Editor’s 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.
Orion Investments Edina, LLC v. Fresenius Mgmt. Servs., Inc., No. 17-CV-0441 (PJS/FLN), 2017 WL 1401284, at *1 (D. Minn. Apr. 19, 2017). Tenant leased office space in Minnesota. Landlord then started a construction project that created so much noise and disruption that Tenant claimed it could not conduct its business. As a result, Tenant unilaterally terminated the lease. In response, Landlord initiated action to recoup lost rent, and Tenant defended asserting both a constructive eviction claim based on Landlord’s disruptive construction project as well as a material breach of contract by Landlord. Under Minnesota law, a tenant may terminate a lease if the landlord commits a material breach of the lease, with a material term being a provision that goes to the one of the primary purposes of the lease. In this instance, the court concluded a primary purpose of the lease was to provide space for Tenant to conduct its business, and held that Tenant had adequately pleaded a breach of contract claim arising from Landlord’s disruptive construction activities. The court also determined that Tenant had adequately pled its claim of constructive eviction, which occurs when a tenant’s use and enjoyment of the premises is interfered with by or through the landlord, so as to justify abandonment of the space by the tenant. The court dismissed a separate claim by Tenant alleging that Landlord had not provided adequate parking as required under the lease. The court reasoned that nothing in the lease obligated Landlord to provide a particular number of parking spots for Tenant. Instead, the lease merely required Landlord to provide parking in accordance with applicable laws. Because Tenant’s claim did not allege Landlord failed to provide any parking spots, or that Landlord had not provided code required parking, this claim by Tenant was dismissed.
Tenant’s Rat-Induced Closure Excused
Whole Foods Market Group, Inc. v. WICAL Limited Partnership, 288 F.Supp.3d 176 (D.D.C. 2018). Tenant leased grocery store space in Washington, D.C. Many years into the lease term, the District of Columbia issue two separate citations to Tenant related to rodent problems at the premises. Tenant eventually concluded that fixing the rodent problem would require shutting down its store, emptying it of most of its inventory and gutting large portions of the premises for a thorough cleaning. Tenant provided Landlord notice that the store would remain closed well beyond the 60-day period allowed under the lease for improvements and alterations. In order to receive the necessary city permits, Tenant was required to obtain Landlord’s approval. Landlord refused to grant consent, instead telling Tenant it had 15 days to reopen the store to avoid default under the lease. Tenant responded by saying Landlord was in default by withholding its approval, and eventually filed suit. On Landlord’s motion to dismiss, the court found that although Tenant was clearly closed for more than the allowed 60 days, Tenant sufficiently pleaded facts to suggest its non-performance was excused by the force majeure clause in the lease. For example, Tenant had historically had a pest control program in place and after receiving the second ordinance violation engaged multiple contractors who told Tenant that inferior building construction was one of the issues contributing to the rodent infestation. The court also rejected Landlord’s argument that Tenant did not provide Landlord with the required plans and specifications for Tenant’s rodent remediation work, violating the provision of the lease that required Tenant to get Landlord’s approval before making any structural changes. Citing to Black’s Law Dictionary, the Court held that while Tenant’s alterations were not minor, that did not make that work structural changes. The court noted, as an example, that Tenant was not removing load-bearing walls or repurposing the building for an entirely different use. The Court also held that Tenant had pled sufficient facts with respect to its claim for breach of the covenant of quiet enjoyment, saying that without Landlord’s approval of the architectural plans, Tenant could not apply for the necessary permits, meaning it could not reopen its store—yet it continued to pay rent. The only count of Tenant’s complaint that the court dismissed was the one alleging Landlord breached the lease by withholding its approval of the permits. While the lease required Landlord’s consent could not be unreasonably withheld or delayed with respect to Tenant requested alterations, the court had determined that Tenant’s work was not structural in nature and thus did not require Landlord’s consent.
Not That Type of Diner
Northglenn Gunther Toody’s, LLC v. HQ8-10410-10450 Melody Lane LLC, 702 F. App’x 702 (10th Cir. 2017). Tenant operated a 1950’s themed diner-style restaurant offering American food in premises in a Colorado shopping center. The lease included an exclusivity clause, which provided that so long as Tenant was not in default, Landlord would not lease any other portion of the shopping center for use as a “diner similar in concept to the operation conducted” by Tenant. When the space next to Tenant’s premise became vacant, Landlord leased it to a national diner franchise that served breakfast food 24 hours a day and offered American food. Shortly thereafter, Landlord provided Tenant with an estoppel certificate that warranted that Tenant was not in default under the lease. When Tenant became aware of the new diner, Tenant brought an action against Landlord seeking a preliminary injunction to stop Landlord from violating Tenant’s exclusive use rights. After some discussion as to the proper standard by which to evaluate a claim for a preliminary injunction, the court held that Tenant’s exclusivity rights did not preclude Landlord from leasing space in the shopping center to the national diner franchisee. The court noted that to find otherwise would broaden the Tenant’s restrictive covenant to preclude the operation of any other “diner,” rather than prohibiting diners that were similar in “concept” to Tenant’s 1950s themed diner. As a result, the court denied Tenant’s request of the preliminary injunction.
Andy Jacobson, Maslon LLP
Rebekah Fisher, Fisher Matthews PLLC