Alabama Supreme Court Upholds Contractual Authority of Trust in Commercial Lease Dispute

In a significant legal development, the Supreme Court of Alabama, on April 11, 2025, reversed a previous ruling by a trial court which had invalidated a commercial lease agreement between Hembree Insurance Trust and Maples Industries, Inc. This decision restored the trust's capacity to enforce its contractual rights against the longstanding tenant. The case centered around a lease agreement executed in February 2019, involving a 135,847-square-foot industrial facility located in Scottsboro, Alabama. Under the five-year lease term, scheduled from January 1, 2020, to December 31, 2024, Maples Industries was granted occupancy of the property with particular responsibilities, including a crucial clause mandating Maples to handle roof repairs or replacements, while Hembree agreed to cover half of the specified repair costs. This agreement built upon Maples’s history with the property, having initially leased it in 2011 and renewed the lease in 2014. The legal conflict emerged when, on March 3, 2024, Hembree filed a lawsuit alleging that Maples failed to meet their lease obligations concerning the roof maintenance clause. Maples, in response, sought dismissal of the case, asserting that the lease was void since Hembree allegedly did not possess legal title at the time of signing.

Maples Industries relied on a 2014 warranty deed demonstrating that Hembree had transferred property ownership to Woods Cove Industrial Property, LLC. Consequently, the Jackson Circuit Court, treating Maples’s motion for dismissal as a motion for summary judgment, deemed the lease agreement as entirely null and void, citing Hembree's lack of titular authority to execute the lease. However, on appealing this outcome, Hembree posited that it served as the sole member and manager of Woods Cove, therefore wielding comprehensive legal authority to lease the property on its behalf. Essential documents, including Woods Cove’s articles of organization and the operating agreement, were presented in support. These confirmed the LLC's 2014 formation, explicitly for property leasing purposes, and validated Hembree’s empowered agency to manage its affairs. This documentation was pivotal in swaying the Supreme Court of Alabama's opinion.

The Court highlighted that Alabama law permits a lessor to lease property without holding title, provided there is lawful possession or authority. Essentially, a party can execute a valid lease when the title belongs elsewhere, assuming they hold some legitimate interest or authority over the property in question. The justices observed that Hembree's actions aligned with those of a lessor, including placing Maples in possession and accepting rent. The documents governing Woods Cove clearly provided Hembree with leasing authority, reinforcing the trust's legal standing. Furthermore, Alabama’s long-standing doctrine of estoppel, entrenched in Alabama Code § 35-9-1, prohibits tenants from contesting a landlord's title once they have accepted possession under the lease agreement. This legal principle played a critical role in the Court’s reversal, alongside the argued absence of any 'meeting of the minds' regarding ownership. The Court concluded that Maples’s lease execution and continued property occupation signified evident agreement.

The ruling did not entertain Maples Industries' claims of a potential lack of mutual understanding to the extent of exploring issues such as fraud or misrepresentation, as these were not appropriately brought before the Court. Noting that the trial court prematurely reached a summary judgment without a thorough factual investigation into Hembree's authority or Maples’s acceptance of the lease terms, the Supreme Court reversed and remanded the case for additional proceedings. This ruling provides clarity on the enforceability of leases executed by trusts through organized LLCs, even when the trust itself lacks titleholder status. For insurance professionals, particularly those managing trusts and property portfolios, this decision underscores the legal premise that lease validity is anchored in contractual authority rather than title possession. The case citation is Hembree Insurance Trust v. Maples Industries, Inc., SC-2024-0543, originating from the Jackson Circuit Court, case number CV-24-900026.