Court Opinion

ID: 5072681
Source: CourtListenerOpinion
Date Created: 2021-10-01 10:53:00.97474+00
Date Added: 2024-06-11T08:19:53.823633
License: Public Domain

PUDLOWSKI, Chief Judge,
dissenting.
I concur with the dissenting opinion of Judge Dowd. I write to explain an alter*90nate theory which requires reversal. Appellant owner has presented a sustained, forceful and convincing argument that the trial court erred in failing to recognize its claim that the city, as sub-lessee, committed equitable waste when it demolished the parking garage on the lessor’s property. Assuming for the sake of argument that the lease authorizes lessee to commit waste by removing all revenue-producing improvements, the lessee nonetheless is liable to the owner for the loss of value by virtue of the doctrine of equitable waste. The majority finds the doctrine inapplicable in this situation. I disagree. The doctrine of equitable waste applies. It is independently sufficient to require reversal of the trial court’s judgment.
The undisputed facts of this case have been extensively reported in the companion opinions. Certain pertinent facts, however, staunchly supporting appellant’s contention that the city committed equitable waste, may not be ignored. Before the lessee could exercise its first option to extend the lease, it was incumbent upon the lessee under the provisions of the lease to construct an improvement. The lessee did so by constructing a parking garage in 1955 at a cost of $306,000. This expense, measured in 1955 dollars, indicates the substantial nature of the structure which existed before demolition and which became part of the lessor’s reversionary interest. After the transfer of its interest to the city in 1982, sub-lessee (May Department Stores) declared the value of its leasehold interest for tax purposes at $5,000,000. The value of the reversion increased many fold between 1955 and 1982. The city chose to demolish a major improvement with gross annual income of $400,000 per year and substitute a public park which is only partially on the leased premises and detrimental to the reversionary interest.
The issue before this court is: “Did the city commit equitable waste?” Equitable waste has been defined as:
[A] form of waste recognized by the courts of chancery, usually defined as consisting in such acts as at law would not be deemed to be waste under the circumstances of the case, but which, in the view of a court of equity, are regarded as waste from their manifest injury to the inheritance, (reversion) although they are not inconsistent with the legal rights of the party committing them. Equitable waste has also been defined as that which a prudent man would not do with his own property.
78 Am.Jur.2d Waste 4 (1975) (emphasis added).
The majority concludes that the lessee’s rights under the lease preclude the application of the doctrine of equitable waste. I believe this view misconstrues and misunderstands this viable doctrine and misinterprets the analysis in Camden Trust Co. v. Handle, 132 NJ.Eq. 97, 26 A.2d 865 (N.J. 1942), the authority cited by the majority. The Camden case in dicta suggests that equitable waste is applicable where the party aggrieved has equitable rights only. Id. at 871. However, a careful reading of the Camden opinion indicates that this is not the holding of the case but an example of the doctrine’s application in a cited authority.
The majority analysis errs in reaching the conclusion that the lessor’s rights are exclusively legal because they are governed by the terms of the lease. The Camden case states that the term equitable waste “has reference to cases where, by terms of the will, deed, settlement or lease, the tenant holds the land without impeachment of waste.” 1 Id. at 870. See also, Crowe v. Wilson, 65 Md. 479, 5 A. 427 (1886) (doctrine applied in case dealing with long-term lease). The Camden case, therefore, does not stand for the proposition espoused by the majority opinion that the existence of legal rights based on a written lease bars the lessor’s rights to equitable relief in appropriate circumstances.
*91The lease agreement creates legal rights and obligations for both the lessor and lessee. One of these rights is the lessee’s right to erect improvements on the property “in such form, size and character, at such cost and for such uses and purposes as the Lessee shall determine, provided the same shall comply with all laws and ordinances.” This right is coupled with the right to “replace any improvements then existing in such manner as Lessee shall desire.” The broad provisions of the lease also impart the right and power of lessee to remove an improvement and replace it with another improvement. Such an act is “voluntary” waste if the replacement is not of at least equal value to both parties. If lessee is immunized by the terms of the lease from legal action, it does not follow that lessor is not entitled to equitable relief. The city’s actions for its sole benefit “work manifest injury to the inheritance,” although they are “not inconsistent with the legal rights” of the city under the terms of the lease.
It is true that the parties have legal rights governed by the lease agreement. Those rights and duties are interpreted by Judge Dowd’s dissent. Those rights are neither comprehensive nor exclusive. The lease involved in this case confers broad powers on the lessee. Assuming the lease permits the lessee to commit what normally would be considered legal waste, we must remember that this lease has the potential of continuing for one hundred years. During that long term many changes could be reasonably anticipated. The lease simply does not provide an exclusive remedy for all events in this unique situation. “[E]quity will interpose in many cases and stay waste where there is no remedy at law. Chancery will interpose when the tenant affects the inheritance in an unreasonable and unconscientious manner, even though the lease be granted without impeachment of waste.” Duncombe v. Felt, 45 N.W. 1004, 1006 (Mich.1890) (citations omitted).
The majority also relies upon a portion of the definition of equitable waste found at 93 C.J.S. Waste 1 (1956). However, the entire definition reads as follows:
“Equitable waste” is defined to be such acts as work manifest injury to the inheritance, although not inconsistent with the legal rights of the party who commits them; such acts as a prudent man would not do in the management of his own property, and the doctrine is applicable where the party aggrieved has equitable rights only.2
Moreover, the Camden case refers to more than one variation of the definition of equitable waste. Camden, 26 A.2d at 871. Among the definitions, it refers to equitable waste as “ ‘such acts as at law would not be esteemed to be waste under the circumstances of the case, but which in view of a Court of Equity are so esteemed from their manifest injury to the inheritance, although they are not inconsistent with the legal rights of the party committing them.’ ” Id.
The majority opinion properly finds that appellant charged the city with both statutory waste and equitable waste but concludes “that neither contention finds support in the lease.” The opinion explains that “[t]he land as originally leased was vacant.” This ignores other facts. In order for the lessee to exercise its first option to extend the lease, it was necessary to construct an improvement with a value of at least $150,000. Moreover, any improvement would revert to the lessor upon the termination of the lease. The majority opinion continues, “The lease authorized improvement and replacement of improvements at any time....” I have no quarrel with this finding; however, the doctrine of equitable waste requires that such replacement be done in a prudent manner and without harm or injury to the holder of the reversionary interest. The doctrine applies as a matter of equity and does not depend on “support in the lease.”
The majority, in order to bolster its position, quotes the following statement from the Camden case: “ ‘Equitable waste’ is a nebulous term — a doctrine of obscure limitations.” Camden, 26 A.2d at 870. What *92equitable theory is not nebulous and flexible in its application to the facts? Furthermore, the Camden court did not conclude, as the use of the quote implies, that the doctrine was not viable as a result. As a matter fact, the Camden opinion supplies us with an extensive list of various authorities on the subject of equitable waste and reports examples of the doctrine’s application to various factual circumstances before it reached the following conclusion upon which the majority relies: “Thus it is that equitable jurisdiction in this behalf seems to have been confined to wanton, malicious and unconscientious acts of the particular tenant injurious to the inheritance, in contravention of the presumed will of the creator of the limited estate.” Id. at 871. The Camden opinion, however, continues:
It is largely upon this ground that equity has afforded a remedy where the acts denominated waste were not inconsistent with the legal rights of the holder of the partial estate. But the particular tenant is not so punishable for merely permissive waste grounded on the omission of repairs that are not commanded either by statute or the contract. Such is not included within this equitable jurisdiction.
Id. (emphasis added).
The law in Missouri is even more on point.
‘Permissive’ waste consists of mere neglect or omission to prevent an injury to the landlord’s reversion or inheritance, such as allowing a structure to deteriorate for lack of repair, permitting a stranger to injure the property, or otherwise failing to perform a duty to protect the inheritance. ‘Voluntary’ or ‘commissive’ waste consists of some direct injury to the property committed by the tenant in possession, such as pulling down a structure or cutting down trees.
Lustig v. U.M.C. Indus. Inc., 637 S.W.2d 55, 59 (Mo.App.1982).
The acts of the lessee in this case are clearly voluntary waste; whereas, in the Camden case, the court was dealing with acts of permissive waste by a mortgagor’s grantee in a suit by a mortgagee. Thus, while the dicta concerning equitable waste is useful to our understanding of the doctrine, the holding of the Camden case is not relevant in the factual context of this case.
Even if lessor’s rights are not subject to legal remedies for permissive waste, the intentional actions of the city are so damaging to the lessor, the owner of the rever-sionary interest, that equity must intervene. Missouri law defines waste as “that which does a lasting damage to the freehold or inheritance, and tends to be permanent loss of the owner in fee, or to destroy or lessen the value of the inheritance.” Davis v. Clark, 40 Mo.App. 515, 520 (1890). In applying this definition, the court must consider the property in question which is located in the heart of downtown St. Louis. Situated one block from Busch Stadium, it is at the center of an area revitalized by expenditure in excess of a billion dollars over the last two decades. The surrounding property consists of office buildings, hotels, retail shops, restaurants and similar businesses which are designed to reap commercial profits. The city has erected in the center of this commercial hub an open-air amphitheater with a fountain and reflecting pool. The “improvement” that currently exists has no commercial value to lessor. It provides instead a free public park which may be a civic improvement for the citizens of the metropolitan area but which has no value to the corporation which owns the reversionary interest in the property subleased to the city. This “improvement” is not one in which a prudent owner of the property would be likely to invest based on the condition and current commercial use of other property in the area. Moreover, the change to a public park reduces the market value of the owner’s reversionary interest to a negative value since no reasonable investor would purchase a public park complete with an concrete open-air amphitheater. At the end of the lease, the situation becomes even more detrimental to the lessor. Because the lessor owns only two-thirds of the property upon which the park has been constructed and the city owns the remaining one-third, the lessor would be unable to continue to use the *93property as it exists today without purchasing the remainder from the city or removing the amphitheater, a massive structure constructed of tons of concrete poured into a hole carved deep in the ground. The cost of either option would be exorbitant. The alteration has significantly wiped out the present and future market value of the lessor’s interest.
Modern legal-economists recognize the waste theory and acknowledge that in the landlord-tenant relationship two entities have property rights in the same thing. See R. Posner, Economic Analysis of Law 63 (3d Ed.1986). This division of ownership “creates incentives for inefficient use” of the property. Id. It is, therefore, the role of the law to regulate this division of ownership. Id. at 64. In its regulation, courts have as one of their tools the body of law known as the law of waste. “From an economic standpoint this body of law is aptly named.” R. Posner, Economic Analysis of Law 53 (2d Ed.1977). Any use which fails to maximize the profit potential of the property is economic waste and is an unreasonable action for a prudent property owner. The maximized economic use of this property does not include that of a public park. No prudent person would invest in a project which provides no potential for an economic return on investment. Although an open-air mecca in the center of the city may be esthetically pleasing, it is not commercially reasonable. It certainly is not what a prudent person would do with a prime piece of commercial real estate.
II Missouri Tort Law 26.11 (MoBar 1980, 1984), states:
Although the authors found no case authority on equitable waste in this state, there appears to be no reason why a Missouri court would hesitate to use its equitable powers under the proper circumstances. This is especially likely since there is case authority suggesting that a life tenant is a trustee for the remainderman and, as such, occupies a fiduciary relationship to him. Miller v. Bowen Coal & Mining Co., 40 S.W.2d 485 (Mo.App.1931).
Finding the present situation to be a proper circumstance for the application of the doctrine of equitable waste, I am convinced that the lower court and the majority of this court have ignored a remedy to which the aggrieved lessor is entitled. Appellant’s claim that the trial court erred when it failed to recognize its contention that the city’s actions constituted equitable waste requires this court to reverse the judgment of the trial court and remand the case with instructions to terminate the lease and conduct a trial to determine the lessor’s damages.

. The phrase "without impeachment for waste” is an early English phrase meaning that the actor is for some reason immune from a legal action for waste. See 5 R. Powell, The Law of Real Property P640[5] (Rev.Ed.1987).

. The underlined is the portion the majority cites as authority.