in the Court of Appeals January 31, 2019.
by Plaintiffs from order entered 16 April 2018 by Judge Mark
E. Powell in Jackson County No. 17 CVS 439 Superior Court.
Law Firm of Diane E. Sherrill, PLLC, by Diane E. Sherrill,
Coward, Hicks, & Siler, P.A., by Andrew C. Buckner, for
appeal the trial court's order granting summary judgment
in favor of Defendants as to Plaintiffs' action alleging
seven claims, including breach of contract. Plaintiffs'
claims all stem from their assertion that they possessed a
valid and enforceable Right of First Refusal to purchase the
property at issue at the time Defendant Sylva Supply Company,
Inc., conveyed the property to Defendants Duane Jay and Irene
Ball. Plaintiffs and Sylva had entered into a written lease
agreement, which was subsequently assigned to Plaintiff
Jackson's General Store, Inc., which contained a Right of
First Refusal. However, the written lease had expired and,
pursuant to this Court's opinion in Ball v.
Cogdill, COA17-409, 2017 N.C.App. LEXIS 1074 ( N.C. Ct.
App. December 19, 2017) (unpublished), Plaintiffs were
holdover tenants under a year-to-year tenancy created by
operation of law. The question posed by this appeal is
whether the year-to-year tenancy created by operation of law
included the Right of First Refusal contained in the expired
written lease. We hold that it did not.
Procedural History and Factual Background
May 1999, Crystal Cogdill (Cogdill) and Sylva Supply Company,
Inc. (Sylva), entered into a "Buy-Sell and Lease
Agreement" (Original Lease) by which Sylva leased the
building located at 582 West Main Street (Property) to
Cogdill. The lease was for a period of five years and
included an option to renew for a single, additional period
of five years. To exercise the option to renew, Cogdill had
to provide written notice to Sylva no later than thirty days
before the expiration of the first, five-year period. The
renewal terms were to be determined at the time of renewal;
however, the terms of the renewed lease were to be determined
by the parties at least ninety days before the expiration of
the first, five-year lease period. The first, five-year period
expired on 31 May 2004.
Original Lease granted Cogdill a Right of First Refusal to
purchase the Property, should Sylva wish to sell the
Property. Sylva was required to notify Cogdill by certified
mail of the option to purchase the Property at the lowest
price and on the same terms and conditions Sylva was willing
to accept from other purchasers. If, within fifteen days of
receiving Sylva's offer, Cogdill did not mail Sylva
notice that she intended to exercise her Right of First
Refusal to purchase the Property, Sylva had the right to sell
the Property to other purchasers.
June 1999, a "Memorandum of Lease and Right of First
Refusal" memorializing the Original Lease was recorded
in the Jackson County Public Registry. On 1 July 1999,
Cogdill assigned the Original Lease to Jackson's General
Store, Inc. (Jackson's), a business incorporated by
June 2001, Cogdill and Sylva executed an "Amendment to
Lease Agreement" (Lease), which amended the original
rental period from five years to seven years and, thus,
extended the original rental period end date from 31 May 2004
to 31 May 2006. If Sylva opted to renew the Lease for an
additional, seven-year period, the new rental period would
run from 1 June 2006 to 31 May 2013. The amendment also
modified the amount of rent to be paid. All other terms
written notice was given to renew the Lease beyond the
expiration of the initial seven-year period, which ended 31
May 2006. However, Plaintiffs continuously remained in
May 2015, without first giving Plaintiffs an option to the
buy the Property, Sylva sold the Property to Duane Jay and
Irene Ball (the Balls). In June 2016, the Balls instituted a
summary ejectment action against Plaintiffs. Both the small
claims court and district court ruled in favor of Plaintiffs
and dismissed the action. The Balls appealed to the Court of
the appeal was pending, Plaintiffs filed the complaint in the
present action. In the complaint, Plaintiffs alleged causes
of action for breach of contract, fraud, constructive fraud,
civil conspiracy, claim to set aside deed, tortious
interference with contract, and unfair and deceptive acts or
practices. These claims were based on Plaintiffs'
assertion that they were wrongfully denied the right to
exercise their Right of First Refusal to purchase the
Property. Plaintiffs also filed a notice of lis
September 2017, Defendants moved to dismiss the complaint
under Rule 12(b)(6) of the North Carolina Rules of Civil
Procedure. On 19 December 2017, this Court issued Ball v.
Cogdill,  holding as follows: "Where [Cogdill
and Jackson's] remained in tenancy after the expiration
of their lease, the lease became a year-to- year tenancy.
Because [the Balls] failed to provide the necessary 30
days' notice, the trial court did not err in denying [the
Balls'] summary ejectment complaint." Id.
January 2018, Defendants filed an amended motion to dismiss,
citing this Court's opinion in Ball as further
support for dismissal. On 19 February 2018, Plaintiffs filed
a motion for partial summary judgment, also citing this
Court's opinion in Ball as support for its
trial court heard Defendants' original motion to dismiss,
but did not consider this Court's opinion in
Ball, and entered an order on 12 March 2018 denying
the motion. On 16 March 2018, Defendants filed an answer to
Plaintiffs' motion for partial summary judgment and
raised the doctrine of collateral estoppel as a defense to
April 2018,  the trial court heard Plaintiffs'
motion for partial summary judgment and Defendants'
amended motion to dismiss. Defendants' motion was
converted to a motion for summary judgment because the trial
court considered the Court of Appeals' opinion in
Ball, a matter outside the pleadings. On 16 April
2018, the trial court entered its order denying
Plaintiffs' motion for partial summary judgment and
granting Defendants' motion for summary judgment. From
this order, Plaintiffs appeal.
trial court's 16 April 2018 order granting
Defendants' motion for summary judgment was a final
judgment. Jurisdiction of this appeal is therefore proper
under N.C. Gen. Stat. § 7A-27(b)(1) (2018) and N.C. Gen.
Stat. § 1-271 (2018).
Court of Appeals' opinion in Ball v. Cogdill
begin this discussion with a summary of this Court's
opinion in Ball v. Cogdill, which involved the same
background facts and the same parties, except Sylva, as the
case presently before us. In Ball, this Court
rejected the Balls' argument that the trial court erred
by denying their complaint for summary ejectment because the
trial court erroneously concluded that Cogdill and
Jackson's were under a lease when the Balls attempted to
summarily evict them from the Property. This Court noted, and
Cogdill and Jackson's conceded, that no written notice
had been given to renew the Lease beyond the expiration of
the first, seven-year period. Id. at *4. This Court
explained, however, that the "failure to renew a lease
does not automatically result in ejectment of a tenant."
Id. The record reflected that Cogdill and
Jackson's had "remained in tenancy" after the
expiration of the Lease and paid rent every month to the
Balls, and the Balls had accepted the payment. Id.
at *5-6. Citing our Supreme Court's opinion in
Coulter v. Capitol Fin. Co., 266 N.C. 214, 217, 146
S.E.2d 97, 100 (1966), this Court concluded the Lease had
thus become a year-to-year tenancy created by operation of
law, terminable by either party upon giving the other thirty
days' notice directed to the end of the year of such new
tenancy. Id. at *5. As the Balls had failed to give
Cogdill and Jackson's the requisite thirty days'
notice before demanding they vacate the Property, the Balls
could not summarily eject Cogdill and Jackson's after
they refused to vacate. Id. at *6.
parties agree that, pursuant to Ball, Plaintiffs
were under a year-to-year tenancy created by operation of law
when Sylva sold the Property to the Balls. The parties
disagree, however, as to the legal import of the
Ball decision regarding the Right of First Refusal
contained in the written Lease. Plaintiffs argue that all of
their rights and duties under the Lease, including their
Right of First Refusal, continued in effect after the Lease
expired and became a year-to-year tenancy created by
operation of law. Defendants argue that following the
expiration of the written Lease, the Right of First Refusal
did not become part of the new year-to-year tenancy created
by operation of law. Thus, the issue before us is whether the
year-to-year tenancy created by operation of law included the
Right of First Refusal contained in the written Lease. We
hold that it did not.
Standard of Review
judgment is proper "if the pleadings, depositions,
answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine
issue as to any material fact and that any party is entitled
to a judgment as a matter of law." N.C. Gen. Stat.
§ 1A-1, Rule 56(c) (2018). The standard of review of an
appeal from summary judgment is de novo. In re
Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576
lease for a fixed term of a year, or more, expires, a tenant
holds over, and "the lessor elects to treat him as a
tenant, a new tenancy relationship is created as of the end
of the former term." Kearney v. Hare, 265 N.C.
570, 573, 144 S.E.2d 636, 638 (1965). "This is, by
presumption of law, a tenancy from year to year, the terms of
which are the same as those of the former lease in so far as
they are applicable . . . ." Id. Our appellate
courts have not squarely addressed whether a right of first
refusal, which "creates in its holder . . . the right to
buy land before other parties if the seller decides to convey
it[, ]" Smith v. Mitchell, 301 N.C. 58, 61, 269
S.E.2d 608, 610-11 (1980), is a term "applicable"
to a year-to-year tenancy created by operation of law after
the expiration of a written lease. Our appellate courts have,
however, addressed this issue in the context of an option to
purchase property in a written lease agreement. Id.
(explaining that a right of first refusal is analogous to an
option to purchase, which creates in its holder the power to
compel sale of land).
Court concluded in Vernon v. Kennedy, 50 N.C.App.
302, 273 S.E.2d 31 (1981), that an option in the written
lease to purchase the leased property could not be construed
as "applicable" to the tenancy from year to year
created by operation of law. Id. at 304, 273 S.E.2d
at 32. The one-year lease in Vernon included an
option to extend the lease for an additional, one-year
period. The lease thus provided, "at an absolute
maximum, for a term of two years" and could not remain
"in force after 30 April 1973." Id. at
303, 273 S.E.2d at 32. The lease also included an option for
plaintiffs to purchase the property "at any time during
the term of this lease or extended period thereof . . .
November 1979, plaintiffs in Vernon brought an
action for specific performance of the option to purchase
contained in the written lease. This Court explained that
upon the expiration of the written lease, a new tenancy
relationship had been created by operation of law, and thus,
plaintiffs "were at best tenants from year to year under
the applicable terms of the expired lease." Id.
This Court held that the option to purchase could not be
construed as "applicable" to the tenancy from year
to year because by its own terms, the option was
"limited to 'the term of this lease or the extended
period thereof.'" Id. at 304, 273 S.E.2d at
32 (quoting the contract at issue). "Since the lease,
again by its own terms, could not be extended beyond 30 April
1973, an attempt to exercise the option in 1979 would come
outside the extended term of the lease." Id.
similar result was reached in Hannah v. Hannah, 21
N.C.App. 265, 204 S.E.2d 212 (1974), where this Court held
that defendant's obligation under a written lease to
purchase plaintiff's stock and equipment at the end of
the lease did not remain in effect throughout the period the
plaintiff was permitted to hold over after the expiration of
the lease. Id. at 267, 204 S.E.2d at 214. By written
agreement, defendant leased his filling station to the
plaintiff for a five-year period and agreed that
"'[i]f at the end of five years, [defendant] should
want possession of said filling station,' he would
'purchase all stock and equipment at 20% discount . . .
.'" Id. Defendant did not want possession
at the end of five years, but permitted plaintiff to hold
over and remain in possession as his tenant for more than
fifteen additional years. Id. When defendant
proposed to raise plaintiff's rent, plaintiff demanded
that defendant comply with the provisions of the lease
agreement to purchase the stock and equipment. Defendant
appeal, this Court looked at the "express language of
the original lease [which] brought the purchase agreement
into play only if 'at the end of five years,' the
landlord should want possession." Id. at
267-68, 204 S.E.2d at 214. As the original lease term was
also for a period of five years, "obviously the parties
contemplated the possibility that there might be a holding
over or an extension after the initial five- year term, but
nothing in the language indicate[d] that the parties intended
the purchase obligation to remain in effect throughout
whatever holdover or extended period might occur."
Id. Accordingly, this Court held "that
defendant's obligation to purchase as contained in the .
. . written agreement was no longer in effect when, more than
twenty years thereafter, he was called upon to fulfill
it." Id. at 268, 204 S.E.2d at 214.
slightly different factual scenario, the Court in Davis
v. McRee, 299 N.C. 498, 263 S.E.2d 604 (1980), concluded
that an option to purchase was incorporated into an express
extension of an original lease. The parties entered into a
written, one-year lease agreement, which contained an option
for defendants to purchase the property during the lease
period. When the agreement expired on 31 January 1974,
defendants continued in tenancy and continued to make rental
payments until 13 August 1974. On that date, the parties met
and added the following language to the ...