Court Opinion

ID: 4564397
Source: CourtListenerOpinion
Date Created: 2020-09-10 16:16:28.180212+00
Date Added: 2024-06-11T12:34:36.077494
License: Public Domain

FILE                                                                 THIS OPINION WAS FILED
                                                                                FOR RECORD AT 8 A.M. ON
       IN CLERK’S OFFICE                                                           SEPTEMBER 10, 2020
SUPREME COURT, STATE OF WASHINGTON
      SEPTEMBER 10, 2020
                                                                                   SUSAN L. CARLSON
                                                                                 SUPREME COURT CLERK

              IN THE SUPREME COURT OF THE STATE OF WASHINGTON

        BORTON & SONS, INC.,                         )
                                                     )      No. 97690-2
                              Respondent,            )
                                                     )
                       v.                            )      EN BANC
                                                     )
        BURBANK PROPERTIES, LLC,                     )
                                                     )             September 10, 2020
                                                            Filed: ____________________
                              Petitioner.            )
                                                     )

               YU, J. — This case concerns the granting of an equitable grace period to

        exercise an option to purchase contained in a lease agreement and whether

        valuable permanent improvements to the property are a necessary prerequisite. We

        hold that granting an equitable grace period is proper only when a lessee makes

        valuable improvements to property that would result in an inequitable forfeiture if

        the lessee is not given a grace period.

               When a lessee does not timely exercise an option contained in a lease

        agreement, special circumstances may warrant granting them extra time to exercise

        the option. However, in this case, petitioner Burbank Properties LLC mailed its
Borton v. Burbank, No. 97690-2

notice shortly after the deadline had passed, and the trial court awarded Burbank an

equitable grace period to exercise the option on summary judgment where it was

undisputed that no valuable permanent improvements were made. As explained

below, Burbank could not be granted an equitable grace period as a matter of law.

                FACTUAL AND PROCEDURAL BACKGROUND

      In 2012, Burbank purchased 164 acres of agricultural land. Burbank’s

owner, Eric Rogers, farmed early season potatoes on the property, which required

rotating the potato crop with grass seed or timothy hay every two to three years.

When Rogers began to have financial troubles, his real estate broker devised a plan

to sell the property below market rate and enter into a leaseback agreement

containing an option to repurchase the land at the end of the lease.

      In February 2016, Borton & Sons Inc. purchased the land for $1,550,000,

subject to a three-year “Lease and Option Agreement” (Agreement). Per the

Agreement, Burbank was required to exercise the purchase option by December

31, 2017 via registered or certified mail, and closing was to occur no later than

December 31, 2018. The Agreement also contained a “time is of the essence”

clause. During the lease period, Rogers continued to harvest potatoes and planted

timothy hay, which is a two to three year crop.

      Three days before the option was set to expire, Rogers drafted a “Notice of

Exercise of Option to Purchase the Subject Property” (Notice). Rogers

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Borton v. Burbank, No. 97690-2

inadvertently failed to meet the December 31 deadline and mailed the Notice via

regular mail on January 4, 2018. After receiving the Notice on January 8, 2018,

Borton notified Burbank that it had failed to timely exercise the option and

requested an acknowledgment that the option was terminated. In response,

Burbank contended that the Notice was valid and enforceable and affirmed its

intent to close the sale on December 31, 2018.

      Shortly thereafter, Borton initiated a declaratory judgment action, and

Burbank counterclaimed. Following argument on the parties’ cross motions for

summary judgment, the trial court ruled that Burbank was entitled to an equitable

grace period “based on the potential timothy hay loss and the loss in equity [of the

property].” Verbatim Report of Proceedings (May 29, 2018) at 16. Borton

unsuccessfully moved for reconsideration of the oral ruling.

      In its order granting Burbank’s summary judgment motion and denying

Borton’s, the trial court decreed that Burbank properly exercised the option, that

Burbank was entitled to an equitable grace period to exercise the option, and that

Burbank was entitled to purchase the property from Borton in accordance with the

terms of the Agreement. In addition, the court awarded Burbank reasonable

attorney fees and costs.

      Borton appealed, and Division Three of the Court of Appeals reversed the

trial court in a published, split opinion. Borton & Sons, Inc. v. Burbank Props.,

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Borton v. Burbank, No. 97690-2

LLC, 9 Wash. App. 2d 599, 444 P.3d 1201 (2019). On the issue of the standard of

review, the lead opinion held that a de novo review of the summary judgment order

was correct, while the concurring opinion held that an abuse of discretion standard

was proper. Id. at 605, 613. The dissenting opinion opted to avoid the issue. Id. at

617.

         On the merits, the court held that an equitable grace period is available only

when substantial improvements are made to the property such that the lessee would

suffer an inequitable forfeiture if a grace period were not granted, and since

Burbank made no such improvements, Burbank failed to demonstrate that it would

suffer an inequitable forfeiture. Id. at 611. The court thus concluded that as a

matter of law, Burbank was not entitled to an equitable grace period.

         Burbank filed a petition for review, which we granted. Borton & Sons, Inc.

v. Burbank Props., LLC, 194 Wash. 2d 1016 (2020).

                                         ISSUES

         A.    What is the standard of review when reviewing whether an equitable

grace period was properly granted on summary judgment?

         B.    Are valuable permanent improvements to property required before a

trial court may grant an equitable grace period to exercise an option contained in a

lease?

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Borton v. Burbank, No. 97690-2

      C.     Did the trial court have discretion to grant Burbank an equitable grace

period?

      D.     Is Burbank entitled to attorney fees and costs?

                                     ANALYSIS

A.    When reviewing whether a trial court properly granted an equitable grace
      period on summary judgment, the proper standard of review is de novo

      In this case, we are asked to decide whether an equitable grace period was

properly granted on summary judgment. The Court of Appeals’ lead opinion

reviewed the trial court’s grant of the equitable grace period de novo, citing the

standards of review for declaratory judgment actions and motions for summary

judgment. Borton, 9 Wash. App. 2d at 605. Meanwhile, the concurrence applied an

abuse of discretion standard based on the principle that “the granting of equitable

remedies is the province of trial courts, not appellate courts.” Id. at 613

(Lawrence-Berrey, C.J., concurring in part) (citing Keck v. Collins, 184 Wash. 2d
358, 368, 357 P.3d 1080 (2015)). This closely aligns with Burbank’s contention

that the abuse of discretion standard of review is proper “because the trial court has

broad discretionary authority to fashion equitable remedies.” Pet. for Review at 8.

We hold that the lead opinion is correct and that the standard of review is de novo

because the question presented is not how the trial court fashioned the equitable

remedy, but whether the court had discretion to grant the lessee equitable relief as a

matter of law.

                                           5
Borton v. Burbank, No. 97690-2

      As a general rule, we review summary judgment orders de novo and engage

in the same analysis as the trial court. Keck, 184 Wash. 2d at 370; Cristomo Vargas

v. Inland Wash., LLC, 194 Wash. 2d 720, 728, 452 P.3d 1205 (2019). Summary

judgment is appropriate only when “there is no genuine issue as to any material

fact and [] the moving party is entitled to a judgment as a matter of law.” CR

56(c). Likewise, we review orders, judgments, and decrees pursuant to the

Uniform Declaratory Judgments Act de novo. RCW 7.24.070; To-Ro Trade Shows

v. Collins, 144 Wash. 2d 403, 410, 27 P.3d 1149 (2001).

      In contrast, we review the fashioning of equitable remedies for an abuse of

discretion because trial courts have “broad discretionary power to fashion equitable

remedies.” In re Foreclosure of Liens, 123 Wash. 2d 197, 204, 867 P.2d 605 (1994).

Thus, the standard of review depends on the question presented, because “[w]hile

the fashioning of the remedy may be reviewed for abuse of discretion, the question

of whether equitable relief is appropriate is a question of law.” Niemann v.

Vaughn Cmty. Church, 154 Wash. 2d 365, 374, 113 P.3d 463 (2005).

      Our decisions in Pardee v. Jolly and Crafts v. Pitts illustrate these principles.

163 Wash. 2d 558, 182 P.3d 967 (2008); 161 Wash. 2d 16, 162 P.3d 382 (2007). In

Pardee, the trial court granted specific performance of an option contract to

purchase property. We reviewed the award de novo on the basis that “[s]pecific

performance is a proper remedy only if a valid contract exists, a party has

                                          6
Borton v. Burbank, No. 97690-2

threatened or is threatening to breach the contract, the terms of the contract are

clear, and the contract is not the product of fraud or unfairness.” Id. at 569. We

continued,

            Whether Pardee is entitled to specific performance of the option
      depends on whether Jolly breached the contract which, in turn, depends on
      whether Pardee properly exercised the option under the contract terms. . . .
      Whether Pardee fulfilled the terms of the contract and is entitled to specific
      performance is a question of law.
Id. Thus, we reviewed the equitable remedy de novo because our inquiry was

whether equitable relief was appropriate as a matter of law and not whether the

trial court properly exercised its discretion in fashioning the remedy.

      By contrast, in Crafts, we applied the abuse of discretion standard when

reviewing a trial court’s summary judgment order to quitclaim an interest in land.
161 Wash. 2d at 30. Burbank contends that Crafts supports its position but overlooks

the fact that we reviewed the equitable remedy for abuse of discretion only after

establishing that the party had a legal right to specific performance and that “[t]he

trial court was well within its power to grant the Craftses’ request for specific

performance.” Id. at 25.

      Burbank also asserts that Recreational Equipment, Inc. v. World Wrapps

Northwest, Inc. supports applying an abuse of discretion standard. However, this

case does not support Burbank’s position. 165 Wash. App. 553, 266 P.3d 924

(2011). There, the court stated that “[b]ecause the trial court has broad

                                           7
Borton v. Burbank, No. 97690-2

discretionary authority to fashion equitable remedies, such remedies are reviewed

for an abuse of discretion.” Id. at 559 (emphasis added). Although the court

articulated the correct principle, it incorrectly analyzed the threshold question of

whether an equitable remedy was available using an abuse of discretion standard.
Id. at 556. As discussed above, the fashioning of an equitable remedy is a distinct

question from whether an equitable remedy is available as a matter of law and to

the extent that Recreational Equipment suggests otherwise, we disapprove its

application of an abuse of discretion standard.

      In sum, the question of whether equitable relief is appropriate is a question

of law that we review de novo. In this case, we are asked to review whether the

trial court properly determined that Burbank was entitled to an equitable grace

period as a matter of law and not whether the trial court properly fashioned the

equitable remedy. Because the threshold inquiry is whether an equitable grace

period was an appropriate remedy in the first place, our review is de novo.

B.    An equitable grace period to exercise an option contained in a lease is
      appropriate only when a lessee has made valuable improvements to the
      property

      In general, when a lessee fails to exercise an option “within the time

specified or in the manner provided, all rights under the contract, along with any

consideration given, are forfeited.” Pardee, 163 Wash. 2d at 568. In addition, “[t]he

terms of an option contract are to be strictly construed and, generally, time is of the

                                           8
Borton v. Burbank, No. 97690-2

essence.” Id. However, special circumstances may justify the grant of an

equitable grace period when a lessee fails to timely exercise an option to renew or

buy contained in a lease. Wharf Rest., Inc. v. Port of Seattle, 24 Wash. App. 601,

610-11, 605 P.2d 334 (1979); see also Pardee, 163 Wash. 2d 558 (adopting the Wharf

framework to determine whether a lessee may be granted an equitable grace

period).

      Wharf was the first Washington case to articulate standards for when an

equitable grace period is appropriate when a lessee fails to timely exercise an

option contained in a lease. There, a lessee forgot to exercise an option to extend a

five-year lease and provided notice a month and a half after the option expired.

Wharf, 24 Wash. App. at 603-04. The trial court granted specific performance of the

option because the lessee had made valuable improvements to the premises with

the intention of extending the lease. Id. at 612, 604.

      While the Wharf court noted the “general reluctance of courts to relieve a

party from its own negligent failure to timely exercise an option,” it also

acknowledged “equity’s abhorrence of a forfeiture.” Id. at 610. Accordingly, the

court concluded that equitable relief is appropriate in “very limited” circumstances

and cited Professor Corbin’s treatise to explain these limitations:

      “[T]he power of the holder of an option to buy or renew, contained in a lease,
      is not necessarily terminated by failure to give notice within the specified
      time. If, in expectation of exercising the power, the lessee has made valuable
      improvements, and the delay is short without any change of position by the

                                          9
Borton v. Burbank, No. 97690-2

      lessor, the lessee will be given specific performance of the contract to sell or
      to renew. This is for the purpose of avoiding an inequitable forfeiture.”
Id. at 611 (quoting 1 ARTHUR LINTON CORBIN, CORBIN ON CONTRACTS § 35 at 146-

47 (1963)).

      Wharf then outlined a five-factor test to determine whether a lessee is

entitled to an equitable grace period to exercise a lease option: (1) the failure to

give notice was inadvertent, (2) an inequitable forfeiture would have resulted had

equity not intervened, (3) the lessor did not change its position and did not suffer

prejudice, (4) the lease was for a long term, not a short term, and (5) there was no

undue delay in exercising the option. Id. at 612-14. This court has since adopted

and applied the Wharf factors, and the Court of Appeals has regularly applied

them. Pardee, 163 Wash. 2d at 574-77; Recreational Equip., 165 Wash. App. 553;

Cornish Coll. of Arts v. 1000 Va. Ltd. P’ship, 158 Wash. App. 203, 242 P.3d 1

(2010); Heckman Motors, Inc. v. Gunn, 73 Wash. App. 84, 867 P.2d 683 (1994);

Lenci v. Owner, 30 Wash. App. 800, 638 P.2d 598 (1981).

      In this case, the parties dispute the meaning of the second Wharf factor—

whether an inequitable forfeiture would have resulted without an equitable remedy.

Burbank contends that the Court of Appeals erred in holding that valuable

permanent improvements to property are required before granting an equitable

grace period. However, Washington cases have generally interpreted the

inequitable forfeiture prong as requiring valuable permanent improvements to land,

                                           10
Borton v. Burbank, No. 97690-2

and our only decision analyzing the Wharf factors indicates that valuable

permanent improvements are necessary. We therefore hold that a lessee must

make valuable improvements to the property prior to the granting of an equitable

grace period.

      1.     The second Wharf factor requires valuable permanent improvements
             to the subject property

      In this case, the Court of Appeals held that equitable relief is proper only

when the lessee has made valuable permanent improvements to the subject

property. Borton, 9 Wash. App. 2d at 608. On appeal, Burbank asserts that the

court’s decision “is now in conflict with decisions of the other divisions of the

Courts of Appeal as well as the Washington State Supreme Court.” Pet. for

Review at 11. To the contrary, requiring valuable improvements is consistent with

every published case in Washington concerning equitable grace periods.

      Burbank contends that the Court of Appeals errantly “stated that a

permanent improvement is essentially the sixth Wharf element” and cites our

decision in Pardee to prove that such improvements are not “an additional factor in

the analysis.” Id. at 17, 13. Burbank is correct that valuable permanent

improvements are not a sixth factor. However, Burbank significantly overlooks

that we previously articulated the second factor as “whether the lessee made

valuable permanent improvements.” Pardee, 163 Wash. 2d at 575. Consequently,

the only time that this court interpreted the Wharf factors, we regarded valuable

                                          11
Borton v. Burbank, No. 97690-2

permanent improvements to property as an inherent component of the inequitable

forfeiture analysis.

      In short, these are not two separate factors but one and the same: Whether an

inequitable forfeiture would result depends on whether the lessee made valuable

permanent improvements to the property in anticipation of exercising the option.

Next, we must determine whether an inequitable forfeiture is a necessary condition

before a trial court may award an equitable grace period.

      2.     The second Wharf factor must be met before a trial court may grant an
             equitable grace period

      Burbank contends that no other case analyzing the Wharf factors requires

substantial permanent improvements before a trial court may grant an equitable

grace period. However, we have implicitly treated an inequitable forfeiture as a

necessary condition. Indeed, Borton persuasively argues that “[t]he common

denominator in all of these opinions, whether relief is granted or denied, is that the

party asking for a grace period must show it made a permanent or substantial

improvement to the property that would be forfeited.” Suppl. Br. of Resp’t at 9-10.

      This is because the primary justification for granting a grace period is

“equity’s abhorrence of a forfeiture.” Wharf, 24 Wash. App. at 610. Indeed,

Professor Corbin made clear that “‘[w]here no inequitable forfeiture will occur, the

same rule is applicable to an option contract as to a revocable offer; a time limit,

                                          12
Borton v. Burbank, No. 97690-2

expressly stated, is controlling.’” Id. at 611 (quoting CORBIN ON CONTRACTS, § 35

at 146-47).

      Burbank also asserts that our decision in Pardee supports its position

because we remanded the question of whether Jolly was entitled to an equitable

grace period to the trial court. However, our analysis began with a declaration that

forfeitures are “‘never enforced in equity’” and that “‘to avoid the harshness of

forfeitures . . . courts have frequently granted a “period of grace” to a purchaser

before a forfeiture will be decreed.’” Pardee, 163 Wash. 2d at 574 (internal quotation

marks omitted) (quoting Hyrkas v. Knight, 64 Wash. 2d 733, 734, 393 P.2d 943

(1964); Moeller v. Good Hope Farms, Inc., 35 Wash. 2d 777, 783, 215 P.2d 425

(1950)). After determining that the optionee would forfeit over $20,000 and 2,500

hours repairing the property, we remanded the issue to the trial court to consider

whether the other Wharf factors also supported granting an equitable grace period.
Id. at 576. Pardee therefore supports the conclusion that an equitable grace period

is proper only when an inequitable forfeiture will result.

      Following Pardee, the Court of Appeals twice upheld equitable grace

periods after determining that valuable improvements to property would be

forfeited. In Cornish, the court’s analysis focused on the fact that “Cornish

invested approximately $600,000 to remodel and improve the property. Such

extensive improvements are easily adequate to constitute a forfeiture.” Cornish,

                                          13
Borton v. Burbank, No. 97690-2
158 Wash. App. at 219. The court then proceeded to consider the other Wharf

factors, continuing, “[M]any of the factors we deemed important in Wharf are also

present in this case.” Id. Thus, while the court noted that other Wharf factors were

met, the crux of its analysis focused on whether a forfeiture would result from

losses related to valuable permanent improvements to the property.

      Similarly, in Recreational Equipment, the Court of Appeals affirmed that a

grace period was proper because the lessee “made substantial improvements to the

premises . . . in expectation of exercising the third and fourth options.” 165 Wn.

App. at 563. Specifically, in analyzing whether an inequitable forfeiture would

have occurred, the court reasoned that “this case falls squarely within the narrow

exception to the general rule: where a lessee makes valuable improvements to a

leasehold in expectation of exercising an option, equitable relief may be proper.”
Id.

      By contrast, in Heckman Motors, the Court of Appeals held that a lessee

who failed to timely renew an option could not be granted an equitable grace

period because it “had not made, and would not forfeit, substantial valuable

improvements of the sort present in Wharf.” 73 Wash. App. at 88. Likewise, in

Lenci, the Court of Appeals held that the lessee was not entitled to equitable relief

because “[h]e cites no special circumstances such as permanent improvements to

the property to justify the application of equitable principles.” 30 Wash. App. at 803.

                                          14
Borton v. Burbank, No. 97690-2

Notably, the court did not analyze any other Wharf factor in arriving at this

holding.

      These cases consistently demonstrate that equitable grace periods are

appropriate only when a lessee shows that they would otherwise suffer an

inequitable forfeiture of valuable permanent improvements to the property.

Lessees who made that showing were granted grace periods, while those who

failed to show an inequitable forfeiture were denied equitable relief.

      Moreover, as a practical consideration, not requiring an inequitable

forfeiture as a condition to granting an equitable grace period would effectively

authorize trial courts to rewrite option contracts any time a lessee shows that their

inadvertent and brief delay in exercising an option does not prejudice the lessor.

Such a result undermines our principled determination that equitable relief is an

extraordinary remedy that is available only in very limited circumstances.

      Accordingly, we affirm the Court of Appeals and hold that valuable

permanent improvements to property are required before a court may grant an

equitable grace period.

      Having determined that the proper standard of review is de novo and that

valuable permanent improvements to property are required to grant an equitable

grace period, we next consider whether Burbank was properly awarded an

equitable grace period on summary judgment.

                                          15
Borton v. Burbank, No. 97690-2

C.        The trial court did not have discretion to grant Burbank an equitable grace
          period because the second Wharf factor was not met

          Burbank’s chief arguments on appeal are that valuable permanent

improvements are not required to find an inequitable forfeiture and that it is

entitled to an equitable grace period because the first three Wharf factors are met:

(1) Burbank’s delay in exercising the option was inadvertent, (2) the loss of its hay

crop constitutes an inequitable forfeiture, and (3) Borton was not prejudiced by the

delay. With respect to the second factor, Burbank asserts that loss of equity in the

property and its hay crop is sufficient to prove that an inequitable forfeiture would

result.

          However, as discussed above, we hold that a court has discretion to grant a

lessee an equitable grace period only if the lessee can demonstrate that it would

suffer an inequitable forfeiture because the lessee made valuable permanent

improvements to the property. Consequently, Burbank’s argument that it would

suffer an inequitable forfeiture by “[forgoing] the value it would have gained by

selling the property at market value in 2016” is unavailing. Pet. for Review at 8.

On this point, the Court of Appeals properly determined that “[t]he cost of an

option is not a component of an inequitable forfeiture.” Borton, 9 Wash. App. 2d at

611. Likewise, although Burbank did not contend that the planting of its hay crop

constituted a valuable permanent improvement to land, we note that planting crops

as part of routine farming operations does not constitute a valuable permanent

                                            16
Borton v. Burbank, No. 97690-2

improvement to property. This is particularly true where, as here, the crops had

already been in rotation prior to the execution of the lease. Therefore, Burbank’s

inability to reap its hay crop, while unfortunate, does not amount to an inequitable

forfeiture.

       Accordingly, even assuming the first and third factors are met, Burbank does

not make the required showing that it suffered an inequitable forfeiture. It is

undisputed that Burbank made no valuable permanent improvements to the

property and thus does not satisfy the second Wharf factor. We therefore affirm

the Court of Appeals and hold that Burbank may not be granted an equitable grace

period as a matter of law.

D.     Burbank is not entitled to attorney fees on appeal

       Section 14 of the Agreement provides,

       In the event that any action is filed in relation to this lease agreement,
       the unsuccessful party in the action shall pay to the successful party, in
       addition to all the sums that either party may be called on to pay, a
       reasonable sum for the successful party’s attorney fees.

Clerk’s Papers at 15.

       Pursuant to the Agreement, the trial court awarded Burbank reasonable

attorney fees and costs. The Court of Appeals reversed the superior court fee

award and granted Borton’s request for fees. Borton, 9 Wash. App. 2d at 611. On

appeal, both Burbank and Borton seek reasonable attorney fees and costs

consistent with the Agreement and RAP 18.1(a). Because Borton is the prevailing

                                          17
Borton v. Burbank, No. 97690-2

party, we grant Borton’s request for attorney fees and costs and deny Burbank’s.

RAP 18.1(a); W. Plaza, LLC v. Tison, 184 Wash. 2d 702, 718, 364 P.3d 76 (2015).

                                  CONCLUSION

      Burbank fails to demonstrate that the Court of Appeals erred in applying a

de novo standard of review and requiring valuable permanent improvements to

property as a condition of granting an equitable grace period. Furthermore,

Burbank has not shown that it would suffer an inequitable forfeiture because it

made no valuable permanent improvements to the lease property. Accordingly, we

hold that 1) whether a trial court properly granted an equitable grace period as a

matter of law is a question of law that we review de novo, 2) the grant of an

equitable grace period on summary judgment is proper only when a lessee makes

valuable permanent improvements to property that would result in an inequitable

forfeiture if not granted a grace period, and 3) Burbank did not suffer an

inequitable forfeiture and therefore could not be granted an equitable grace period

as a matter of law. We therefore affirm the Court of Appeals on all issues and

grant Borton’s request for reasonable attorney fees and costs.

                                         18
Borton v. Burbank, No. 97690-2

WE CONCUR:

                                 19
Borton & Sons, Inc. v. Burbank Properties, LLC

                                       No. 97690-2

       MADSEN, J. (concurring)—I agree with the majority that an equitable grace

period in this case is not warranted. As a matter of law, the equitable extension of time

for a lessee to exercise an option to purchase property is proper only when that lessee

makes valuable improvements to property that, without a grace period, would result in

inequitable forfeiture. Accordingly, I agree that the second Wharf factor is not met.

Wharf Rest., Inc. v. Port of Seattle, 24 Wash. App. 601, 610, 605 P.2d 334 (1979). I write

separately to underscore the unique aspects of agricultural production in the context of

equity and property. Specifically, beyond structural improvements, perennial crops can

constitute valuable permanent improvements.

       I share the majority’s concern about deviating from the terms of a lease contract.

See majority at 8-9. Only under exceptional circumstances should a court “relieve a party

from its own negligent failure to timely exercise an option, when to do so might tend to

introduce instability into business transactions and disregard commercial realities.”

Wharf, 24 Wash. App. at 610. Nevertheless, the narrow equitable exception may apply

even where a lessee’s improvement may not be structural in the traditional sense because

                                             1
No. 97690-2
Madsen, J., concurring

some crops constitute valuable permanent improvements. Thus, I would hold that

valuable permanent improvements are not limited to buildings and traditional fixtures,

but can include perennial crops. See id. at 612-15.

       The Wharf court sought to balance the predictability of—and the freedom to—

contract against “equity’s abhorrence of a forfeiture.” Id. at 610. Accordingly, the court

carved out “very limited” circumstances in which equitable relief can be granted when a

lessee fails to timely exercise an option to purchase land. Id. at 611. As to the second

Wharf element, the court held that “[a]n inequitable forfeiture would have resulted had

equity not intervened,” as “permanent improvements had been made on the premises by

the lessee with the intention of exercising its option and remaining on the premises.” Id.

at 612. As explained below, perennial crops can increase the value of land and indicate

an intent of exercising an option to remain on the premises. Thus, such crops can be a

valuable permanent improvement.

       The law generally distinguishes between the ownership of the perennial plant—the

roots that produce harvests for multiple years—and the crop, which consists of the

matured crop. See, e.g., ABCDW LLC v. Banning, 241 Ariz. 427, 433, 388 P.3d 821

(Ariz. Ct. App. 2016) (holding that rooted plants planted by a farmer during a lease were

“fixtures” that became part of the realty belonging to the landlord, thus deauthorizing a

farmer from destroying them); Mattis v. St. Louis & S.F. R.R. Co., 138 Mo. App. 61, 119
S.W. 998 (1909) (distinguishing between the perennial root and the matured crop);

Gentry v. Alexander, 311 Ky. 344, 346-47, 224 S.W.2d 143 (1949) (distinguishing

                                             2
No. 97690-2
Madsen, J., concurring

between the crop and the perennial root or plant that produces the crop). The perennial

root, which may produce crops for multiple cycles, can improve the permanent value of

land.

        In Washington, this court has concluded that a permanent asparagus crop

constitutes a valuable improvement to property. Miller v. McCamish, 78 Wash. 2d 821, 823,

479 P.2d 919 (1971). In McCamish, a farmer agreed to move onto the defendants’ land to

work the farm for a specified wage. The defendants agreed to allow the farmer to

purchase the farm after a period of employment, in which case the farmer “would receive,

as credit toward the purchase price, one-third of the farm's increased value over $40,000.”
Id. at 822. “Prior to Miller’s employment, the farm had not grown a permanent crop.”
Id. at 823. This court upheld the damages awarded to the plaintiffs for their one-third of

the farm’s increased value, which included “32 acres of permanent crop asparagus.” Id.

Though McCamish concerned an award of money damages, rather than equitable relief,

the example is useful: this court has previously recognized that perennial crops can have

significant value and increase the long-term value of realty.

        Additionally, trees planted in an orchard may constitute valuable permanent

improvements. “It is settled law that standing trees are part and parcel of the land in

which they are rooted, unless they are nursery stock growing in the soil for sale and

transplantation: [t]he fruit trees involved in this case were not nursery stock but had

become part of the realty.” Dennison v. Harden, 29 Wash. 2d 243, 250, 186 P.2d 908 (1947)

(citation omitted) (citing 42 AM. JUR. Property § 19, at 200-01 (1942)). The Dennison

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No. 97690-2
Madsen, J., concurring

plaintiff argued that the defendant breached an implied warranty after verbally promising

to include 276 peach trees in a sale of land. We rejected the argument, reasoning that the

trees became part of the real property and such an implied warranty therefore did not

apply. Id. (comparing the peach trees to the condition of a storeroom and basement in a

lease agreement in York v. Steward, 21 Mont. 515, 55 P. 29 (1898)).

       Washington courts have also considered agricultural improvements when

exercising equitable powers to avoid an inequitable forfeiture. See, e.g., Pierce v.

Vanderwal, noted at 87 Wash. App. 1026, 1997 WL 499943, at *1. In Pierce, the plaintiffs

contracted to “farm Christmas trees on 19 acres owned by [the defendants].” Id. The

plaintiffs “made substantial improvements to the leasehold, including removing junk and

brush, plowing and fertilizing the fields, planting and replanting trees. Thus, they made

significant, if unmeasured, contribution toward creating a standard Christmas tree crop on

the [defendant’s] land.” Id. Near the termination of the lease, the plaintiffs had an option

to renew but mailed their notice of renewal 40 days late. Id. While moot by the time of

appeal, the trial court granted equitable relief to prevent the plaintiffs from forfeiting the

value of the trees. “[T]he trial court concluded as follows: Although lease renewal

provisions are usually construed strictly, the court can exercise equitable powers to avoid

an inequitable forfeiture.” Id. at *2 (citing Wharf, 24 Wash. App. at 612-13).

       Here, the record does not indicate that Burbank Properties’ owner, Eric Rogers,

planted perennial crops. Rogers farmed early season potatoes on the property, which

required rotating the potato crop with grass seed or timothy hay every two or three years.

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No. 97690-2
Madsen, J., concurring

Clerk’s Papers at 128. These crops do not constitute valuable permanent property.

Unlike perennial crops, harvesting potatoes involves digging up, uprooting, and

destroying the plants. However, there could be a situation where a farmer plants an

orchard on a 20-year lease but misses the deadline on an option to purchase. In such a

case, it would be an inequitable forfeiture for the farmer to lose the value she created

without the brief extension merely because the nature of her work required planting trees,

rather than erecting a structure.

       Though the record before us does not suggest that Burbank planted perennial

crops, in considering what constitutes valuable permanent improvements, we must not

overlook the nature of agricultural production in which valuable improvements may

come in the form of a permanent crop. I would hold that valuable permanent

improvements are not limited to buildings and traditional fixtures but can include

perennial crops.

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