Daily Development for Monday, November 13, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

LANDLORD/TENANT; TENANT'S REMEDIES; LOST PROFITS: In circumstances of fire casualty, a commercial tenant may be awarded estimated lost profits for a landlord's wrongful termination of its leasehold interest during rebuilding.

Joe Garavelli's Restaurant, Inc. v. Colonial Square Associates, L.P., 21 S.W.3d 149 (Mo. Ct. App. E.D. 2000)

The plaintiff, a restauranteur who had operated in defendant's shopping center for six years, suffered a substantial fire casualty, upon which landlord exercised its right under the lease to terminate. That lease is not the subject of the instant dispute; rather, this litigation arose over the terms of a second lease which the parties subsequently executed to provide for rebuilding and a five year lease term (plus a five-year option period), with rent commencing upon plaintiff's re-opening of its restaurant after the completion of the reconstruction.

The terms of the second lease provided, in pertinent part, that the parties would exchange building plans (restaurant, together with a building wing connection to the shopping center) and that either party could terminate in the event that an agreement could not be reached on the scope and quality of the proposed reconstruction.

In accordance with this provision, the parties prepared and exchanged plans. Disagreements arose over the timing of the parties' individual work responsibilities, and landlord proposed that the plaintiff-tenant's rent commence on an earlier date and that it assume responsibility for a portion of the shopping center connection and extra cost items. When the tenant's counsel indicated that instead the tenant would perform in accordance with the existing lease provisions, the landlord terminated the lease.

The Court of Appeals found that these disagreements and landlord's subsequent lease termination were not based upon the scope or the quality of the work, but were based upon additional proposals by the landlord outside the terms of the lease, making its termination wrongful and landlord liable for breach of contract.

Tenant produced evidence of profitability over the years of its operations under its first lease, which the Court also accepted and affirmed the trial court's judgment award to tenant. Tenant had met the requirements for recovery of lost profits under Missouri law, which provides for the demonstration "a reasonable probability that future operations will be profitable."

Reporter's Comment: The interesting twists in this case, of course, are the facts of the fire casualty, that tenant was not operating its business at the time of the termination, and that its future profits were proven on a former lease in a former premises. The recovery by tenant of lost profits for not only the upcoming lease term, but for the subsequent option to extend the term of the lease, demonstrates a fairly strong showing for tenant's rights under such circumstances.

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