The Indiana Court of Appeals has vacated an order requiring an Edinburgh antique store to leave its place of business, finding an agreement between the store and the real estate’s owner was a land sale contract and not a lease subject to an eviction proceeding.
In March 2018, J. Elra Holdingz LLC entered into a lease agreement with Vic’s Antiques and Uniques, Inc. for a building and 3.56 acres of property located in Edinburgh. Vic’s agreed to pay J. Elra $1,265.30 per month for 20 years pursuant to the agreement, which included a provision which granted Vic’s an option to purchase the real estate plus an additional six acres for $1 upon the successful completion of the agreement.
In the alternative, Vic’s could purchase the option property before the end of the 20-year term if J. Elra were to refinance the property, which was subject to a mortgage, sell any portion of the property, or if the mortgage were released. If Vic’s exercised the option prior to the end of the term, the remaining monthly payments would be accelerated and the purchase price would equal the total of the remaining monthly payments, plus $1. Additionally, if Vic’s exercised its option to purchase the option property, J. Elra would provide title insurance in the amount of $200,000 and a warranty deed.
Nearly one year after entering the agreement, J. Elra sent Vic’s a letter asserting that the antique store had breached various provisions of the agreement and it subsequently filed a small claim for eviction. J. Elra asserted before the Bartholomew Superior Court that Vic’s had “unlawfully retained possession” of the real estate in that the store had failed to provide proof of insurance and had failed to maintain the premises, among other things.
Following Vic’s offer of proof that the lease stemmed from a mediation between the parties over a prior dispute, the trial court agreed with J. Elra that the document was a lease and ultimately ordered that Vic’s vacate the property.
In an interlocutory appeal, Vic’s asserted that the trial court erred when it interpreted the agreement as a lease rather than a land sale contract. For its part, J. Elra maintained there were “many similarities” between provisions in the agreement and provisions in the agreement in Rainbow Realty Group, Inc., et al. v. Katrina Carter and Quentin Lintner, 19S-CC-38 that was found to be a residential lease.
Siding with the antique store, the Indiana Court of Appeals found in Vic’s Antiques and Uniques, Inc. v. J. Elra Holdingz, LLC, 19A-SC-01348 that provisions often included in lease agreements are also not incompatible with land sale contracts.
“We hold that, on the facts of this case, the agreement speaks for itself,” Judge Edward Najam wrote for the appellate court. “As such, we need not look to extrinsic evidence to interpret the agreement. Rather, the substance of the agreement is found in the economics of the transaction. And the economics of the transaction demonstrate that the agreement is unambiguous and is a land sale contract rather than a lease.”
It found that J. Elra failed to reconcile a discrepancy between the purported “purchase price of One Dollar ($1.00)” and the actual purchase price of $200,000 as shown by the owner’s policy of title insurance the parties agreed would be issued.
“In addition, in order to exercise its $1.00 ‘option to purchase,’ Vic’s must first have paid a sum equal to 240 monthly payments of $1,265.30, or a total of $303,671.63, which is $103,671.63 more than the purchase price. J. Elra has failed to account for this additional payment,” the appellate court noted, concluding that the lease functioned as a security agreement and created a disguised security interest.
It therefore found Vic’s Antiques could be distinguished from Rainbow Realty Group, Inc., and that “it is clear from the economics of the transaction that from the outset the parties intended for Vic’s to acquire the option property.”
Finally, the appellate court concluded that under the plain language of Indiana Code 33- 29-2-4(b), the small claims court did not have jurisdiction to adjudicate the claim and the court’s order of possession is void. It therefore vacated the small claim’s court’s order and remanded with instructions for the claim to be dismissed.