Haddox, and Lewis, v. PEAT et al
Haddox v. PEAT, LLC, 2024 Wash. App. LEXIS 1825
A recent Washington decision provides some valuable lessons regarding the effect of commercial leases and subleases, and the rights of the parties to such agreements.
In Haddox and Lewis v. PEAT LLC, and Research & Development LLC, Division II of the Washington Court of Appeals upheld the trial court’s Order Granting Summary Judgment in favor of Research & Development (R&D”).
R&D is the owner of commercial property (the “Subject Property”) located in Chehalis, WA. In 2020, R&D made arrangements to sell the Subject Property to PEAT LLC (“PEAT”). R&D and PEAT entered into a purchase and sale agreement (“PSA”), with a delayed closing of two years. Although a statutory warranty deed was signed and placed in escrow, it was never recorded or delivered.
As part of the sale, PEAT and R&D also entered into a commercial lease agreement, along with an addendum to the PSA. In relevant part, both the lease and the addendum provided PEAT with the right to sublease, but only subject to R&D’s approval. The PSA addendum also entitled PEAT to conduct standard business practices, including branding, marketing, and leasing, in its own name.
Prior to the PSA between R&D and PEAT, both Haddox and Lewis owned small businesses that had leased space at the Subject Property. Haddox had operated his business in the leased space since 2014, and Lewis operated hers since 2015.
In September 2022, the sale between PEAT and R&D failed, and through mutual agreement the sale was terminated along with their commercial lease. Prior to the failure of the sale, PEAT had renewed the leases of both Haddox and Lewis, respectively.
During October and November of 2022, after the failure of the sale, the Subject Property fell into disrepair. Ultimately, the City of Chehalis condemned the Subject Property, and posted an emergency order. The tenants, including Haddox and Lewis, were prevented from entering the Subject Property until December 2022. Upon their reentry, the Subject Property had been subject to water damage and animal waste that caused damage to the tenants’ personal property. As a result, Haddox and Lewis filed suit against PEAT and R&D and asserted several claims, including for breach of contract against R&D. Haddox and Lewis also filed a Lis pendens against the Subject Property.
Before PEAT was required to Answer the Complaint filed by Haddox and Lewis, R&D successfully moved for Partial Summary Judgment. R&D alleged, and both the Trial Court and later the Appellate Court agreed that R&D owned the property, PEAT was a tenant, and that the leases of Haddox and Lewis with PEAT were unauthorized subleases. R&D also successfully argued that Haddox and Lewis had no claim or action affecting the title of the Subject Property and therefore the lis pendens was wrongful.
The Court held that the record was clear and it was not disputed that pursuant to commercial lease, R&D was the lessor and PEAT was the lessee. Thus, the leases between Haddox and Lewis with PEAT were merely subleases. In Washington, a sublessee’s rights are no greater than those of the sublessor, and any sublessee is bound by the terms and conditions of the original lease. The Court found that the commercial lease between R&D and PEAT controlled, and that upon termination of the PSA and commercial lease, the subleases of Haddox and Lewis were also terminated. Haddox and Lewis had no theory or path to defeat the right to possession enjoyed by R&D. Because the sale of the Subject Property was never completed, and as a lessee itself, PEAT did not have the authority to convey any interest in the Subject Property beyond the scope of its own lease with R&D. The Court found that Haddox and Lewis subleases were with PEAT only, not with R&D, and that the lis pendens was wrongful because there was no claim that affected the title held by R&D.
If you find yourself or your small business in a position similar to those of the parties detailed in Haddox and Lewis v. PEAT and R&D, including landlord, lessee, sublessor/sublessee, we are here to help you navigate whatever issues you may be facing. The Court’s decision also concerned some issues that I have not addressed in this blog post, but I would be more than happy to answer any questions or discuss further.
To learn more about Haddox, and Lewis, v. PEAT et al, please do not hesitate to contact us at info@beresfordlaw.com or by phone (425) 776-4100 for assistance.