Court of Appeals of Arizona, First Division, Department B
Not for Publication – Rule 28, Arizona Rules of Civil Appellate Procedure
Appeal from the Superior Court in Maricopa County Cause No. CV2009-009598 The Honorable Larry Grant, Judge
William James Fisher Attorney for Plaintiff/Appellee.
Engelman Berger, P.C. Thomas R. Nolasco Attorneys for Defendants/Appellants.
RANDALL M. HOWE, Judge.
¶1 Steve and Lisa Singer ("the Singers") appeal the superior court's judgment in favor of John Brown, on his breach of lease claim and award of damages, attorneys' fees and costs. For the following reasons, we affirm in part, reverse in part, and remand with instructions.
FACTS AND PROCEDURAL HISTORY
¶2 The Singers lived in a Paradise Valley home that they rented as tenants under a lease with Scali, the homeowner. The Singers intended to eventually purchase the home, and had deposited $100, 000 with the owner as a purchase option. This purchase option expired November 30, 2007. If the Singers exercised the option, the deposit money would be credited toward the purchase price. As the November 30 deadline drew near, the Singers realized that they would not be able to purchase the home and contacted a friend, Brown, to become an "assignee" of their purchase option rights, purchase the home, and become their landlord for one year while they lived in the home. As part of their plan, the Singers wanted to recover their purchase option deposit from Scali to use to pay rent to Brown.
¶3 Brown agreed to the arrangement, and Scali and Brown began negotiations to purchase the home. Scali and Brown placed a provision in the home purchase agreement stating that the seller, Scali, was to refund all deposits and option money to the tenant. The Singers and Brown entered into a lease agreement on December 31, 2007, just four days before Brown and Scali were to close on the home.
¶4 The one-page lease was effective January 4, 2008, to January 4, 2009. The lease provided that rent was $10, 000 per month, and "[i]f rent is not received within 5 calendar days of the due date, tenant agrees to pay a $500 late fee plus $100 per calendar day for each day late after the 5th day." The lease also stated that it constituted the full and complete agreement between the parties and was intended to be a legally binding contract. It further stated that in the event of litigation, all parties agreed that the opposing party would pay the prevailing party's attorneys' fees and costs.
¶5 Scali, who had not only been the Singers' landlord but also an investor in their business, decided to withhold the $100, 000 before the parties were to close on the home, so that he could apply it toward a debt the Singers owed him. Because the Singers did not receive this money, they were not able to pay the first rent payment. Thereafter, the Singers met with Scali and attempted to obtain the $100, 000, but were unsuccessful. The Singers made only two $3, 000 payments to Brown as partial rent before moving out of the residence on May 12, 2008.
¶6 Brown sued the Singers for breach of the lease, stating that they owed the principal amount of $114, 000 as of January 4, 2009, with monthly expense and late charges continuing to accrue thereafter. On June 17, 2011, the court held a one-day bench trial. Brown testified that the parties agreed that he would purchase the property from Scali, Scali would return the $100, 000 to the Singers, and the Singers would use the money to pay the rent. Brown testified that his contract with Scali required Scali to refund all option monies to the tenant to ensure that the $100, 000 would be refunded to the Singers. Brown testified that in mid-December, he first learned that Scali might not refund the $100, 000, and might offset that money against other debt the Singers owed to him. Brown also testified that he calculated the late fees to start at five percent of the rent, with an additional one percent late charge each late day, and that the total late fee charges owed on the property as of the date of trial were approximately $1.3 million. He also testified that the late fees were an incentive for the tenant to pay rent on time.
¶7 Scali testified that the Singers had paid a nonrefundable $100, 000 deposit for an option to purchase the property from him. He stated that he sent the Singers a default notice on December 12, 2007, for a $100, 000 loan that he had made to them in October. He decided that he did not want to refund the Singers $100, 000 of their option money when they owed him $100, 000 on a separate loan. He also stated that he clearly conveyed this to the Singers by December 17, 2007. He admitted that at the time of closing he applied the $100, 000 deposit to offset the other debt. In closing, Brown's attorney noted that the late fee charges were not a penalty.
¶8 The court found that because the Singers failed to timely exercise the purchase option, they lost the $100, 000 deposit. The court further found that the lease between Brown and the Singers was a valid contract, and the parties had made no mutual mistake concerning the formation of the contract. The court also found that because the purchase option had expired, it could not constitute a condition precedent to the formation of the contract between Brown and the Singers. Therefore, the court ruled that the Singers breached the lease contract with Brown. ...