Court Opinion

ID: 8206892
Source: CourtListenerOpinion
Date Created: 2022-09-16 14:03:32.941062+00
Date Added: 2024-06-11T16:41:20.481538
License: Public Domain

DISTRICT COURT OF APPEAL OF FLORIDA
                      SECOND DISTRICT

         POPS FAMILY ENTERTAINMENT CENTER, LTD.,

                    Appellant/Cross-Appellee,

                                v.

 THOMAS F. KELLY; KELLY COMMERCIAL PROPERTY, LLC; and
                 HIGHVIEW HOMES, LLC,

                   Appellees/Cross-Appellants.

                           No. 2D21-17

                       September 16, 2022

Appeal from the Circuit Court for Sarasota County; Andrea
McHugh, Judge.

Tracy Raffles Gunn of Gunn Appellate Practice, P.A., Tampa, for
Appellant/Cross-Appellee.

Morgan R. Bentley, David A. Wallace, and Amanda R. Kison of
Bentley Goodrich Kison, P.A., Sarasota, for Appellee/Cross-
Appellant Thomas F. Kelly.

No appearance for remaining Appellees/Cross-Appellants.

STARGEL, Judge.
     Pops Family Entertainment Center, Ltd., successor by merger

to Pops Golf Range, Inc. (Pops), leased a thirty-acre parcel of land in

2000 from Thomas Kelly, who later transferred the lease to Kelly

Commercial Property, Inc. (Kelly). The lease had a fifty-year term

and contained a right of first refusal should the landlord intend to

dispose of the "whole or any part" of the premises during the lease

term. In 2009, the parties entered a lease amendment to terminate

the lease on May 31, 2019, a reduction of over thirty years with a

buyout agreement for Kelly to pay Pops $200,000 immediately and

$150,000 upon termination of the lease.

     Pops subsequently exercised its right of first refusal on a

fifteen-acre parcel by executing a purchase agreement in May 2017,

after commencement of this action, but continued to make the lease

payments on the entire property until the end of the amended lease

term on May 31, 2019. Pops then delivered the keys to Kelly in

conformity with the requirements of the amended lease. Kelly

subsequently refused to pay the remaining $150,000 of the buyout

agreement. After a nonjury trial, the trial court entered judgment

on numerous counts in favor of Pops but denied Pops' claim for the

final payment due under the buyout agreement. We affirm the final

                                  2
judgment entered by the trial court in all respects without further

discussion except as to count I(B)1 and count II, both of which

relate to the remaining payment Pops claims is due for a reduction

of the lease term. Because the trial court erroneously held that the

lease ceased to exist "when Pops signed the purchase agreement,

because the Lease merged into the contract to purchase," we must

reverse on those counts.

                                    I.

     While our analysis could be limited to the facts set forth above,

it is beneficial to further explain the details of the relationship

leading to this litigation. The relationship between the parties

deteriorated significantly after the 2009 amendment was executed.

As property values continued to increase in the Fruitville Road area

of Sarasota where the property is located, Kelly was determined to

capitalize on the increased value. Kelly attempted to pursue a

default on the lease without disclosing a pending purchase

agreement.

     1 Count I of the operative complaint essentially raised three
separate claims for declaratory relief, which the trial court
subdivided into counts I(A), I(B), and I(C). Counts I(A) and I(C) are
not pertinent to Pops' appellate argument.

                                    3
     In June 2015, Kelly entered into a contract to sell

approximately half of the leased parcel to Highview Homes, Inc., for

over $2.4 million (the Highview Agreement). Kelly failed to timely

disclose the Highview Agreement to Pops despite several meetings in

which Kelly attempted to buy out the remainder of the lease.

During this time, Kelly and Highview executed several amendments

to their agreement to extend the timeframes while Kelly attempted

to terminate the lease with Pops. When Pops eventually learned of

the Highview Agreement, Kelly withheld amendments and other

material information from Pops which was necessary for Pops to

determine if it would exercise its right of first refusal.

     In March 2016, Pops filed an action for declaratory relief

against Kelly, claiming that Kelly's notice was insufficient to trigger

the right of first refusal. After suit was filed, Kelly continued to

withhold information, even excluding two amendments when

submitting the Highview Agreement to the trial court as an

attachment to an affidavit in support of summary judgment.

Thomas Kelly specifically attested that "[t]here are no other terms or

conditions of my agreement with buyer other than those explicitly

set forth in the [Highview Agreement]." Once the amendments were

                                    4
eventually made available to Pops through discovery, Pops exercised

its right of first refusal and entered into a purchase agreement with

Kelly for the fifteen-acre parcel. Pops later amended its complaint

to add claims for declaratory relief and breach of agreement based

upon Kelly's refusal to pay the remaining $150,000 due under the

lease addendum.2

                                   II.

     On count I(B) for declaratory relief and count II for breach of

agreement, the trial court ruled that Pops' exercise of the right of

first refusal extinguished as a matter of law the 2009 lease

amendment that required Kelly to pay Pops $150,000 upon the

expiration of the lease term in 2019. The sole rationale for

eliminating Pops' right to this payment was a misinterpretation of

the doctrine of merger as it applies to these agreements. While the

trial court recognized that the purchase agreement only covered

     2 After Pops exercised its right of first refusal and entered into
the purchase agreement with Kelly, Highview sued Pops and Kelly
for specific performance, anticipatory breach of contract, and
declaratory relief. The Highview case and this case were
consolidated, and the trial court eventually entered summary
judgment in favor of Pops on the Highview claims. The remaining
claims by and against Highview were settled and dismissed.

                                   5
half of the leased property, it reasoned that Pops could have chosen

not to exercise the right of first refusal and remain a tenant but

instead exercised its right of first refusal resulting in a vendor-

vendee relationship with Kelly.3 Therefore, the trial court ruled that

the lease had terminated, and Kelly was no longer legally obligated

to pay Pops the $150,000.

                                   III.

     Pops argues on appeal that the trial court erroneously

concluded that Kelly's obligation to pay $150,000 upon the

termination of the lease was extinguished as a matter of law when

     3  As an initial matter, we note that the trial court's suggestion
that Pops had to make a choice between either exercising its right of
first refusal resulting in a terminated lease or remaining a tenant on
the property but forgoing the right of first refusal has no basis in
the law or under the agreements at issue here. The trial court's
suggestion could leave Pops, or others in a similar position, with no
meaningful way to get the benefit of their bargain. If this analysis
were allowed to stand, a landlord could offer to sell a small fraction
of a larger property to a third party and the tenant with a right of
first refusal would be forced to either continue with their existing
lease on the whole property or exercise their right of first refusal.
Under the trial court's analysis, the tenant who exercised the option
on the small parcel would enter a vendor and vendee relationship
and the remainder of the lease would terminate—and with it the
right of first refusal on the remaining property.

                                    6
Pops exercised its right of first refusal.4 Because this issue requires

the interpretation of various contractual provisions, our review is de

novo. See Muniz v. Crystal Lake Project, LLC, 947 So. 2d 464, 469

(Fla. 3d DCA 2006) ("The interpretation of a contract involves a pure

question of law for which [the appellate court] applies a de novo

standard of review.").

     In determining whether Pops' exercise of its right of first

refusal merged the purchase agreement and the lease, we must

begin with the intent of the parties. In Harkless v. Laubhan, 219

So. 3d 900, 905 (Fla. 2d DCA 2016), this court explained that

merger applies only if that is what the parties intended:

     The doctrine of merger by deed . . . is an extension of the
     general principle of integration in written contracts.
     Whether discussing merger into a deed or integration of a
     prior agreement into a subsequent contract, our guiding
     principle is the intent of the parties. See Jenkins v.
     Eckerd Corp., 913 So. 2d 43, 53 (Fla. 1st DCA 2005)
     ("The concept of integration is based on a presumption
     that the parties to a written contract intended that
     writing 'to be the sole expositor of their agreement.' "
     (quoting Everglade Lumber Co. v. Nettleton Lumber Co.,
     149 So. 736, 738 (1933))). If it is undisputed that none
     of the parties to a real estate transaction intended for
     certain provisions of their real estate sales contract to

     4We reject the arguments raised in Kelly's cross-appeal
without further discussion.

                                   7
       merge into a subsequent deed, then no merger takes
       place as to those provisions.

       The facts before us here do not support a finding of merger

because the leasehold estate and fee estate were never unified since

there was no acquisition of the leasehold estate and, even if there

had been, the purchase agreement only encompassed

approximately half of the leased premises. See generally Lassiter v.

Kaufman, 581 So. 2d 147, 148 n.1 (Fla. 1991) (defining merger as

"the process whereby a greater estate (fee simple) and a lesser

estate (leasehold), without an intermediate estate, coincide and

meet in one person thereby extinguishing the lesser estate into the

greater" (citing Black's Law Dictionary 892 (5th ed. 1979))). Thus,

Pops would still be due consideration under the lease amendment

for terminating over thirty years of the lease on the fifteen acres not

subject to the purchase agreement.

       Nor is there any evidence in this case that the parties intended

the contracts to merge upon Pops' exercise of the right of first

refusal. When faced with a similar issue, the Third District in

Contos v. Lipsky, 433 So. 2d 1242 (Fla. 3d DCA 1983), recognized

that

                                   8
     the once inflexible common law rule—that is, that
     whenever a greater estate and a lesser estate coincide in
     the same person without any intermediate estate, the
     lesser estate merges into the greater—has given way to
     the rule that equity will prevent or permit a merger as
     will best serve the purpose of justice and the actual and
     just intent of the parties, whether express or implied.

Id. at 1244. In addressing the lessee's exercise of the right of first

refusal, the court in Contos stated, "In the absence of evidence

showing an express or implied intent, we must presume that the

lessee (the party acquiring both estates) intended the result most

beneficial to her, that is, no merger." Id. at 1245. Here, to

determine whether the parties intended for Pops' exercise of its right

of first refusal to extinguish Kelly's obligation to pay the final

$150,000 payment, we need only look to three provisions in the

agreements between the parties: the right of first refusal in the

lease, the buyout language in the lease addendum, and the

description of the property subject to the purchase agreement.

     First, the right of first refusal in the lease made it clear that

there was a right of first refusal for any proposed third-party

purchaser. Paragraph 27 of the lease provides:

     As part of the consideration under this Lease, Tenant at
     all times shall have the following right of first refusal.
     Landlord shall not, during any Term or Renewal Term,

                                    9
     sell, lease grant options in respect of, or otherwise
     dispose of the whole or any part of the Premises,
     without giving Tenant a thirty (30) day right of first
     refusal within which to purchase, lease, or otherwise
     acquire the Premises of the Land, on the same terms
     and conditions as those on which the Landlord is willing
     to make such sale, lease or other disposition to any
     other third party, . . .

(Emphasis added.) Significantly, as the plain language of this

provision makes clear, the parties recognized that the right of first

refusal could be for less than the total thirty-acre parcel. Further, if

the parties intended the exercise of the right of first refusal on any

portion of the lease to terminate the remainder of the lease, they

could have said so in their agreement.

     Likewise, in 2009, when Kelly sought to reduce the term of the

lease, the parties agreed to a buyout provision through a lease

amendment. The parties agreed to a lease amendment reducing the

remaining term to ten years and changing the expiration of the

lease from February 28, 2050, to May 31, 2019. To obtain Pops'

agreement to this substantial reduction of the lease term, Kelly

agreed to pay Pops the sum of $350,000, payable in two

installments:

     3. In consideration of Tenant agreeing to change the term
     of the Lease Agreement, Landlord shall pay to Tenant the

                                  10
     sum of $200,000 at the time of the execution of this
     Amendment; and further shall pay Tenant the sum of
     $150,000 on or before May 31, 2019.

If the parties had intended the exercise of the right of first refusal

over a portion of the property to result in termination of the lease or

elimination of the final payment, the lease addendum would likely

have included such provisions.

     The final document we must consider in determining the

intent of the parties is the purchase agreement pursuant to the

right of first refusal. Kelly and Pops executed the purchase

agreement for the same tract of land consisting of approximately

fifteen acres. The purchase agreement specifically references "the

Seller's current lease on the property" but is void of any indication

that the parties intended to terminate the lease. While the

purchase agreement contains a contingency for approval by

government agencies for development of a residential multifamily

apartment project and includes a feasibility and investigation study

period which allows extended time periods for environmental and

other approvals that foreseeably would extend beyond the

remaining term of the lease, it lacks any specific reference to the

termination of the buyout in the lease addendum as Kelly argues.

                                   11
The only language in the purchase agreement that could arguably

address prior agreements between the parties is an integration

clause which states:

     9.5 INTEGRATION. This Contract contains all of the
     terms agreed upon between the parties with respect to
     the subject matter hereof, and is the complete, final,
     exclusive and entire understanding between Buyer and
     Seller with respect to the purchase and sale of the
     Property, and supersedes all previous contracts,
     agreements and understandings of the parties, either oral
     or written, relating to the Property.

This language, however, specifically limits any integration to "the

subject matter hereof" which is the purchase and sale of the

property, not the lease agreement. In short, there is simply no

indication within the purchase agreement of any intent to terminate

the lease.

     The intent of the parties as shown through their actions lends

further support to this conclusion. After executing the purchase

agreement, Pops continued to occupy and pay rent for the entire

thirty-acre parcel. Indeed, nothing changed between the parties as

to the leasehold obligations once the purchase agreement was

executed except that due diligence commenced for an eventual

purchase of the property. The fact that all aspects of the parties'

                                 12
landlord-tenant relationship continued after entering into the

purchase agreement suggests that it was not their intent to

terminate the lease and the future payments.

                                   IV.

     In concluding that the lease agreement was extinguished as a

matter of law, the trial court relied upon statements made by the

Third District in Keys Lobster, Inc. v. Ocean Divers, Inc., 468 So. 2d

360 (Fla. 3d DCA 1985), which involved a claim for attorney's fees

arising from a dispute over a lessee's attempt to exercise a right of

first refusal. The court in Keys Lobster stated that "[u]pon exercise

of [the lessee's] option, the lease and all its incidents ceased to

exist" and that "the right of first refusal had merged into the

contract to purchase." Id. at 364 (first citing Foxworth v. Maddox,

137 So. 161 (Fla. 1931), and then citing Skipper v. Handley, 121 So.

792 (Fla. 1929)). While these statements appear at first blush to

support Kelly's position, the Keys Lobster court did not hold that

the entirety of a lease ipso facto merges into the purchase contract

when a lessee exercises a right of first refusal. The relevant portion

of Keys Lobster held that because the right of first refusal had

ripened into an option to purchase prior to suit, the lessee's claim

                                   13
for specific performance necessarily arose out of the purchase

contract, which supported the lessor's claim for attorney's fees as to

that claim. Id. Therefore, despite the language cited by the trial

court, we do not find Keys Lobster controlling in a situation where,

as here, the pertinent cause of action is not based upon the right of

first refusal provision but rather an entirely different provision such

as the buyout clause in the lease addendum.

      Furthermore, in support of its argument that Pops and Kelly's

relationship changed from that of landlord-tenant to that of vendor-

vendee as the result of Pops' decision to exercise the right of first

refusal, thereby terminating the lease, Kelly cites Twelfth Avenue

Investments, Inc. v. Smith, 979 So. 2d 1216 (Fla. 4th DCA 2008), in

which the Fourth District stated that "once [the lessee] notified [the

lessor] of his desire to purchase the property pursuant to the

procedure agreed to by the parties in . . . the lease, the lease

ended and the parties were then bound by the terms within the

option to purchase." Id. at 1220 (citing Pensacola Wine & Spirits

Distillers, Inc. v. Gator Distribs., Inc., 448 So. 2d 34, 35 (Fla. 1st DCA

1984)).

                                      14
     However, unlike in Twelfth Avenue Investments, the parties in

this case continued to operate as they had under the lease following

Pops' exercise of its right of first refusal. In fact, Pops continued to

pay rent and paid the taxes and insurance on the property as

required by the lease for two years after exercising its option.

Additionally, the purchase agreement expressly references the

"existing lease" and applies to only half of the leased premises.

There were also numerous provisions of the purchase agreement

that would have permitted Pops to terminate the purchase

agreement, but neither the terms of the purchase agreement nor

the actions of the parties indicated that either party would have

then been excused from their obligations under the remaining lease

terms.

                                   V.

     We conclude in the instant case that the lease agreement did

not merge into a purchase agreement upon Pops' exercise of its

right of first refusal such that it extinguished all provisions of and

amendments to the lease. Kelly's promise to pay $150,000 to Pops

on or before May 31, 2019, although arising from an amendment to

the lease agreement, is not excused as a matter of law simply

                                   15
because Pops chose to exercise its right of first refusal on fifteen of

the thirty acres described in the lease agreement.

     Accordingly, because the trial court erred in concluding that

the provisions of the lease amendment relating to the final

$150,000 payment were extinguished upon Pops' decision to

execute its right of first refusal, we reverse the final judgment as to

counts I(B) and II only, affirm the remainder of the final judgment,

and remand for further proceedings consistent with this opinion.

     Affirmed in part, reversed in part, and remanded.

KHOUZAM, J., Concurs specially with opinion.
ROTHSTEIN-YOUAKIM, J., Concurs.

KHOUZAM, Judge, Concurring specially.

     I agree fully with the result reached by the majority; I write

separately to explain my reasoning.

     As the majority has correctly delineated, the doctrine of merger

does not apply under the circumstances of this case. None of the

relevant documents reflect an intent to terminate the lease upon the

                                   16
purchase of only part of the property, and none of the authorities

relied upon by the parties or the trial court establish otherwise.

Further, as the majority correctly observes, the parties' conduct of

continuing their landlord-tenant relationship was entirely

consistent with this interpretation. Therefore, reversal on this basis

is appropriate.

Opinion subject to revision prior to official publication.

                                  17