later than ninety (90) days prior to the expiration of the initial lease period."

• If the tenant does not vacate the premises upon the expiration of the lease, occupancy converts to a month-to-month tenancy, subject to the terms of the lease and a holdover rent of $3,000 per month.

• Bradberry assumed the tenant's obligations as outlined in the base lease; the sublease is subordinate to the base lease; and if the terms of the base lease were fulfilled on June 1, 2007, Bradberry was to sign a new lease with Shields and thereby become the "tenant" rather than the "subtenant" (which never happened).

• "If Subtenant [Bradberry] has fulfilled all the terms and conditions of the lease and option set forth [in the base lease], he shall have the option as Tenant to extend the lease for an additional 5 years from June 1, 2012, through May 31, 2017" with a new rental rate tied to the Consumer Price Index (CPI) and payment of a pro-rata share of property taxes "when billed by the Principal Realtor or Landlord."

• Bradberry also had the option to extend the lease for two additional five-year periods—ending May 31, 2027—on the same terms as above, including giving timely notice, fulfilling all the terms of the base lease through each preceding option period, paying CPI-adjusted rent, and paying a pro-rata share of property taxes.

• Rent and all notices were to be delivered to the landlord's "Principal Broker," which was J.W. Lindsley & Co. until December 2011 and, thereafter, S.E. Covington & Company (Covington).

As specified in the parties' agreements, following the May 31, 2012 expiration of the base lease's initial option period, Bradberry had the option to extend the lease term for three successive five-year periods, the last of which would expire on May 31, 2027. Bradberry's option to extend the lease was contingent on Bradberry (1) timely exercising the option in writing and (2) "fulfill[ing] all of the terms and conditions of the [base] lease and [preceding] option[s]." Importantly, had Bradberry exercised the option to extend the lease, the rent, which had been fixed at $3,000 per month, would fluctuate annually based on the CPI-adjusted formula prescribed in the sublease with the modified base amount compounded annually.⁹ Moreover, Bradberry would be required to pay a pro-rata share of property taxes "when billed by the Principal Realtor or Landlord."

In September 2011, Bradberry notified the landlord, in writing via J.W. Lindsley & Co., that he intended to exercise his option to extend the lease from June 1, 2012, to May 31, 2017. The notice, ostensibly delivered more than ninety days before the lease was set to expire, was also timely.¹⁰

Bradberry was not as timely with his rental payments, regularly violating the lease terms by paying rent past the due date and cure period—with the extent of the deviation varying from relatively slight to significant. Without fail, the landlord, intent on getting paid, accepted the rent when tendered without protest or assessment of late fees. Bradberry was current with his rent when he purported to exercise the option, but by the time May 31, 2012, rolled around, he was one month late with the rent. Bradberry did not tender the outstanding rent until June 13, 2012, and the late rental payment was, again, accepted without protest.

If Bradberry had properly exercised the option, his rental rate starting June 1, 2012, would have been $3,340 per month, as required by the lease's CPI-adjusted rent provision. But rather than paying the amount due under the lease-extension option, Bradberry continued to pay $3,000 for monthly rent. And even paying this lesser amount, Bradberry persisted in paying rent untimely and irregularly.

On November 30, 2012, the landlord's principal broker, Covington, emailed Bradberry notice of the penalties he had incurred for late November and December rent payments. The email expressed, for the first time in writing, a belief that a month-to-month tenancy governed the relationship with a rental rate of $3,000 per month: "It is my understanding the landlord is trying to get things current in an effort for us to deliver you a new lease for your space vs. the month to month you are currently on in the space etc." Without disputing the existence of the claimed month-to-month tenancy, Bradberry responded a few days later that a cashier's check for outstanding rent would arrive the following day via overnight mail.

When the rent failed to arrive as promised, Covington sent Bradberry a notice of default on December 18, 2012. In addition to responding that the check was "already in the mail," Bradberry reported his understanding that he was under lease through May 31, 2017, with two additional lease-extension options through 2027. Bradberry made clear that, since 2005, he had invested over $250,000 to improve the property and would not have done so absent the option to extend the lease through 2027. He concluded the letter with "now that we are current as of December 19, 2012 it would be great to get the ‘new’ lease taken care of as soon as possible."

In October 2013, after sending additional default notices for late rent, Shields offered Bradberry a new lease with a rental rate of $9,700.83 per month. Bradberry promptly rejected the proposed lease, and Shields notified Bradberry he would have to vacate the premises within 30 days, claiming he had converted to a month-to-month tenancy on June 1, 2012. Bradberry refused to surrender possession, and Shields instituted eviction proceedings.

The justice court ruled in Bradberry's favor....