Opinion ID: 1382969
Heading Depth: 1
Heading Rank: 2

Heading: termination of the lease

Text: We have noted earlier that the lessees at various times failed to live up to certain duties they had undertaken in entering into the lease with the lessors. Some of these defaults were taken care of by having the sub-tenants pay into an account at an Anchorage bank, from which rent was paid to the lessors with the balance paid to lessees. However, in 1967 this account was no longer in existence. Lessees failed to make payments of the monthly rental in February, March, and April of 1967. Lessors sought to take action to enforce their rights under the lease. Mr. Peterson returned to Anchorage to look into the whole problem. He had difficulty locating Klinger, whose address and whereabouts were then unknown. When the rent for the month of May had not been paid, Peterson sent notices to quit to the sub-tenants and to lessees, by mailing and by leaving a copy on the leased premises. After the notices to quit had been served, lessees commenced the action which is now before us in which they sought an injunction against an interference with their rights under the lease. Not long after that the lessors filed a summary eviction action in the district court. In July of 1967 judgment was entered in favor of the lessors for possession of the premises and for the then unpaid May, June and July rent. No back rent was tendered or paid before the entry of the judgment. The lessees sought review of the judgment in the superior court. That court affirmed the money portion of the district court judgment but reversed the remainder of that judgment on the ground that the district court lacked jurisdiction to entertain such an action, i.e. an action for the recovery of possession by the landlord. In July of 1967 the lessors entered into instruments of lease with the former sub-tenants who thereafter paid their rent directly to the lessors. On December 20, 1967, one of the sub-tenants filed a complaint in intervention alleging that it occupied part of the property and that both lessors and lessees were claiming the rents. After that the rents of some of the sub-tenants were paid into the registry of the court, the other tenants were still paying their rent to an attorney for the lessees. On July 25, 1968, the complaint in the action before us was amended to seek specific performance of the lease and to compel the lessors to recognize an exercise of the option to purchase by the lessees. After trial the superior court determined that the lessees had breached the terms and covenants of the lease in a number of respects over a substantial period of time. But the court also found that the Petersons were not entitled to terminate the lease for these defaults, apparently because of the particular language employed in the lease or because the security deposit and monies in the registry of the court were available to make good the defaults. Lessors have appealed, claiming that the superior court erred in failing to find that the lease was terminated. It is argued that termination occurred because of the breaches of the lease by the lessees, coupled with lessors' notices to quit the premises; that the court erred in setting aside the judgment of the district court as to rentals, interest, and costs; that the court erred in ruling that the lessors could not terminate the lease when the lessees had defaulted and that the lessors must instead deduct rental payments and repairs from the security deposit; and that the court erred in holding that lessees, rather than lessors, were entitled to occupy the building until September 1, 1968. The lessors argue that the lease was terminated by them in May of 1967. With one exception not material here, [2] the lease was silent about the right of termination by lessors in the event that lessees failed to fulfill their obligations under the terms of the lease agreement. Lessees argue that since the lease did not provide otherwise, it could only be terminated, for failure to pay rent, by a judgment in the superior court under AS 09.45.690, quoted infra. All of lessors' arguments challenge the central ruling below that the lease was not terminated. Our disposition of this major question will dispose of lessors' various contentions. At early common law a lease for a term of years was regarded as a conveyance of an estate in land, less than a freehold. The reservation of rent by the landlord did not impose a contractual liability upon the lessee. Rent was regarded primarily as a charge upon the land. The duty to pay devolved upon the tenant who enjoyed the land, the tenant being bound to the landlord by privity of estate. 1 Tiffany, Landlord & Tenant, Sec. 171, at 1029 (1912). Absent a contrary agreement or custom, rent was not payable until the expiration of the lease or the end of the rental period, if one was specified. This reflected the belief that rent, being part of the profits of the land, should not be payable until earned through the tenant's enjoyment of the premises. 1 Tiffany, supra, Sec. 172, at 1035. Nor did the failure to pay rent forfeit the tenant's estate. The breach gave rise merely to a right of action for damages. For these reasons it became customary to insert conditions subsequent in leases, expressly permitting forfeiture for certain breaches of the covenants of the lease. Even such leases have presented interpretative problems. For this reason, and because the old doctrine about non-termination for breach of covenant still persists, statutes have been passed which aid the lessor in regaining possession of the premises and in cutting off the rights of the defaulting tenant. In Alaska, absent a special agreement of the parties, a leasehold interest in land can be terminated prematurely only by judicial decree in a statutory action. AS 09.45.690 provides: Unless otherwise provided in the lease, a landlord has a right to re-enter leased premises when a tenant fails to pay rent, and may bring action to recover the possession of the premises and the action is equivalent to a demand of the rent. If, at any time before judgment, the lessee or his successor in interest pays the amount of rent in arrears with interest and costs of the action and performs the other covenants or agreements, he is entitled to continue in possession unless otherwise provided in the lease. Lessors did not follow this statutory procedure. Instead they brought an action in the district court for forcible entry and detainer, and received a judgment for possession and for rent due. The possession aspect of that judgment was later set aside on review by the superior court. We think the superior court was correct in its holding. The jurisdiction of the district court, at the time in question, was limited by the following statutory language: All actions in ejectment or for the recovery of the possession of, quieting title to, for the partition of or enforcement of liens upon, real property shall be started in the superior court in the judicial district in which the real property, or any part of it affected by the action, is situated. AS 22.10.030. Lessors complain that the superior court erred in holding that the security deposit of $4,454, held by lessors, was available to make good the failures of the lessees to pay rent and the other breaches of covenant by lessees. The lease provided that the security deposit was for the purpose of assuring the full and faithful performance of the terms and conditions of the lease, and not as advance rental. It also provided: said sum to be forfeited, should lessees default in their obligations hereunder. The superior court held that the existence of the security deposit in effect excused certain defaults by the lessees. [3] But we do not need to reach this issue. We view the holding of the superior court as alternative to the critical decision that the lessors had not effectively brought about a termination of the lease by bringing the necessary statutory proceeding under AS 09.45.690. We need not pass upon the effect of the security deposit in curing lessees' breach. One minor matter remains. The court below determined that lessors were not entitled to interest and costs on the rentals decreed due them by the district court. The reasoning of the superior court was that lessors had the use of the money which was being held by them as a security deposit. Both parties agree that the court erred by not including in the amount due the Petersons these sums. We remand this case to the court below with instructions to enter an amended judgment accordingly. Reversed and remanded for proceedings in accordance with this opinion. BONEY, C.J., and ERWIN, J., not participating.