Robin King v. Rebecca Conley , 87 N.E.3d 1146 ( 2017 )

FILED
Nov 21 2017, 8:51 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE
Bryan L. Ciyou Gregory E. Steuerwald
Darlene R. Seymour Graham T. Youngs
Ciyou & Dixon, P.C. Steuerwald, Hannon & Witham, LLP
Indianapolis, Indiana Danville, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Robin King, November 21, 2017
Appellant, Court of Appeals Case No.
32A01-1612-PL-2670
v. Appeal from the Hendricks Circuit
Court
Rebecca Conley, The Honorable Daniel F. Zielinski,
Appellee. Judge
Trial Court Cause No.
32C01-1606-PL-69
Brown, Judge.
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[1] Robin King appeals from an order of the trial court which denied her motion
for eviction of Rebecca Conley and granted Conley’s request for specific
performance. King raises one issue which we revise and restate as whether the
trial court’s order is clearly erroneous. Conley requests appellate attorney fees.
We affirm and remand for determination of appellate attorney fees.
Facts and Procedural History
[2] In the summer of 2015, Vince Wall, a real estate broker, assisted Conley in
finding a home and located the residential property owned by King. King and
Conley entered into two agreements dated December 16, 2015, specifically, a
lease agreement (the “Lease”) and an Option to Purchase Real Estate (the
“Option Agreement”) pursuant to which King granted Conley an exclusive and
irrevocable option (the “Option”) to purchase the residential home and real
estate.1 Conley paid King $13,000 pursuant to the Option Agreement.
[3] The Lease provided that Conley, as the tenant, agreed to lease the residential
property from King, as the landlord, for a term commencing on December 19,
2015, ending on December 18, 2016. Paragraph 4 of the Lease, which was
titled “alterations and maintenance of lease premises,” provided in part:
1
Wall testified that he initially wrote a land contract for Conley to purchase the property in accordance with
King’s terms. He also testified that he advised King he was not an attorney and did not represent her, that he
represented Conley, and that if she needed advice she needed to speak with an attorney or her realtor, that
King did talk to an attorney, and that her attorney “restructured” the agreement and that “instead of a land
contract, it became a lease, and then a separate option to purchase in return for a payment of thirteen
thousand dollars.” Transcript at 13. He indicated that King’s attorney prepared the Lease and the Option
Agreement.
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Tenant shall not cause or permit any alterations, additions or
changes to the Leased Premises without first obtaining the
written consent of Landlord. All approved alterations, additions
or changes to the Leased Premises shall be made by Tenant in
accordance with all applicable laws and shall become the
property of Landlord. Tenant shall be responsible for
maintaining the interior and exterior of the house, and the
ground of the premises, including minor and routine repairs. . . .
Defendant’s Exhibit A. Paragraph 11 of the Lease defined Events of Default.
Paragraph 15 of the Lease provided in part that King and her agents would be
permitted to inspect and examine the leased premises “at all reasonable times”
and that King would have the right to make any repairs to the premises she may
deem necessary. Id.
[4] The Option Agreement provided, “[i]n consideration of the non-refundable
payment of Thirteen Thousand dollars ($13,000) (the ‘Option Money’), and for
other good and valuable consideration, [King] does hereby grant to [Conley]
the exclusive and irrevocable option [(the ‘Option’)] to purchase the residential
home and real estate . . . .” Defendant’s Exhibit B. Conley’s right to exercise
the Option commenced on December 19, 2015, and terminated on December
18, 2016. The Lease and Option Agreement provided that, if Conley was in
default under the Lease, King could terminate the Option Agreement. Both the
Lease and Option Agreement provided for attorney fees.
[5] On March 17, 2016, Conley reported a leak to King and provided the code to
the garage so that King could access the house, and King noticed water in the
sump was gone. King made a statement to Wall that the problem might have
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been caused by Conley, the statement concerned Conley, and Conley decided
that King was not permitted to enter the house unless another person was
present. Ultimately, King or contractors were given access on March 18th and
22nd and the sump pump was replaced. Conley changed the lock on the front
door on or after March 20th.
[6] In a letter dated March 25, 2016, Conley notified King that she was exercising
her Option to purchase the property pursuant to the Option Agreement. In a
letter to Conley dated March 30, 2016, King stated that Conley had painted the
majority of the ground level interior walls, replaced door lock(s) on the house,
and removed at least three hosta plants from the yard without written consent
in violation of Paragraph 4 of the Lease, and denied King access to the property
on several dates from March 18 to 25, 2016, in violation of Paragraph 15 of the
Lease. The letter stated that Conley was required to correct the violations
within fifteen days and also offered to waive the violation corrections if Conley
agreed to exercise the Option on or before the deadline for the corrections, the
closing would occur within thirty days, and the property would be sold in an
“as is” condition and that no repairs would be made to the property.
[7] In June 2016, King filed a complaint alleging that Conley was in breach of the
Lease and had painted certain interior walls, changed the door locks, and
denied King access. On August 15, 2016, Wall and King walked through the
rooms of the house together so that King could inspect the home and take
photographs. When they had finished, Wall asked King if she was satisfied
with the property, King replied affirmatively, Wall then asked if the visit
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resolved her request to have access, and King again replied affirmatively and
stated “well I guess I can go ahead and drop everything, uh because I have been
granted access.” Transcript at 29.
[8] On August 19, 2016, King filed a motion for eviction which alleged that Conley
was in breach of the Lease and requested a hearing. Conley filed an answer,
affirmative defenses, and a counterclaim for specific performance of the Option.
In her counterclaim, Conley alleged that she had exercised the Option, that she
had applied for and obtained the financing necessary to close as shown in an
attached exhibit, and requested specific performance requiring King to close the
transaction and attorney fees.
[9] On November 9, 2016, the court held a hearing and heard the testimony of
King, Conley, and Wall and admitted the parties’ agreements and letters to
each other as well as text messages between King and Conley. King testified
that Conley continued to pay rent and had never missed a monthly payment.
On November 30, 2016, the court issued its Findings of Fact, Conclusions of
Law, and Order. It found:
2. The parties entered into a written Lease Agreement on
December 16, 2015, wherein [King] leased to [Conley] certain
real estate and improvements . . . (herein “Property”), for a term
commencing on December 19, 2015 and ending on December
18, 2016.
3. At the same time, the parties executed an [Option Agreement]
in which [Conley] made a non-refundable payment of $13,000
for the option to purchase the Property subject to certain written
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terms and conditions. The Lease and Option Agreement was
[sic] prepared by [King’s] attorney.
4. The reason [King] was willing to lease her property with the
Option to Purchase was because of her intent to move out of
State to “help” her father. Thereafter, [King’s] plans changed
and she advised [Wall] she no longer wanted to sell her property.
5. Wall advised [King] that she would have to sell if [Conley]
exercised her Option.
6. In January and February of 2016, Wall had conversations
with [King] about [Conley’s] desire to exercise the Option.
7. In mid-March, 2016, the sump-pump located at the Property
broke causing flooding in the basement of the Property.
8. [King] and [Conley] exchanged text messages thereafter
wherein [King] requested permission to stop by and see the
damage. [Conley] responded that [King] could “go in any time”
and gave [King] the code to the garage.
9. Between March 17th and March 18th, [Conley] learned that
[King] had suggested that the flooding might have been caused
by [Conley’s] “negligence.” This caused the parties’ relationship
to become strained. On March 20, 2016, [Conley] purchased a
deadbolt lock from Lowe’s. [Conley] changed the lock on the
front door because she felt “uncomfortable.” Additionally,
[Conley] wanted to be at the premises when strangers were there.
10. On March 25, 2016, [Conley] sent [King] a letter formally
exercising her Option to purchase the Property.
11. Paragraph 4 of the Lease also states that “[Conley] shall be
responsible for maintaining the interior and exterior of the house,
and the grounds of the premises, including minor and routine
repairs.”
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12. On March 30, 2016, [King] sent [Conley] a letter with a
subject “Notice of Lease Violation” listing, in relevant part, two
reasons for default: [Conley] painted the interior walls and
replaced the front door lock. Prior to that in February, 2016,
[Conley] sent a text message to Landlord advising her of the
change in paint color and [King] responded “I am sure I will be
envious. Always wanted to paint and never got to it. LOL!”
13. No written Notice of an alleged breach of the Lease was
served on [Conley] before [Conley] sent [King] a letter exercising
the Option.
14. [Conley] never missed a single monthly rent payment.
Appellant’s Appendix Volume 2 at 9-11. Under the heading “Conclusions of
Law,” the order provides in part:
3. The term “alteration” is not defined by the Lease Agreement,
is therefore ambiguous, and therefore the Court adopts its usual
and common meaning as defined by Black’s Dictionary as
follow[s]:
A substantial change to real estate, especially to a
structure, usually not involving an addition to or removal
of the exterior dimensions of a building structure’s parts.
Although any addition to or improvement of the real
estate is by its very nature in alteration, real estate lawyers
habitually use alteration in reference to a lesser change.
Still, to constitute an alteration, the change must be
substantial – not simply a trifling modification.
*****
5. In determining whether a breach of contract was material, the
following five factors are considered: 1) The extent to which the
injured party will be deprived of the benefit which he reasonably
expected; 2) The extent to which the injured party can be
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adequately compensated for the part of the benefit of which he
will be deprived; 3) The extent to which the party failing to
perform or to offer to perform will suffer forfeiture; 4) The
likelihood that the party failing to perform or to offer to perform
will cure his failure, taking account of all the circumstances
including any reasonable assurances; and 5) The extent to which
the behavior of the party failing to perform or to offer to perform
comports with standards of good faith and fair dealing.
6. It is clear from the evidence that [King] intended to move out
of State and therefore was anxious to lease her property with the
hopes that it may sell. It was not until after [King] decided not to
move and after she received notice of intent to exercise the
Option did [King] allege breach.
7. The Court finds that the painting of walls and the changing of
exterior locks is not a material breach of the contract. In fact, the
evidence was that [King] did not initially take issue with the
painting of the walls (quite contrary) and [Conley] did not
unreasonably deny access of the Property to [King]. [Conley’s]
reason for changing the locks was reasonable and [King] was not
unreasonably denied access. Any reason for the denial of access
was due to [Conley’s] inability to be at the Property at the time
[King] wanted to have an inspection, and, in any event, such
delay was only a matter of hours. And additionally, again,
[King] did have the access code to the garage.
*****
10. [Conley] timely submitted to [King] a written notice of intent
to exercise Option and she was in a substantial compliance with
the Lease on that date. Court finds that [Conley’s] request for
specific performance should be granted.
11. [Conley] is not in breach of Lease and is entitled to specific
Performance.
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Id. at 12-14. The court denied King’s motion for eviction, granted Conley’s
request for specific performance of the Option Agreement, and ordered King to
close on the transaction on December 2, 2016. It also granted Conley’s request
for attorney fees. The court later entered an order which stayed its November
30th order subject to King posting an appeal bond or irrevocable letter of credit
and naming Conley as an insured on the property.
Discussion
[10] The issue is whether the trial court’s order denying King’s motion for eviction
and granting Conley’s request for specific performance is clearly erroneous.
The trial court entered findings of fact and conclusions. We may not set aside
the findings or judgment unless they are clearly erroneous. State v. Int’l Bus.
Machines Corp., 51 N.E.3d 150, 158 (Ind. 2016). In our review, we first consider
whether the evidence supports the factual findings. Id. Second, we consider
whether the findings support the judgment. Id. Findings are clearly erroneous
only when the record contains no facts to support them either directly or by
inference. Id. A judgment is clearly erroneous if it relies on an incorrect legal
standard. Id. We give due regard to the trial court’s ability to assess the
credibility of witnesses. Id. While we defer substantially to findings of fact, we
do not defer to conclusions of law. Id. We do not reweigh the evidence; rather
we consider the evidence most favorable to the judgment with all reasonable
inferences drawn in favor of the judgment. Id. Clear error occurs when our
review of the evidence most favorable to the judgment leaves us firmly
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convinced that a mistake has been made. Salser v. Salser, 75 N.E.3d 553, 558
(Ind. Ct. App. 2017).
[11] King claims that the court’s order denying her motion for eviction is clearly
erroneous and that the record shows Conley intentionally and continually
violated the Lease by changing the locks and denying her access to the property.
King states that she provided Conley with notice that she violated the Lease on
March 30, 2016, and argues that all of Conley’s violations were curable and
that Conley chose to ignore the request to cure causing an Event of Default.
Conley responds that she was in full compliance with the Lease when she
exercised her Option, that even if she breached the Lease it was not a material
breach warranting forfeiture of the Option, and that, even if there were a
material breach, she exercised her Option before receiving notice and an
opportunity to cure any defect under the Lease.
[12] Indiana courts have recognized the contractual nature of leases and the
applicability of the law of contracts to leases. Stewart v. TT Commercial One,
LLC, 911 N.E.2d 51, 55 (Ind. Ct. App. 2009) (citations omitted), trans. denied.
Interpretation of a contract presents a question of law and is reviewed de novo.
Id. When interpreting a contract, our paramount goal is to ascertain and
effectuate the intent of the parties. Id. at 56. This requires the contract to be
read as a whole, and the language construed so as not to render any words,
phrases, or terms ineffective or meaningless. Id.Court of Appeals of Indiana | Opinion 32A01-1612-PL-2670 | November 21, 2017 Page 10 of 18
[13] An option to purchase real estate is a contract by which the owner of the realty
agrees with another person that the latter shall have the power to purchase such
property at a fixed price within a certain period of time. Pinkowski v. Calumet
Twp. of Lake Cty., 852 N.E.2d 971, 981 (Ind. Ct. App. 2006) (citation omitted),
trans. denied. By an option, the owner subjects himself to the liability of having
to convey the property if the option is exercised within the time and in the
manner stipulated. Id. By failing to comply with the option’s terms, the option
holder deprives himself of the right to demand the enforcement of the contract.
Id. When a party exercises an option to purchase, recitation of the exact terms
of the agreement is not necessary. Id. Only essential terms need be included to
render a real estate option contract enforceable. Id. Indiana courts order
specific performance of contracts for the purchase of real estate as a matter of
course. Id. Courts readily order specific performance with regard to real estate
purchases because each piece of real estate is considered unique. Id. A party
seeking specific performance of a real estate contract must prove that she has
substantially performed or offered to do so. Id. at 982.
[14] To the extent King claims Conley was in breach of the Lease and thus not
entitled to specific performance, we note that Section 1.6 of the Option
Agreement provides that, if at any time Conley is in default of the Lease, then
King may terminate the Option Agreement. According to Paragraph 11 of the
Lease, an “Event of Default” included “[t]he failure to pay any installment of
rent when the same becomes due and the failure continues for fifteen (15) days”
and Conley’s “failure to perform or observe any other covenant, term or
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condition of this lease to be performed or observed by [Conley] and if curable,
the failure continues for fifteen (15) days after notice thereof is given to
[Conley].” Defendant’s Exhibit A. The evidence establishes that Conley did
not fail to pay any installment of rent when it became due. The evidence also
supports the trial court’s finding that, at the time Conley exercised the Option,
King had not yet served Conley with notice of any failure to perform a term of
the Lease. The Lease required that Conley be given fifteen days after notice
was given to her of a violation of the Lease to cure any noncompliance before
an Event of Default was deemed to have occurred. The determination that
Conley exercised her Option before the occurrence of any Event of Default
under the Lease is not clearly erroneous. See Fetz v. Phillips, 591 N.E.2d 644,
648 (Ind. Ct. App. 1992) (observing that the tenants failed to maintain liability
insurance and to pay the property taxes as required under the lease and that the
lease provided the landlord was required to provide the tenants notice of
noncompliance and the landlord never did so; holding that, because notice was
necessary before the lease and option could be cancelled, the option remained
valid even though the tenants failed to comply with two requirements under the
lease; and affirming summary judgment in favor of the tenants’ action seeking
specific performance of their option to purchase); see also Pinkowski, 852 N.E.2d
at 984 (finding that, because the rent was paid within the thirty days after notice
was sent in accordance with correspondence and any alleged arrearage was
cured by the payment, the prerequisite to exercising an option to purchase was
satisfied and thus the appellee properly exercised the option).
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[15] In addition, the evidence supports the trial court’s findings that the painting of
the walls and the changing of the lock did not constitute a material breach of
the Lease and that Conley was in substantial compliance with the Lease when
she exercised the Option. Paragraph 4 of the Lease provided that Conley
would not cause any alterations, additions, or changes to the premises without
obtaining King’s written consent, and Paragraph 15 provided that King would
be permitted to inspect and examine the premises at all reasonable times.
Black’s Law Dictionary defines an alteration to be “[a] substantial change to
real estate” and states, “[a]lthough any addition to or improvement of real
estate is by its very nature an alteration, real-estate lawyers habitually use
alteration in reference to a lesser change” and “[s]till, to constitute an alteration,
the change must be substantial — not simply a trifling modification.” BLACK’S
LAW DICTIONARY 94 (10th ed. 2014). We construe any contract ambiguity
against the party who drafted it. Time Warner Entm’t Co., L.P. v. Whiteman, 802
N.E.2d 886, 894 (Ind. 2004), reh’g denied. “As a general rule, an express
provision in a lease that allows the breach of a covenant to work a forfeiture of
the agreement, is enforced if the breach is material.” Page Two, Inc. v. P.C.
Mgmt., Inc., 517 N.E.2d 103, 107 (Ind. Ct. App. 1987). In determining whether
a breach is material, the following factors may be considered:
(a) the extent to which the injured party will be deprived of the
benefit which he reasonably expected;
(b) the extent to which the injured party can be adequately
compensated for the part of that benefit of which he will be
deprived;
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(c) the extent to which the party failing to perform or to offer to
perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to
perform will cure his failure, taking account of all the
circumstances including any reasonable assurances;
(e) the extent to which the behavior of the party failing to
perform or to offer to perform comports with standards of good
faith and fair dealing.
Frazier v. Mellowitz, 804 N.E.2d 796, 803 (Ind. Ct. App. 2004) (citing the
RESTATEMENT (SECOND) OF CONTRACTS § 241 (1981)).
[16] The evidence shows that, when Conley sent a text message to King stating
“[y]ou need to stop by sometime and see the painting I’ve done inside the
house,” King replied by sending a text message to Conley stating: “Sure!! I am
sure I will be envious. Always wanted to paint and never got to it. Lol!”
Defendant’s Exhibit F. Conley also sent text messages to King containing
several photographs of the painted walls. Conley testified that she had
correspondence through other text messages with King about painting the
house and there was no objection from her. Conley testified that she was
employed as a flight attendant, there were times it was difficult to make
arrangements to be home, and that she always provided reasonable access for
King. King testified that Conley contacted her by text message on March 17th
about a leak. King sent a text message to Conley on March 17th stating that a
claim was filed, that she would be in touch as soon as she heard from the
insurance company, and that she would like to stop by in the afternoon, and
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Conley replied with a text message stating that King could go in any time and
providing the code to the garage. King accessed the house on March 17th while
Conley was not home and noticed that water in the sump was gone.
[17] The court heard testimony that King mentioned to Wall that the problem in the
basement might have been caused by Conley’s negligence and that Wall in turn
told Conley about King’s comment. Conley testified that she became very
concerned about King’s statement. The court heard testimony that King
arrived at the property on the morning of March 18th, that Conley did not let
her in at that time, and that King called the police. Conley testified that she did
not feel comfortable with the situation, would not let King in until she knew her
rights, and had texted King. The court heard testimony that Wall arranged to
be at the property at 4:30 p.m. that day and stayed for three hours to make sure
that access was granted, that King visited the property and was allowed in the
house, and that, when Wall did leave the property, the contractor was still there
working. Conley testified she purchased a lock on March 20th and sometime
after that changed the lock to the front door because King was asking to enter at
certain times when she was not present. Wall testified that King was allowed
in, but only with another person being there, and that Conley felt that the only
way she would feel comfortable was if somebody else was present. On March
22nd, a plumber or contractor replaced the sump pump. Wall testified that he
was also present for King to inspect the property on August 15th, that King
went room to room snapping photographs, that he asked her to stop taking
photographs of personal items, he asked King if she was satisfied with the
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property and she replied affirmatively, and he asked her if the visit resolved her
request to have access and she again replied affirmatively.
[18] Our review of the evidence based on the Restatement considerations does not
leave us firmly convinced that a mistake has been made. King did not suffer
significant loss due to the painting or changing of the lock, King granted Conley
the Option in consideration of a non-refundable payment of $13,000, and the
painting of the interior walls and the changed lock became a part of the
property subject to the Lease and the Option Agreement. The Restatement
factors, taken together under these circumstances, favor the conclusion reached
by the trial court that Conley’s actions of painting the interior walls and
changing a lock did not constitute a material breach of the Lease. See Page Two,
517 N.E.2d at 108 (finding the factors set forth in § 275 of the Restatement of
Contracts reasonably supported the trial court’s determination that any breach
of a covenant to maintain insurance upon the premises was not sufficiently
material to justify termination of the lease),2 reh’g denied.
[19] We additionally observe that Conley made a non-refundable payment to King
of $13,000 in consideration for the Option and that any alterations to the leased
premises would become part of the property which, if Conley exercised her
Option as she did, would be retained by Conley together with any such
2
Page Two cites the original Restatement of Contracts § 275. However, the Restatement (Second) of
Contracts § 241 has since been adopted. Collins v. McKinney, 871 N.E.2d 363, 375 n.4 (Ind. Ct. App. 2007)
(citing Frazier, 804 N.E.2d at 802-804). The considerations listed in the Restatement (Second) of Contracts §
241 are similar to those listed in the Restatement of Contracts § 275.
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alterations. We note that contract provisions resulting in forfeiture are
generally disfavored, see Colonial Mortg. Co. of Ind. v. Windmiller, 176 Ind. App.
535, 540, 376 N.E.2d 529, 532 (1978) (noting, in interpreting a contract, that
the law views forfeiture provisions with disfavor and that “if there is doubt we
favor the construction avoiding a forfeiture”), and that, to the extent there is
doubt as to whether the painting and changing of a lock amounted to a material
breach which would result in the forfeiture of Conley’s payment and her right to
exercise the Option, we favor the interpretation avoiding the forfeiture. We
also construe any ambiguity as to whether the painting and changing of the lock
amounted to a breach or a material breach of the Lease against King as the
party who prepared the Lease. See Time Warner, 802 N.E.2d at 894.
[20] Giving due regard to the trial court’s ability to assess the credibility of witnesses
and noting we consider the evidence most favorable to the judgment with all
reasonable inferences drawn in favor of the judgment, we cannot conclude that
the record contains no facts to support the trial court’s findings either directly or
by inference. The trial court’s findings and conclusions that Conley was not in
material breach of the Lease and was entitled to specific performance of the
Option Agreement are not clearly erroneous, and it did not err in denying
King’s motion for eviction.
[21] Conley also requests appellate attorney fees. When a contract provision
provides that attorney fees are recoverable, appellate attorney fees may also be
awarded. Kishpaugh v. Odegard, 17 N.E.3d 363, 377 (Ind. Ct. App. 2014). Here,
both the Lease and Option Agreement provide for attorney fees. Paragraph 14
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of the Lease provides that each party shall pay the other party’s reasonable legal
costs and attorney fees incurred in successfully enforcing against the other party
any covenant, term, or condition of the Lease, and Section 6.6 of the Option
Agreement provides that, “[i]n connection with any litigation, including
appellate proceedings, arising out of or in connection with this Option to
Purchase, the prevailing party shall be entitled to recover reasonable attorney’s
fees and costs from the other party.” Defendant’s Exhibit B. Accordingly, we
remand to the trial court for determination of reasonable appellate attorney
fees.
Conclusion
[22] For the foregoing reasons, we affirm the order of the trial court and remand for
determination of reasonable appellate attorney fees.
[23] Affirmed and remanded for determination of appellate attorney fees.
May, J., and Pyle, J., concur.
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