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Johnson Real Estate Limited Partnership v. Vacation Development Corp.

Court of Appeals of Tennessee, Knoxville

June 12, 2018

JOHNSON REAL ESTATE LIMITED PARTNERSHIP
v.
VACATION DEVELOPMENT CORP., ET AL.

          Session April 18, 2018

          Appeal from the Chancery Court for Sevier County No. 17-1-002 Telford E. Forgety, Jr., Chancellor

         This action involves a long-term ground lease in which the defendant lessee paid for and maintained an insurance policy on the property for its benefit. The defendant surrendered the premises after the motel facility constructed on the land was destroyed by a wildfire before the expiration of the lease. The plaintiff lessor filed suit, seeking an equitable lien on the policy and its proceeds, a constructive trust against the insurance rights and recovery, a claim on the policy as a third-party beneficiary, and injunctive relief. The court granted summary judgment in favor of the defendant. We affirm.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court

         Affirmed; Case Remanded

          R. Louis Crossley, Jr., Knoxville, Tennessee, for the appellant, Johnson Real Estate Limited Partnership.

          Ronald T. Hill, Knoxville, Tennessee, for the appellees, Vacation Development Corp. and Hugh D. Faust, III.

          John W. McClarty, J., delivered the opinion of the Court, in which D. Michael Swiney, C.J. and Richard H. Dinkins, J., joined.

          OPINION

          JOHN W. McCLARTY, JUDGE

         I. BACKGROUND

         The long-term ground lease at issue was between Johnson Real Estate Limited Partnership ("Plaintiff") and Vacation Development Corporation ("Defendant") for four acres of land located on River Road in Gatlinburg, Tennessee. The lease provided a term of 50 years, beginning on October 15, 1969, and ending on October 15, 2019. As pertinent to this appeal, the lease required Defendant to construct "modern motel facilities at a cost of not less than [$500, 000]" within 18 months of the date of the agreement and to remit payment of $15, 000 on the date of the execution of the lease and $20, 000 per year, plus 7 percent of the gross receipts exceeding the sum of $20, 000. The lease further provided that at the "termination or cancellation of [the agreement] all improvements thereon shall become the property of the Lessor." The Parties were not required to carry property insurance; however, Defendant was required to carry public liability insurance and to pay all taxes, utilities, license fees, and expenses of "every kind and nature incident to the use of said premises." Defendant constructed the motel facilities, which became known as the Riverhouse Motor Lodge ("the Motel"). Since that time, the original Lessors assigned their interests to Plaintiff.

         Defendant insured the Motel and another of its properties under a single commercial insurance policy obtained through Travelers Indemnity Company of America ("Insurance Company"). Defendant paid all premiums for the policy that covered both facilities with a policy limit of $8, 122, 974.

         The Motel was destroyed by the Gatlinburg wildfires in November 2016. Defendant advised Plaintiff that it would not rebuild the Motel unless Plaintiff entered into a new 50-year lease on the same terms as the current lease, with the exception that the new lease would include an insurance provision. Plaintiff filed suit against Defendant and Insurance Company for anticipatory breach of the agreement. Plaintiff sought an equitable lien on the insurance policy and its proceeds, a constructive trust against the insurance rights and recovery, a claim on the policy as a third-party beneficiary, and injunctive relief. Thereafter, Defendant notified Plaintiff of its surrender of the property and termination of the lease via letter, dated March 17, 2017, which provided as follows:

As you know, [the Motel] constructed by [Defendant] on the real property owned by [Plaintiff] on River Road in Gatlinburg, Tennessee was totally destroyed by fire on November 28, 2016. Accordingly, and pursuant to the provisions of [Tennessee Code Annotated section 66-7-102], [Defendant] hereby surrenders possession of the real property and ...

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