Note: Legal Corner contains case summaries and analysis of recent court decisions that impact retail leasing and lease administration. These summaries focus on the leasing issues covered in each case and do not include detailed discussions or analysis of the procedural and peripheral issues in the cases.
Tenant Fails To Have Its Cake And Eat It Too
Acad., Inc. v. Paradigm Bldg., LLC, 2017 Ark. App. 79, 513 S.W.3d. 850 (2017) reh’g denied (Mar. 15, 2017).
In Arkansas, Landlord and Tenant, a public charter school, were parties to two commercial leases which ran concurrently, contained the same terms, and were scheduled to expire on June 30, 2014. Each lease contained a one-time renewal option for three additional years, which could be exercised “by written notice to Landlord, received no later than sixty (60) days prior to the expiration of the terms then in effect.” Landlord and Tenant began communicating approximately a year before the leases expired, and discussed both “extending” and/or “renewing” the leases multiple times. On April 24, 2014, Tenant sent a certified letter to Landlord containing the Tenant’s “official request” to “extend [Tenant’s] lease.” After this time, Tenant objected to the proposed new lease terms from Landlord, and continued to occupy the space and pay a monthly rent consistent with the renewal rate provided for in the lease. On February 19, 2015, Tenant sent Landlord written notice that it would vacate the premises by June 2015, and Tenant then vacated the premises 2015. In response, Landlord brought an action seeking declaratory judgment that Tenant had renewed its leases for three years, pursuant to the lease terms. In defense, Tenant argued that it never stated it was exercising an option to renew, and that it had only intended to seek a one-year extension of the lease, among other things. The lower court and court of appeals agreed with the Landlord’s position, holding that Tenant’s April 2014 communications stating “I want to renew our lease,” in conjunction with Tenant following the lease’s renewal guidelines with a certified letter at lease sixty days before the leases was scheduled to expire there was sufficient evidence of Tenant’s renewal of the leases. The court also addressed Landlord’s claim that it was owed a 3% increase in rent from the renewal, and almost $50,000 in late fees assessed from 2009 to 2015. The court found that the parties’ lease made no provision for a rent increase in the renewal term, and that Landlord abandoned its right to seek late fees accrued since Landlord did not bill Tenant for such late fees or make any demand for them, with the exception of a few instances, until after Landlord commenced its lawsuit in 2015.
Shopping Center Does Not Include Adjacent Parcel With Easement Rights
Battle Creek Real Estate Dev., LLC v. Rite Aid of Mich., Inc., No. 334933, WL 4700147 (Mich. Ct. App. Oct. 19, 2017).
Landlord leased space in a Michigan strip-mall shopping center to Tenant, which operated a drugstore. The lease included a provision that prohibited Landlord from permitting another drugstore “in the Shopping Center, or any additions or extensions thereof.” However, with respect to a parcel adjacent to Landlord’s strip-mall, Landlord had entered a reciprocal easement agreement to allow access from the shopping center parcel to that adjacent parcel, which was owned by a developer. Landlord and that Developer subsequently brought an action against Tenant seeking a declaratory judgment that the developer’s parcel adjacent to the shopping center was not subject to the drug store use restrictions in the lease, such that the developer would be free to construct a full-service pharmacy on that adjacent parcel. The court agreed with the developer’s position, finding that the language in the lease only limiting competing drugstores on the shopping center parcel (including any expansions), and not to adjacent parcels that were not owned by Landlord. Tenant argued that the easement between Landlord and the developer effectively expanded the strip-mall and thus the drugstore use restriction in the lease should apply to the adjacent parcel. At trial, Landlord and the developer provided evidence that there had been no additions or extension to the shopping center parcel, as well as noting that the adjacent parcel in question was not included in the legal description of the “Shopping Center” in the lease. The court, siding with Landlord and the developer, noted that Exhibit B to the lease contained a legal description of the shopping center parcel, which explicitly stated that the developer’s adjacent parcel was not part of the shopping center. Further, the court noted that the easement in question was simply an easement for ingress and egress and did not annex the adjacent parcel as part of the shopping center. Finally, the court noted that Tenant provided no case law in support of the assertion that the lease created exclusive use rights applicable to an adjacent parcel that was not owned by Landlord.
Beware of the Potential Effects of An Unconditional Guaranty
Cedar-Fieldstone Marketplace, LP v. T.S. Fitness, Inc., 99 N.E.3d. 798 (Mass. App. Ct. 2018).
In 2011, Tenant leased commercial property in Massachusetts. That same year, Landlord and Tenant modified the lease and, in connection with that lease modification, Tenant’s president, executed a limited personal guarantee, making his liability for the lease payments coterminous with Tenant, to the extent of $52,271.06. After that lease modification, Tenant defaulted and Landlord brought a summary process action. In February 2013, the action was resolved through the parties’ agreement for judgment, where Tenant’s president signed in his capacity as the president of Tenant and Tenant’s president was not individually a party to that agreement for judgment. Under the agreement for judgment, Landlord allowed Tenant to occupy the premises for an additional three months and Tenant agreed to make monthly use and occupancy payments for that period and to vacate the premises at the end of the three months. As part of the settlement, Landlord and Tenant released their respective claims against the other. After executing the agreement for judgment, Landlord brought a collection action against Tenant’s president seeking over $100,000 in unpaid rent. Tenant’s president asserted that he could not be individually liable under the guaranty, as Tenant’s liability under the lease was resolved by the agreement for judgment. On appeal, the court disagreed and found that Landlord’s release of Tenant under the agreement for judgment did not preclude Landlord from bringing a separate collection action against Tenant’s president, as the guarantor of the lease. The court described the broad and express terms of the guaranty as “unforgiving,” “absolute and unconditional,” and found the guaranty made clear that Tenant’s president’s guaranty obligations survived even if Tenant were unable to make payment “by reason of bankruptcy or mere insolvency.” Accordingly, the court concluded Landlord’s rights under the guaranty were intended to exist independent of Landlord’s rights to collect unpaid rent from Tenant.