Problems with the changeover back to me have prevented this from getting
posted. I'm trying one more time, but the ultimate result may be that there will
be multiple postings. I apologize if this happens. Ed.
Daily Development for Monday, March 22, 2004
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri dirt@umkc.edu
LANDLORD/TENANT; COMMERCIAL; CONTINUOUS OPERATION; IMPLIED DUTY: Use clause in
lease that states that parties “shall use premises solely for the . . . business
of a grocery” does not impose a continuous operation obligation.
Daniel G. Kamin Kilgore Enterprises v. Brookshire Grocery Company, 81 Fed. Appx.
L827, 200d U.S. App. LEXIS 24299 (5TH Cir. 12/03/03)
The court began by saying “this is not - the parties agree - an implied
agreement case.” As indicated, the key language stated that the tenant would use
the premises exclusively for grocery purposes:
“The Leased Premises are leased to Tenant and Tenant shall use and occupy the
same during the term hereof solely for the purpose of conduction [sic] this
business of a grocery, produce and meat marketing establishment and other goods,
wares and merchandise usually handled by supermarket [sic], with related items
as are carried by supermarket operations generally during the term of the
lease.”
Landlord argued that this language, interpreted in connection with other
provisions in the lease, “and the circumstances surrounding the lease’s
execution” imposed a continuous operation obligation. The trial court, in fact,
agreed. The trial court emphasized the percentage rent clause and the fact that
the sublet clause required the tenant to operat at least 75% of the premises if
it sublet.
The 5th Circuit Court of Appeals, however, reversed. Looking at Texas authority,
it pointed to other cases involving percentage leases in which no continuous
operation duty was found.
The landlord attempted to distinguish Texas authority because this case, unlike
the precedent, involved a use clause that stated the Tenant “shall” use and
occupy the property . . . rather than just making a general statement about the
planned use. In fact, another Texas case did use the mandatory language, and
found no implied covenant. From that the court concluded it would be improper to
read mandatory language on use alone to embody an express operating covenant.
The court further noted that this lease included a substantial minimum rent in
addition to the percentage rent terms.
Comment 1: The landlord made other grammatical distinctions that failed to
impress the appeals court and failed so utterly to impress the editor that he
won’t list them.
Comment 2: Although the case purports to address only the question of whether
the express use clause imposes an operating duty, clearly the landlord was
trying to “bootstrap” an implication of an operating duty from the percentage
rent features into what otherwise would be simply a restriction on use. This has
worked occasionally in other jurisdictions, but about two thirds of the
voluminous authority on this point come out for the tenant. The primary
exception is those cases in which the lease provides only for percentage rent -
such as in the old gallonage rent provisions for gas stations. The editor’s work
in Friedman on Leases collects all the recent cases in Section 6.906 of the
Supplement.
Comment 3: Two years ago, the editor wrote a little piece on this issue, “Going
Dark Aggressively,” collecting a group of cases in which, in his opinion, and
implied duty is more likely to be found, the Probate and Property Magazine. A
version is on the DIRT Website: http://dirt.umkc.edu/files.htm#pat
More recently, Probate and Property published the editor’s views on the “flip
side” of the issue - whether a landlord might have implied operating duties to
keep a retail center operating for the benefit of a retail tenant. That article
is called: “Does a Shopping Center Landlord Have an Implied Operating Duty?” The
editor has included a section on this theme in his new version of Friedman on
Leases which should be out in a month or so.
Items reported here and in the ABA publications are for general information
purposes only and should not be relied upon in the course of representation or
in the forming of decisions in legal matters. The same is true of all commentary
provided by contributors to the DIRT list. Accuracy of data and opinions
expressed are the sole responsibility of the DIRT editor and are in no sense the
publication of the ABA.
Parties posting messages to DIRT are posting to a source that is readily
accessible by members of the general public, and should take that fact into
account in evaluating confidentiality issues.
ABOUT DIRT:
DIRT is an internet discussion group for serious real estate professionals.
Message volume varies, but commonly runs 5 15 messages per work day.
Daily Developments are posted every work day. To subscribe, send the message
subscribe Dirt [your name]
to
listserv@listserv.umkc.edu
To cancel your subscription, send the message signoff DIRT to the address:
listserv@listserv.umkc.edu
for information on other commands, send the message Help to the listserv
address.
DIRT has an alternate, more extensive coverage that includes not only commercial
and general real estate matters but also focuses specifically upon residential
real estate matters. Because real estate brokers generally find this service
more valuable, it is named “BrokerDIRT.” But residential specialist attorneys,
title insurers, lenders and others interested in the residential market will
want to subscribe to this alternative list. If you subscribe to BrokerDIRT, it
is not necessary also to subscribe to DIRT, as BrokerDIRT carries all DIRT
traffic in addition to the residential discussions.
To subscribe to BrokerDIRT, send the message
subscribe BrokerDIRT [your name]
to
listserv@listserv.umkc.edu
To cancel your subscription to BrokerDIRT, send the message signoff BrokerDIRT
to the address:
listserv@listserv.umkc.edu
DIRT is a service of the American Bar Association Section on Real Property,
Probate & Trust Law and the University of Missouri, Kansas City, School of Law.
Daily Developments are copyrighted by Patrick A. Randolph, Jr., Professor of
Law, UMKC School of Law, but Professor Randolph grants permission for copying or
distribution of Daily Developments for educational purposes, including
professional continuing education, provided that no charge is imposed for such
distribution and that appropriate credit is given to Professor Randolph, DIRT,
and its sponsors.
DIRT has a WebPage at:
http://cctr.umkc.edu/dept/dirt/
-----
To be removed from this mailing list, send an email message to listserv@listserv.umkc.edu
with the text SIGNOFF BROKERDIRT.
Please email manager@listserv.umkc.edu if you run into any problems.
See <http://www.umkc.edu/is/cs/listserv/unsubscribing.htm> for more information.