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Indianapolis airport authority prevails in hotel lease termination suit

April 18, 2019

A hotel in partnership with the Indianapolis International Airport that failed to meet its rebranding requirements also failed to convince an Indiana Court of Appeals that its lease agreement should not have been terminated. 

After a hotel near the Indianapolis International Airport fell into disrepair and financial trouble, a lease was assigned between the Indiana Hotel Equities, LLC and Indianapolis Airport Authority to bring the property into alignment with a national hotel chain brand name.

The hotel at 2500 S. High School Road currently operates as the Clarion Hotel Airport and was previously known as the Lexington Hotel Indianapolis Airport and the Radisson Hotel Indianapolis Airport.

The lease agreement obligated the hotel to make certain improvements and renovations to its property in order to rebrand, requiring that it also maintain a certain level of quality as recognized by the hotel industry. It was contractually obligated to incorporate many additions to fulfill that obligation, including a full-service bar or lounge area serving beer, wine and liquor, or a swimming pool.

However, the hotel breached the lease by failing to comply by the end of December 2016, prompting the authority to give written notice that it was terminating the lease effective July 2017. The hotel continued to make monthly rents payments to the authority, which were never repaid after the termination of the lease.

The parties sued each other, both moving for summary judgment that the other had breached the lease agreement. A trial court ruled in favor of the authority, finding that the hotel breached the lease and that the authority did not waive its ability and was permitted to terminate the lease.

On appeal, the hotel first contended that the trial court erred by allowing the authority to declare a forfeiture based on the hotel’s defaults without first determining whether they were material.

The appellate court noted the hotel failed to make two improvements required in the lease to ensure the property joined a national hotel chain, which were at the heart of the lease’s ultimate purpose. By not including a full-service bar or lounge area or the swimming pool – two of six large-scale improvements and developments required for rebranding — the hotel effectively defaulted on its lease.

The appellate court also found unpersuasive the hotel’s argument that its breaches were not material because the uncompleted improvements were just a “few items” on a Product Improvement Plan between the hotel and a national hotel brand to clean up the property and make repairs.

“The Lease was a contract between the Authority and the Hotel; the PIP was a document between the Hotel and a national hotel brand that makes no mention of the improvements at issue in this appeal,” Judge John Baker wrote.

Next, the hotel argued that the trial court erred by finding that the authority did not waive its right to declare a forfeiture of the lease, thereby entitling the it to take possession of the leased premises.

But the appellate court rejected that argument, finding that the hotel’s written checks to the authority did not constitute “instruments in writing” as contemplated by the lease. Rather, it noted that the record is devoid of evidence that the authority even signed the checks.

“The record shows instead that the Authority acted to avoid receiving the Hotel’s checks,” Baker wrote. “The Authority’s actions show that it wanted to preserve, rather than forego, its right to terminate the Lease.

“Moreover, the Authority was not obligated to return the payments that the Hotel continued to make after the Authority’s May 11, 2017, notice of termination,” Baker concluded. “The Authority had no reason to return the payments because it still had a claim of damages against the Hotel for the Hotel’s defaults under the Lease.”

The case is Indiana Hotel Equities, LLC v. Indianapolis Airport Authority, 18A-PL-769.

 

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