OPINION
This case presents the question of whether a right of first refusal to purchase a leased property survives the termination of that lease. Here, a lessee whose lease terminated by its terms continued to occupy the leased property as a month-to-month holdover tenant. The version of Delaware’s holdover tenancy statute, 25 Del. C. § 5108, that controlled the lease states that “stipulations” of a “rental agreement” carry over into a holdover tenancy. Although the expired lease provided the lessee a right of first refusal, the landlord sold the property to a third party during the holdover tenancy without informing the lessee. The lessee now seeks rescission of that sale, arguing that, under the right of first refusal provision, the property could not be sold to a third party without the approval of the lessee. The lessee also seeks, pursuant to the right of first refusal, to purchase the property on the same terms offered to the third party.
I find that a right of first refusal is not a provision of a rental agreement that concerns the “use and occupancy” of rental property, and is therefore not a term of a rental agreement that, under § 5108, survives the termination of a lease and remains in force during a holdover tenancy. Statutory holdover tenancies are narrowly designed to maintain the status quo of a tenant’s use of leased property following the expiration of a lease and to defuse the pressure for immediate expulsion of tenants after expiration that existed under common law, and should not be read broadly to override the clear expiration of terms of a commercial lease that are unrelated to use and occupancy of leased property. The precise definition of “rental agreement” used by the General Assembly reinforces the narrow purpose of the holdover tenancy by focusing directly on “use and occupancy,” neither of which is implicated by a separate right of first refusal to purchase property.
And, for reasons I discuss, to interpret § 5108 as the lessees advocate would implement no discernable policy objective of the General Assembly. To adopt the lessee’s view would simply encourage landlords to seek eviction earlier in order to avoid the perverse consequence of perpetuating — by tolerating a tenant at sufferance — an otherwise expired restriction on their ability to alienate their real property. For all these reasons, I conclude that the lessee here is not entitled to exercise her right of first refusal during her holdover tenancy, because that right was extinguished when the lease terminated.
I. Factual Background
The undisputed facts of this case, as drawn from the pleadings, are as follows.
The plaintiffs in this case, Tjark and Ann Bateman (“the Batemans”), dispute their rights under a written lease agreement executed on December 31, 1996 (the “Lease”) for a commercial property located at 319 Rehoboth Avenue, Rehoboth Beach, Delaware (the “Property”). The Property was originally leased to the Bate-mans by one of the co-defendants in this case, Reed Real Estate, LLC. Reed Real Estate transferred its interest in the Property to the second co-defendant, 317 Reho-both Avenue, LLC, in January 2004. Peering beneath the corporate entities involved, that transaction effectively transferred control of the Property from Joseph Reed, of Reed Real Estate, to his brother Robert Reed, of 317 Rehoboth Avenue.
The Batemans took possession of the Property in January 1997 and, after renovations, operated a home and accessory gift store, Ann Bateman, Limited, on the premises. The first six years of the Bate-mans’ occupancy under the Lease passed, seemingly, without contention. Although under the terms of the Lease, the Bate-mans had to renew the Lease in writing by November 1, 1999, they failed to exercise the Option to Extend. Nevertheless, the parties continued to operate under the Lease as if it had been renewed. Similarly, on November 1, 2002, the Batemans neglected to renew the Lease in writing. In January 2003, the Batemans’ landlord, Joseph Reed of Reed Real Estate, informed the Batemans that their Lease had terminated. Specifically, Joseph noted that the Lease terminated on December 31, 1999, when the Batemans first failed to renew the Lease in writing.
The Batemans, never having intended to let the Lease lapse, sought to reach an agreement that would permit them to continue renting the Property on the same terms they had enjoyed under the Lease. In a letter dated February 24, 2003, Joseph informed the Batemans of an increase in monthly rent, but specified no other terms of their occupancy of the property. No new lease was executed at that time, but the Batemans continued to occupy the Property.
Reed Real Estate transferred its ownership of the Property to 317 Rehoboth Avenue in January 2004. Soon thereafter, Robert Reed, Joseph Reed’s brother and the managing member of 317 Rehoboth Avenue, again informed the Batemans that their Lease had terminated. The Bate-mans again sought to reach an agreement to extend their occupancy of the Property, but were unsuccessful. On May 12, 2004, 317 Rehoboth Avenue informed the Bate-mans that they would be required to vacate the Property by July 31, 2004.
The Batemans failed to vacate the premises and on August 2, 2004, 317 Rehoboth Avenue filed an action seeking to recover possession of the Property with the Justice of the Peace Court of Sussex County. The court found for the Batemans and 317 Rehoboth Avenue appealed.
On October 29, 2004, a three-judge panel of the Justice of the Peace Court reversed the original decision favoring the Bate-mans and awarded possession of the Property to 317 Rehoboth Avenue. The court found that the Lease terminated, by its terms, on December 31, 2002, and that after that date, the Batemans’ tenancy was a holdover tenancy governed by 25 Del. C. § 5108. The court further found that 317 Rehoboth Avenue properly ordered the Batemans to vacate the premises on May 12, 2004. On November 17, 2004, the
On November 19, 2004, the Batemans filed this action seeking, pursuant to the terms of the original Lease, to enforce their Right of First Refusal, and filed a motion for a temporary restraining order enjoining the writ of possession and preventing 317 Rehoboth Avenue from evicting them from the Property. I denied the motion for a temporary restraining order on November 22, 2004. On November 23, 2004, a constable of the Sussex County Justice of the Peace Court enforced the writ of possession, terminating the Bate-mans’ possession of the Property and placing 317 Rehoboth Avenue in possession of the Property.
On January 5, 2005, the defendants moved for judgment on the pleadings, arguing that the Right of First Refusal did not continue in effect after the termination of the Lease on December 31, 2002, and cannot now be enforced.
II. Legal Analysis
A motion for judgment on the pleadings may be granted when, viewing all facts and drawing all inferences in favor of the non-moving party, no material issue of fact is found to exist and the moving party is entitled to judgment as a matter of law.
The determination of the Justice of the Peace Court that the Lease terminated on December 31, 2002 was obviously necessary to its final judgment awarding possession of the Property to 317 Rehoboth Avenue: absent a finding that the Lease had ended, the Court could not have awarded possession. That finding is therefore binding on the Batemans under the doctrine of collateral estoppel, as they concede.
The Batemans now argue that the Right of First Refusal survived the termination of the Lease on December 31, 2002. In support of that position, they look to the language of 25 Del. C. § 5108, which creates a statutory month-to-month holdover tenancy that automatically takes effect when a lease is not renewed. Specifically, the Batemans cite language from the pre-1996 version of § 5108, which is the version that governs the Lease.
There is no statutory definition of “stipulation” applicable to § 5108 that buttresses the Batemans’ reading. Section 5102 of the pre-1996 Landlord-Tenant Code provides statutory definitions of terms applicable to the Code, including § 5108. But § 5102 does not provide a definition for the term “stipulation.” It does, however, contain another definition that bears importantly on this dispute. Under § 5102, the term “rental agreement” is defined as “all agreements, written or oral, which establish or modify the terms, conditions, rules, regulations or any other provisions concerning the use and occupancy of a rental unit.”
The Batemans’ argument depends on the court’s adoption of a broad reading of the statutory definition of rental agreement under § 5102. A broad reading would place the greatest emphasis on the word “all,” such that all provisions of a lease comprise the rental agreement, regardless of whether those provisions pertain to use and occupancy of leased property. That broad reading, as applied to § 5108, would permit all terms of the original Lease, including the Right of First Refusal, to survive into the Batemans’ holdover tenancy.
The interpretation of § 5102 that the Batemans advocate does not necessarily follow from a plain reading of the statutory text. The definition of the term “rental agreement” under § 5102 can also be reasonably read as including only those provisions that focus specifically on the “use and occupancy of a rental unit.” That interpretation focuses more narrowly on the relationship between a tenant and the property she occupies, as opposed to relationships between the lessor and the lessee. That narrower reading of “rental
Both the broader reading advocated by the Batemans and the narrower reading advocated by the defendants are, in my view, plausible interpretations of the language of the statute. The Batemans contend that prior, albeit non-binding, judicial precedent supports their reading and that I should defer to prior judicial findings on the subject.
To that effect, the Batemans have cited two Delaware cases, Old Time Petroleum v. Turcol
The Turcol court considered an option to purchase property that was exercised by a tenant during the term of the lease, but the actual purchase of which was to be concluded one day after the termination of the lease, during a holdover tenancy.
The Hickman court considered whether a real estate broker who introduced a lessee to a lessor was entitled to a brokerage fee when the lessee later purchased the leased property. The original lease between the lessee and the lessor included an option to purchase the leased property for $110,000, which, if it had been exercised, would have required payment of 6% of the purchase price to the referring real estate broker. The lessee did not exercise the option to purchase during the term of the lease, but continued to lease the property as a holdover tenant after the lease had expired. The lessee later purchased the property for $70,000 — a price $40,000 less than the exercise price specified in the option provision of the original lease.
Further, the Turcol and Hickman cases concerned language of predecessor statutes that differs from the language used in
I therefore lack binding precedent, or even helpful persuasive precedent, on the interpretive issue before me. When the plain words of a statute do not resolve the question of how a statute applies to a given dispute and there is no useful precedent, the court must necessarily look for evidence of the legislature’s intent in adopting the provision at issue and select the interpretation that best implements the legislature’s policy goals.
As is not unusual in Delaware, the parties have cited — and I have found — no legislative history specifically shedding light on the policy considerations underlying the General Assembly’s enactment of § 5108. The holdover tenancy recognized in § 5108 is not an innovation unique to Delaware, however; it is a common provision in American landlord-tenant codes. Consequently, it is inferable that the General Assembly enacted § 5108 to serve the same general purposes recognized in American jurisprudence as animating other similar statutes from other states.
Historically, in our legal tradition, when tenants continued to occupy property beyond the expiration of a lease, landlords were entitled to treat holdover tenants as trespassers, or to summarily evict them.
For purposes of public policy analysis, it is important to note that holdover tenancy statutes, such as § 5108, necessarily impinge upon the freedom of parties to contract — itself an important policy consideration of our state.
By contrast, the effect of § 5108 that the Batemans seek, the statutory extension of a Right of First Refusal beyond the contractually-defined duration of its existence, impinges upon the freedom of parties to contract, but does not promote any sensible public policy purpose that § 5108 was intended to serve. Indeed, the broad application of § 5108 that the Batemans seek would more likely frustrate the public policy purpose that holdover tenancy statutes were designed to promote.
Unlike an option to purchase property, which an option holder can proactively exercise, a right of first refusal can be exercised only when the holder of property entertains an offer from a third party to
The paramount public policy concern of extending provisions of a lease that concern the use and occupancy of property into a holdover tenancy, and the absence of any public policy concern served by the extension of obligations between a landlord and tenant that are unrelated to use an occupancy into a holdover tenancy, has been recognized in well-reasoned case law from other jurisdictions. In Wanous v. Balaco,
Similarly, the Supreme Court of California'in Spaulding v. Yovino-Young
The Wanous and Spaulding decisions both declined to treat provisions of leases that relate only to commercial relationships between landlords and tenants and provisions governing use and occupancy of leased property as equally applicable to
Finally, the relevance of cases that suggest all terms of a lease continue in force beyond termination of the lease and into a holdover tenancy has grown ever more tenuous, given the evolutionary trend of the Delaware Landlord-Tenant Code toward narrower application. Indeed, the most recent amendments to the .Code, which took effect immediately after the Batemans first entered into their Lease, provide no survival of rights under a terminated lease, nor even an automatic holdover tenancy, for leases of commercial property.
In sum, I find that the Batemans’ Right of First Refusal did not survive the termination of their Lease on December 31, 2002. This finding is consistent with the relevant text in the applicable provisions of the Delaware Landlord-Tenant Code, and is the reading most faithful to the public policy concerns that the General Assembly most likely sought to address by the statutory creation of holdover tenancies. This finding is also consistent with the Delaware public policy strongly favoring the right of parties to contract, and not to interpret statutes in derogation of that right broadly.
III. Conclusion
For the foregoing reasons, the defendants’ motion for judgment on the pleadings is granted. The case is dismissed and the parties shall bear their own costs. IT IS SO ORDERED.
Notes
. Alternatively, the defendants argue that the doctrine of laches bars the enforcement of the Right of First Refusal at this late date. Because I conclude that the Right of First Refusal did not survive the termination of the Lease, I need not reach the laches argument.
. See Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P.,
. See 317 Rehoboth Avenue, LLC v. Bateman, C.A. No. J0408013117 (Del. J.P. Ct., Oct. 29, 2004).
. Language from the October 29, 2004 opinion of the Justice of the Peace Court, states, with reference to 25 Del. C. § 5108, that: “the Court finds that the lease terminated by its own terms on December 31, 2002....” In the opinion, the Court also noted that the Lease’s "provisions (other than term) continued in effect on a month-to-month basis by operation of law.” See id. at 4. Although the Batemans have played it cute at times on this question, the Batemans now concede that this language was merely descriptive dictum, and has no bearing on the question now before this court. The Batemans never argued before the Justice of the Peace Court that they were entitled to retain possession of the Property because the Right of First Refusal provision continued in force during the pendency of the holdover tenancy per § 5108, and that they should therefore continue to possess the Property until they had an opportunity to buy under that Right and refused to do so. Indeed, the Right of First Refusal provision was never raised before the Justice of the Peace Court at all. The Batemans clarified during oral argument that they are not pressing any collateral estoppel argument that the descriptive dictum from the Justice of the Peace Court’s decision referred in any way to their Right of First Refusal. See June 8, 2005 Tr. at 34. They are bound by that concession.
. The Batemans’ Lease is governed by 25 Del. C. § 5108 as it existed before the General Assembly enacted major revisions to the Landlord-Tenant Code in 1996. Before the 1996 revisions, the Landlord-Tenant Code applied to both residential and commercial leases. After the revisions took effect, the Landlord-Tenant Code applied only to residential leases, and commercial leases were governed by a separate chapter of Title 25. As will be discussed later, § 5108 as it exists today does not govern commercial leases, and to that extent, the present dispute is something of a historical anomaly.
. Emphasis added.
.
.
.
.
. Id. at 690. The court noted, in relation to its assumption, that an underlying question— whether the term "stipulation" as used in the applicable statute properly included options to purchase — had been the subject of much dispute in other jurisdictions.
. Id.
. Emphasis added.
. See 58 Del. Laws c. 472 § 1.
. See, e.g. Coastal Barge Corp. v. Coastal Zone Indus. Control Bd.,
To apply a statute the fundamental rule is to ascertain and give effect to the intent of the legislature. If the statute as a whole is unambiguous, there is no reasonable doubt as to the meaning of the words used and the Court’s role is then limited to an application of the literal meaning of the words. However, it is undisputed that when a statute is ambiguous and its meaning may not be clearly ascertained, the Court must rely upon its methods of statutory interpretation and construction to arrive at what the legislature meant.
(citations omitted).
. See, e.g., Hudson Farms, Inc. v. McGrellis,
. See 4 Powell on Real Property § 17.06 at 17-86 (Michael Allen Wolfe, ed„ 2002).
. See Restatement (Second) of Property § 14.2 cmt. a (1977).
. See Restatement (Second) of Property § 14.3 cmt. a (1977).
. See Restatement (Second) of Property § 14.2 cmt. a (1977).
. See id.
.See, e.g., State v. Tabasso Homes,
.
. Id. at 793 (citing Weber v. Powers,
.
. Id. at 694.
. An example of such a decision, which the Batemans relied upon heavily, is the Wisconsin Supreme Court’s decision in Last v. Puehler.,
. See 70 Del. Laws c. 513. Title 25 Part III of the Delaware Code, previously titled "Landlord-Tenant Code,” has been renamed "Residential Landlord-Tenant Code,” and Part IV, titled "Commercial Leases,” has been created. In accordance with 25 Del. C. § 5101(b), "[Ojnly Chapter 57 of Title 25 and Part IV of Title 25 shall have any application to commercial rental agreements.” Neither Chapter 57 nor Part IV of Title 25 provide for automatic extensions of commercial leases, or any rights analogous to those conferred upon residential tenants under 25 Del. C. § 5108.