TERRY TERRACE CONDOMINIUM OWNERS ASSOCIATION v. TERRY TERRACE APARTMENTS, LLC (Washington Court of Appeals, January 10, 2011).
The former owner of an apartment complex that was converted to a condominium appealed a trial court determination that it was not entitled to any portion of the rent from a pre-conversion lease of the building's rooftop to a wireless provider (the “Lease”). Although the condominium declaration contained language that “it is anticipated (but not guaranteed)” that the Condominium would be subject to a Lease between the building owner and wireless provider and that 90% of all rental under the Lease would remain the property of building, the appellate Court held that the former building owner was not entitled to any part of the current rent because it did not retain any interest in the property when it conveyed the individual condominium units.
The Court stated that conveyance of real property by statutory warranty deed conveys all of the grantor's right, title, and interest in the described property, unless additional language in the deed clearly and expressly limits or qualifies the interest conveyed. This deed creates warranties in favor of the grantee, including that the estate is free from all encumbrances. The grantor must specifically exclude any lien, encumbrance, or other matter intended to be outside the scope of this warranty. This exclusion is typically placed in the "subject to" clause in the body of the conveyance and does not limit the nature or duration of the estate granted, only the scope of the warranty. Unlike an exclusion, an exception withdraws from a deed's operation some part of the property which would have otherwise passed to the grantee under the general description. The part withdrawn exists at the time of the grant and remains in the grantor unaffected by the deed. In contrast, a reservation creates on behalf of the grantor a new right issuing out of the property granted that did not exist as an independent right before the time of the grant.
In the present case, the deeds used by the building owner to convey individual units only listed the Lease as an exception to the warranty of title and did not contain any language purporting to except from the deed's grant any interest in the leased premises or to reserve to the grantor any right to any part of the leased premises, Lease or rent payments. Consequently, the Court held that the building owner conveyed its entire interest in the property as a matter of law, including its interest in the Lease.
The Court did decide that the building owner was entitled to a poriton of the prior lease payments. The owner owned the building in fee simple and retained all of the lessor's interest in the property leased to wireless provider, until it conveyed the first unit. At that point, the owner conveyed an individual unit and an undivided fractional interest in the common elements. With each conveyance of a unit, the owner reduced its leasehold interest by an amount equal to the interest in the common elements conveyed. The building owner’s leasehold interest reached zero when it sold the last unit.
For a copy of this case, contact Anthony Dorland at dorlanda@moss-barnett.com.