Brigham Young University v. Seman

Citations: 672 P.2d 15; 206 Mont. 440Docket: 83-145

Court: Montana Supreme Court; November 2, 1983; Montana; State Supreme Court

Original Court Document: View Document

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Brigham Young University (BYU) is appealing a judgment from the Eighth Judicial District Court of Montana, which awarded BYU $1,897.20 against defendants Shirley M. Seman, James R. Koontz, and Allen H. Bloomgren (collectively SKB). SKB has cross-appealed the same judgment. The dispute centers on a lease agreement between BYU and SKB for office space in the Strain Building, effective from January 1, 1979, to January 1, 1984. 

A key issue involves a lease clause restricting SKB from assigning or subleasing the property without BYU's consent, which must not be unreasonably withheld. The second significant issue pertains to the calculation of damages related to this consent provision. The court upheld the District Court's judgment but indicated that the damages awarded needed revision and remanded the case for recalculation.

SKB occupied the leased space until late 1980 and later sought to sublet to the Montana Board of Parole and Probation. BYU’s building manager, Lester R. Rodger, received mixed feedback from other tenants regarding this proposed sublease, including threats of legal action from a tenant opposed to the parole board's potential tenancy. Consequently, BYU denied consent to the sublease, prompting SKB to declare the lease terminated and cease rent payments as of July 2, 1981.

BYU subsequently attempted to mitigate damages by renting the space, ultimately securing Waddell and Reed as tenants in suite no. 306 on June 1, 1982. BYU then sued SKB for $11,624.39 in unpaid rent from July 3, 1981, to June 1, 1982, and an additional $5,900.00 representing the difference in rental income due to vacancies following the tenant relocation.

BYU argued in the District Court that its refusal to consent to a sublease was justified due to several concerns: insufficient payment from the parole board to cover SKB's obligations, unoccupied rooms under the sublease, tenant complaints regarding the parole board's presence, negative feedback from a tenant poll, a tenant's threat of litigation against the sublease, potential loss of other tenants, and the possibility of lease non-renewals. The District Court found that the Montana Board of Parole and Pardons had successfully operated in other locations without tenant complaints and that the questionnaire used to gauge tenant opinion was biased against the sublease. Consequently, the court ruled that BYU's refusal was unreasonable. On appeal, BYU contended that the court's finding was not binding and that the reasonableness of withholding consent is a legal issue. The appellate court stated that it must defer to the trial court's findings unless they are clearly erroneous, emphasizing that the trial court has the authority to resolve conflicts in evidence and determine ultimate facts. The court affirmed that BYU's consent could not be unreasonably withheld under the lease agreement, and the determination of reasonableness is an essential ultimate fact, which may also resemble a legal conclusion.

The District Court's finding that BYU unreasonably withheld consent for a lease assignment is upheld, as it is supported by record evidence and is not clearly erroneous. A lessor retains the right to control property use and tenant selection, but when a lease includes a provision against unreasonably withholding consent, it imposes a new obligation on the lessor that must be legally recognized. In commercial leases, this means the lessor must act with fairness and commercial reasonableness. The court found BYU's actions unreasonable, noting BYU’s previous attempt to lease the same premises to the same agency as a significant factor.

Criteria for a lessor's consent include the financial responsibility of the proposed sublessee, the nature of their business, and the legality of the use, rather than personal preferences. The next step is to determine allowable damages. The lease allows BYU to terminate with fifteen days' notice and requires SKB to correct any breaches. However, there is no reciprocal termination right for SKB in case of BYU's breaches. Therefore, SKB cannot terminate its rental obligations due to BYU's breach without a specific lease provision allowing such termination.

SKB had several options upon BYU's breach, including seeking specific performance or a declaratory judgment, but the District Court chose to allow SKB to offset rent claims against BYU. Ultimately, the court concluded that BYU's refusal to consent did not justify SKB canceling the lease since the lease did not grant SKB termination rights, and the consent clause was deemed independent and not dependent on other lease clauses.

A breach of the covenant not to unreasonably withhold consent to a sublease does not relieve the lessee of their obligations under the lease, as established in Rock County Savings and Trust Company v. Yost's, Inc. The District Court applied section 27-1-311, MCA, determining that SKB should be compensated for losses directly caused by BYU's breach of the consent agreement. Consequently, BYU is entitled to recover rental payments starting from SKB's refusal on July 2, 1981, minus any rentals SKB would have received from the parole board had BYU consented, and further reduced by rentals received from Waddell and Reed during the primary lease period.

BYU sought additional damages for rental losses due to vacancies in suite no. 304 caused by Waddell and Reed's move, totaling $5,900, but the District Court denied this claim, affirming that such damages were too remote and not directly ascertainable under section 27-1-311. While BYU referenced the Restatement (2d) of Property regarding the right to terminate the lease following unreasonable consent withholding, the court noted that termination would only be justified in cases of significant interference with the lessee's leasehold.

The court also distinguished this case from Lemley v. Bozeman Community Hotel Company, where the landlord's refusal was found reasonable. Here, the District Court concluded that BYU's refusal to consent was unreasonable, a finding that stands unless shown to be clearly erroneous under Rule 52(a), M.R.Civ.P. 

BYU argued that the District Court incorrectly calculated damages by not considering the escalator clause and sought rentals for the period suite no. 306 was occupied by Waddell and Reed. Both parties acknowledged that a revision of damages was necessary, particularly concerning the occupancy of Waddell and Reed, with the court affirming that BYU is entitled to the full term rentals after SKB's attempted termination, while rentals from Waddell and Reed serve to mitigate BYU's damages. The judgment is affirmed, with the case remanded for a recalculation of damages, and costs awarded to SKB.