A Tennessee case, Smith v. Hi-Speed, Inc. (Tenn. Ct. App. 2016), which involved a commercial lease, sets forth a very useful analysis of the parol evidence rule and the statute of frauds. The facts and legal arguments, as well as the analysis of the Court of Appeals of Tennessee, align in a way that make the opinion in the case one that can be helpful to practitioners and litigants in many real estate cases where the parol evidence rule and the statute of frauds are in play.
Here are the salient facts:
- Mother owned two commercial buildings, one in Tennessee and one in Arkansas
- Mother’s son (“Son”) owned an interest in Hi-Speed (the opinion does not discuss whether Son owned all or some of Hi-Speed)
- Mother agreed to spend significant money to build out the Arkansas building for Hi-Speed
- Mother and Hi-Speed entered into a written lease agreement for the Arkansas building (the “Lease”)
- The Lease provided that it was for 20 years with base rent of $14,000 per month
- The Lease also provided that Hi-Speed would pay additional rent of $4,000 per month so long as the Mothers’ Tennessee building was pledged as collateral for the loan Mother obtained to build out the Arkansas building
- Hi-Speed made the $4,000 additional monthly rent payments while the Tennessee building was pledged as collateral which was through 2008
- Even after 2008, Hi-Speed continued to make the additional rent payments to Mother, and in even greater amounts than $4,000 per month
- In 2009, Mother’s son died
- In 2011, new management at Hi-Speed notified Mother that the additional rent payments each month would cease
Mother filed suit against Hi-Speed. She claimed that the Lease did not contain the entire agreement of the parties and that they also verbally agreed that the additional rent payments would continue as long as Mother was obligated on the loan she obtained to build out the Arkansas building. (The term of Mother’s obligation on the loan went well beyond the time period that Mother’s Tennessee building secured the loan). The trial court held that the parol evidence rule barred Mother from offering evidence of the verbal agreement.
PAROL EVIDENCE RULE ANALYSIS