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 firstname.lastname@example.org
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.
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