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Saltworks Ventures, Inc. v. Residences at Spoke, LLC

Court of Appeals of Texas, Third District, Austin

May 17, 2018

Saltworks Ventures, Inc. d/b/a Bruegger's Bagels Residences at The Spoke, LLC, Appellant/Cross-Appellant,
v.
Residences at The Spoke, LLC & Transwestern Development Company, LLC, Saltworks Ventures, Inc. d/b/a Bruegger's Bagels Appellees/Cross-Appellee

          FROM THE DISTRICT COURT OF TRAVIS COUNTY, 98TH JUDICIAL DISTRICT NO. D-1-GN-15-000379, HONORABLE AMY CLARK MEACHUM, JUDGE PRESIDING.

          Before Chief Justice Rose, Justices Pemberton and Goodwin.

          MEMORANDUM OPINION

          Jeff Rose, Chief Justice.

         This is a landlord-tenant dispute over a commercial lease. The tenant, Saltworks Ventures, Inc., claims the landlord, Residences at the Spoke, LLC, breached the lease and then wrongfully denied access to the leased premises; Residences contends lockout was proper because Saltworks had paid no rent despite maintaining possession of the premises for more than a year. Following a bench trial, the court awarded Saltworks damages and attorneys' fees, finding the Residences had breached two sections of the lease. The primary question before this Court is whether Saltworks introduced sufficient evidence to support the trial court's findings and conclusions regarding breach. Additional issues include challenges to the calculation of damages, the award of attorneys' fees, and the disposition of several motions. We will affirm the trial court's judgment.

         I. BACKGROUND

         A. The Lease

         In March of 2013, Saltworks Ventures, Inc., executed a five-year lease with Residences at the Spoke, LLC, the owner of a mixed-use development under construction in south-central Austin. Construction of the development was coordinated by Transwestern Development Company, LLC. Although the lease mentions Transwestern, Transwestern is not a party to the lease.

         The lease required Residences to construct a retail space from which Saltworks would operate a restaurant under a franchise agreement with Bruegger's Bagels. Saltworks' president, Roger Cusick, had purchased the rights to open several of these restaurants in the Austin area. Cusick's son managed the day-to-day business of the first restaurant, which opened in March of 2012, and planned to oversee operation of this location, as well.

         Residences and Saltworks agreed on the size and layout of the retail space, which the lease refers to as "the premises." Because the premises were not yet constructed, the lease did not require Saltworks to begin paying rent immediately. The lease instead describes a commencement date-a date to be determined by certain construction and retail benchmarks-and requires Saltworks to remit rent on that date and on the first of every month thereafter.

         Section 3.2 of the lease sets forth the procedures by which Residences would transfer possession of the premises to Saltworks, requiring Residences to:

notify Tenant in writing that Landlord's Work is substantially complete and that possession of the Premises is granted to Tenant which notice, in order to be valid, shall include (i) a certificate of occupancy with respect to Landlord's Work or evidence that Landlord's Work has passed all applicable governmental inspections for issuance thereof, and (ii) a certificate from Landlord's architect stating that the Landlord's Work is substantially complete.

         Upon transfer of possession, Saltworks would then begin its own work on the premises.

         The lease requires rent abatement in the event of delayed transfer of possession. Section 3.2 provides:

[I]f Landlord has not delivered the Premises to Tenant with Landlord's Work substantially complete by October 1, 2013 (the "Penalty Date"), then Tenant shall be entitled to an abatement of one day's Rent for each day after the Penalty Date that Landlord has not delivered the Premises to Tenant with Landlord's Work substantially complete . . . .
[I]f Landlord has not delivered the Premises to Tenant with Landlord's Work substantially complete by November 1, 2013 (the "Outside Possession Date"), then (i) in addition to the rent abatement described in the preceding sentence, Tenant shall be entitled to an abatement of two days' Rent for each day after the Outside Possession Date that Landlord has not delivered the Premises to Tenant with Landlord's Work substantially complete.

         This section also authorizes Saltworks to terminate the lease after November 1, 2013, if Residences should fail to deliver possession with its work substantially complete by that date.

         Section 3.7 provides for additional abatement in the event of delayed completion of the common areas of the mixed-use development, which the parties anticipated might impair Saltworks' use of the premises:

Landlord estimates that the Mixed[-]Use Project will be complete by February 1, 2014. Landlord will take all reasonable steps to avoid unreasonable delays in completion of the Mixed[-]Use Project. In the event that the Common Area . . . is not complete by February 1, 2014, and if Landlord's construction activities . . . materially impair Tenant's access, use[, ] or visibility of the Premises, then as Tenant's sole and exclusive remedy therefor, Tenant shall be entitled to an abatement of one day's Base Rent for each full week after February 1, 2014 that such material impairment continues as a result of the Landlord's construction . . . .

         The lease defines "Common Area" to include landscaping, parking facilities, lighting, utilities, and other parts of the development intended for the use and benefit of the mixed-use community.

         The lease also establishes the parties' rights and remedies in the event of default. Section 17.2 lists eight types of tenant default, including failure to remit rent, and section 17.3 outlines Residences' rights should default occur:

Landlord may, without judicial process and without notice of any kind, without terminating the Lease, terminate Tenant's right of possession of the Premises by entering upon and taking possession of the Premises and expelling or removing Tenant and any other person who may be occupying the Premises or any part thereof, by force if necessary, without being liable for prosecution or any claim for damages therefor. In furtherance of the foregoing, Landlord may change the locks to the Premises (in which event, Tenant shall have no right to any key for the new locks) and take any other actions as are necessary for Landlord to take absolute possession of the Premises. . . .

         Section 17.4 addresses default by Residences, requiring Saltworks to notify Residences in writing of any "defaults in fulfilling any of its covenants, obligations[, ] or agreements, " and to allow 30 days for cure. Saltworks would then be "entitled to exercise any right or remedy at law or equity should the default remain uncured after 30 days."

         B. Transfer of Possession

         The penalty date of October 1, 2013, passed without Saltworks obtaining possession of the premises, which were still under construction. The commencement date had not yet occurred and rent was not yet due, but under section 3.2 of the lease, abatement began accruing at a rate of one day of rent for each day that passed without delivery of substantially complete premises.[1]

         Later in October, Residences contacted Cusick to ask him to execute a lease addendum certifying substantial completion and transfer of possession.[2] A series of emails reflect the negotiations that ensued. Cusick, an attorney who lives and practices in New York, had not recently inspected the premises and hesitated to accept possession or execute this addendum. Because Cusick was not able to travel to Austin to conduct an inspection, his wife walked through the premises with a Residences representative. She apparently did not point out any flaws or any work that remained to be done. Even so, Cusick did not want to confirm substantial completion, and requested revisions to the language of the addendum. The parties ultimately executed an addendum confirming transfer of possession on October 30, 2013. The ...


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