Court of appeals rules on UW Medical Foundation dispute with landlord

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The Wisconsin Court of Appeals reached a decision on October 11, 2023, in a case involving the UW Medical Foundation and its landlord.

The Wisconsin Court of Appeals recently affirmed in part, reversed in part (and cause), and remanded with directions. The Court further cross-appeal reversed and cause remanded with directions.

According to court documents, J. Pheasant West, LLC appeals the circuit court’s summary judgment order interpreting a commercial property lease in favor of its No. 2021AP21492 tenant, University of Wisconsin Medical Foundation, Inc., dismissing Pheasant West’s amended complaint for declaratory judgment and multiple breaches of contract, and granting in part and denying in part UW Medical Foundation’s counterclaims ordering payment for inappropriate insurance premiums together with some attorneys’ fees. In addition, UW Medical Foundation cross-appeals with respect to that same order and the denial of its counterclaim for rent abatement and to more fully recover its attorneys’ fees.

The UW Medical Foundation (the “Foundation”) asserts that the circuit court appropriately concluded that Pheasant West was required to pay for the repairs to the Foundation’s improvements, alterations, and additions, that it was entitled to abate all rent until all of the repairs were completed, and that Pheasant West’s specific performance claim was without merit. It further asserts that the court correctly held that Pheasant West had defaulted on the lease by not timely returning an improperly demanded flood insurance premium, but that the court erred by denying its rent abatement counterclaim and request for full attorneys’ fees.

The Court of Appeals wrote, “we agree in part, and affirm the appeal with respect to the denial of two of Pheasant West’s breach of contract claims, but, while we conclude that the Foundation is entitled to rent abatement, we reverse and remand for a determination of how much rent should be abated. We next reverse as to the cross-appeal because, as noted above, the Foundation is entitled to the return of some rent payments and that means it may also be entitled to additional attorneys’ fees. We further remand to the circuit court to determine the appropriate award, if any, of attorneys’ fees related to damages on the issue of the landlord’s default (on whether the failure to refund money for the rent overpayment was a breach).”

According to Court documents obtained by the Wisconsin Law Journal, the Foundation leased a 200,000 square foot, four-story administrative office building in Middleton, Wis. since 2008. Pheasant West acquired the building and surrounding real property from Discovery Springs, LLC and took over the lease by assignment after the lease was signed but before the Foundation moved into the Building. Therefore, Pheasant West is the Foundation’s landlord.

The lease includes several provisions relevant to the dispute between landlord and tenant in this appeal. Landlord Pheasant West was required to complete certain construction work and landscaping under § 6.1 to prepare the Premises for occupancy. But § 6.4 provides that the Foundation was responsible for other work in preparation of occupancy and the supply of certain fixtures, furnishings, and equipment, some of which the landlord could require the Foundation to remove at the Foundation’s expense upon expiration or termination of the lease, but all of which would become the landlord’s property. Similarly, § 12.4 gives the Foundation the right to make certain additions and alterations with the landlord’s approval which would become the landlord’s property—except for “fixtures, customized cabinetry, office furniture and equipment, … other personal property of Tenant,” and the items the landlord could require the Foundation to remove at the end of the lease.

The Court of Appeals ruled that Pheasant West is required to return the overpayment of rent, as determined on remand, together with interest from May 31, 2019. The Court further stated Pheasant West did not breach the lease by failing to do so for over three years, is an incorrect application of the law. “The undisputed facts show that Pheasant West breached the lease by failing to refund the overpayment to the Foundation. The circuit court’s decision to the contrary is hereby reversed.”