Submitted: April 5, 2017
from United States District Court for the Southern District
of Iowa - Davenport
WOLLMAN and LOKEN, Circuit Judges, and ROSSITER, [*] District Judge.
an action by landlord Davenport Chester, LLC (Chester or
Landlord), against tenant Abrams Properties, Inc. (Abrams or
Tenant), for breach of a terminated lease agreement and waste
under Iowa law, seeking as damages reasonable costs to repair
the leased building, loss of fair market value caused by
Tenant's waste, and expenses incurred to acquire adjacent
land on which the building encroached. After Abrams removed
the action, the district court granted summary judgment
dismissing Chester's claims, concluding that an
Exculpation provision, Section 26.01 of the lease agreement,
unambiguously limits Landlord's remedies to termination
of the lease. Davenport Chester, LLC v. Abrams Props.,
Inc., 2015 WL 12866991, at *9-10 (S.D. Iowa Dec. 23,
2015). Landlord appeals, arguing the Exculpation provision as
interpreted by the district court is ambiguous, conflicts
with other lease provisions, and should be disregarded. Under
Iowa law, "an alleged ambiguity in the provisions of a
lease [is] generally resolved as a matter of law, " so
our review is de novo. Walsh v. Nelson, 622
N.W.2d 499, 502 (Iowa 2001). We affirm.
April 1977, Abrams entered into an agreement with S. S.
Kresge Company to construct a K-Mart store on Abrams'
land in Davenport, Iowa; lease the store to K-Mart for
twenty-five years from the date of K-Mart's occupancy;
and manage the store for tenant K-Mart. Chester's
predecessor in interest purchased the land and building from
Abrams in August 1977. Chester and Abrams entered into a
twenty-five-year lease agreement on November 16, 1977, the
date that K-Mart's term of occupancy began. Under the
three-tiered arrangement, Abrams, as Chester's tenant,
managed the store for Operating Tenant K-Mart, collected rent
from K-Mart, and held the rent in trust for landlord Chester.
Abrams received $255, 308 in annual rent from K-Mart, plus an
additional amount if store sales exceeded a threshold. Abrams
paid property taxes, insurance, and maintenance costs, and
paid $204, 405 in annual rent to Chester, plus twenty-five
percent of any additional rent received from K-Mart.
parties twice extended their relationship for five-year
renewal periods, extending the Chester-Abrams lease agreement
until November 30, 2012. K-Mart closed the store in early
2012 and did not renew its sublease for another period. When
Abrams failed to pay the June 2012 rent, Chester terminated
the lease effective September 12, 2012. Chester retook
possession of the property, and its inspector determined that
the former K-Mart store needed repairs that would cost more
than two million dollars. Chester asserted that the lease
agreement obligated Abrams to pay for these repairs. In
selling the property to a third party, Chester discovered
that Abrams had built the store at least five feet outside
the property line. Chester purchased that parcel to remove a
cloud on the title and close the sale.
Abrams must pay Chester damages to repair the store premises
and to acquire the adjacent parcel is the principal issue in
this lawsuit. The district court did not decide whether
Abrams breached the lease agreement because it concluded that
Chester exercised its only remedy for the alleged breaches
when it terminated the lease. This remedy issue turns
primarily on proper interpretation of the following
provisions in the forty-five-page lease agreement:
Section 6.01 - The Landlord shall not be required to
furnish any services or . . . make any repairs or
alternations . . . throughout the term of this Lease, the
Tenant hereby assuming the full and sole responsibility for
the condition, renovation, operating, repair, replacement,
maintenance and management of the Demised Premises.
Section 6.04 - The Tenant shall . . . maintain and
keep the said Demised Premises and the parking lots and
driveways in firstclass order, repair and condition.
Section 6.06 - The Tenant will not do or permit or
suffer any waste . . . to or upon the Demised Premises or any
Section 13.01 - If Tenant shall default in the
observance or performance of any term or covenant . . .
Landlord . . . may remedy such default for the account and at
the expense of Tenant . . . . [S]uch sums paid or obligations
incurred . . . shall be deemed to be additional rent
hereunder and shall be paid to [Landlord] by Tenant.
Section 26.01 - Tenant shall have no personal
liability for the performance of the obligations of Tenant
hereunder, and in the event of a default by Tenant in the
performance of its obligations, the sole remedy of ...