Mullendore Theatres, Inc. v. Growth Realty Investors Co.
691 P.2d 970, 39 Wash. App. 64 (1984)
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Rule of Law:
A landlord's covenant to refund a tenant's security deposit does not run with the land, and thus does not bind a successor landlord, unless the lease restricts the use of the forfeited deposit to the benefit of the leased property. The parties' mere intent to make a covenant run with the land is insufficient if the covenant is personal in nature.
Facts:
- In 1969, Conner Theatres Corporation leased a property and provided a $22,500 security deposit to the original landlord.
- The lease stipulated that if the tenant defaulted, the landlord could apply the deposit to any damages sustained, and if no default occurred, the deposit would be returned at the lease's expiration.
- The lease included a clause stating that all covenants contained within it would run with the land.
- In 1974, Conner assigned its leasehold to Mullendore Theatres, Inc., and the deposit amount was reduced to $6,000.
- The property ownership was transferred several times, eventually being acquired by Growth Realty in 1975.
- Growth Realty later sold the property to the City of Tacoma and agreed to indemnify the City against any potential liability for the security deposit.
- Mullendore negotiated a new lease with the City and, as part of that transaction, released the City from any claim for the security deposit but reserved its right to claim it from other parties.
Procedural Posture:
- Mullendore Theatres, Inc. filed a lawsuit against Growth Realty in a trial court to recover the $6,000 security deposit.
- The trial court ruled in favor of Mullendore, holding that the covenant to refund the security deposit ran with the land and was binding on Growth.
- Growth Realty, as appellant, appealed the trial court's judgment to the Court of Appeals of Washington, with Mullendore Theatres, Inc. as the appellee.
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Issue:
Does a landlord's covenant to refund a tenant's security deposit run with the land, making a successor landlord who never received the deposit liable for its return, when the lease does not require the forfeited deposit to be used for the benefit of the property?
Opinions:
Majority - Worswick, J.
No. A covenant to refund a security deposit does not run with the land where the lease does not require that a forfeited deposit be used for the benefit of the property. For a covenant to run with the land, it must 'touch or concern' the land, meaning it must be so related to the land as to enhance its value or confer a benefit upon it. A promise to pay money meets this test only if the use of the funds is restricted to the benefit of the property, such as for repairs or maintenance. In this case, the landlord was entitled to apply the deposit to any damages, a general financial obligation, not one specifically tied to the land's physical condition. Therefore, the covenant is a personal obligation of the original lessor and does not bind successors in interest like Growth, regardless of the lease's language declaring that all covenants run with the land.
Analysis:
This decision reinforces the traditional 'touch and concern' doctrine for real covenants, particularly clarifying its application to monetary obligations. It establishes that a security deposit covenant is presumptively personal unless the lease explicitly dedicates the funds to the property's physical benefit. This protects subsequent property owners from inheriting personal financial liabilities of their predecessors that they did not expressly assume and for which they received no consideration (like the deposit itself). The ruling prioritizes the substantive nature of the covenant over the parties' expressed intent, preventing parties from making a purely personal promise run with the land simply by stating it in a lease.
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