Airport Associates v. Hawaii Air-Gunnery, Inc. (In re Airport Associates)

Citations: 8 B.R. 979; 1981 Bankr. LEXIS 4899Docket: Bankruptcy No. 77-00339(5)

Court: United States Bankruptcy Court, D. Hawaii; February 13, 1981; Us Bankruptcy; United States Bankruptcy Court

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On December 11, 1980, Marcus H. Asch filed a motion seeking to amend findings and the judgment from December 3, 1980, or alternatively, a new trial. The hearing occurred on January 5, 1981, with Asch represented by Philip D. Bogetto and Airport Associates represented by Jerrold Y. Chun. Asch argued that Airport Associates’ removal of trade fixtures and remodeling of the leased premises rendered it unusable as an air gunnery range, which constituted a surrender of the premises by the tenant, Hawaii Air-Gunnery, Inc., and an acceptance by Airport Associates. Conversely, Airport Associates contended that it was fulfilling its legal obligation to mitigate damages by removing fixtures and remodeling the space for a new tenant.

The facts established that on December 1, 1976, Airport Associates leased the premises to Hawaii Air-Gunnery, Inc. for five years, beginning January 1, 1977, with Asch guaranteeing performance. The lease contained a clause regarding default and re-entry, allowing the landlord to terminate the lease or relet the premises if the tenant defaulted, while retaining the tenant's liability for rent. Moreover, a letter from Air-Gunnery dated September 13, 1979, indicated its abandonment of the premises, requesting Airport Associates to find a new tenant and offering to remove or sell remaining furnishings.

Air-Gunnery informed Airport Associates of its obligation to mitigate damages by finding a new tenant, recognizing that the new tenant might not require existing furnishings tailored for an air gunnery range. Following Air-Gunnery's abandonment of the premises, Airport Associates filed a complaint on September 28, 1979, seeking rent for September 1979 and any future rent, explicitly stating that it did not accept the surrender of the premises and intended to hold Air-Gunnery responsible for future rent. The unique nature of the air gunnery range made it difficult to relet without modifying the premises. According to the lease, upon Air-Gunnery's default, Airport Associates could relet and alter the premises at Air-Gunnery’s expense. Airport Associates made attempts to relet to businesses not engaged in the air gunnery range sector, ultimately succeeding in November 1980 with DFI Financial, Inc., necessitating further modifications to the premises. 

The legal conclusions indicate that a landlord has several options upon a tenant's complete abandonment of leased property, including re-entering and terminating the lease, allowing the property to remain vacant while suing for rent, keeping the premises in repair, or re-letting the property. Whether re-entry and reletting imply acceptance of abandonment and therefore surrender depends on the specific circumstances and intent of the parties involved. The burden of proving a surrender lies with the party claiming it, which in this context means the tenant must demonstrate that the landlord intended to accept the abandonment as a surrender to avoid liability for future rents.

The determination of whether a landlord intended to accept a tenant's abandonment as a surrender involves assessing the landlord's duty to mitigate damages, particularly if the lease includes a reletting provision. Under Hawaii law, Airport Associates had an obligation to mitigate damages for Air-Gunnery. Air-Gunnery had notified Airport Associates of this duty in a letter dated September 13, 1979. The lease also stipulated that rents from any reletting would be applied to the tenant’s account. Air-Gunnery failed to prove that Airport Associates intended to release it from further liability.

Air-Gunnery argued that Airport Associates' remodeling of the premises from a gunnery range to office space constituted acceptance of surrender, thus absolving Air-Gunnery from future rent obligations. However, this position contradicts established law. Specifically, in Ross v. Smigelski, the court ruled that a landlord's actions to remodel abandoned premises for a new tenant do not imply acceptance of surrender, and the abandoning tenant remains liable for rent.

In the given case, Airport Associates did remodel the leased premises to facilitate reletting, which is allowed under the lease agreement. This remodeling was necessary to mitigate damages, and Airport Associates' actions did not indicate acceptance of the surrender. Consequently, Air-Gunnery remains responsible for unpaid rent. The motions to amend findings and for a new trial were denied, with an order to be signed upon presentment.