Owner Not Entitled to Daily Charge After Permanent Store Closure

Facts: A supermarket tenant closed its store before the end of its 20-year lease for shopping center space. The center's owner sued the tenant, asking the court for: an injunction (that is, an order to a party to do or refrain from doing something) to force the tenant to continue operating; a declaration that the tenant was required to keep its store open and fully staffed; and money damages. A federal court denied the owner's requests. The tenant closed, but continued to pay the rent due under its lease.

The owner sued the tenant again, this time claiming it breached the “Conduct of Business by Tenant” section of the lease by failing to pay a $200 “daily charge” for each day its store had been closed. The tenant asked the court to dismiss the claim, asserting that the failure to pay the daily charge wasn't a breach, because a permanent closure relieved it from that obligation; the charge applied to only a temporary closure. The owner asked the court for a judgment in its favor without a trial. The district court ruled in favor of the tenant, and the owner appealed.

Decision: The appeals court upheld the lower court's decision in favor of the tenant.

Reasoning: On appeal, the court held that the owner wasn't entitled to the daily charge because the tenant was no longer following the requirements in the “Conduct of Business by Tenant” section of the lease due to the tenant's permanent closure of its store. It explained that the “Conduct of Business by Tenant” section required the tenant to cooperate in operating the center “as a cohesive group with the other tenants—consistently opening and closing, fully stocking merchandise, and operating in 100 percent of its space with a full staff of employees during all business hours” according to the terms “designated” by the owner. The tenant argued that these requirements couldn't apply to a store that wasn't in operation.

The tenant asserted that because the section referred to the failure to remain open on the days and hours designated by the owner, it was clear that the provision was intended to regulate the manner in which the tenant operated its store—that is, to prevent the tenant from conducting its business on irregular days and at irregular times. In fact, the stated purpose of the section was “to operate the Shopping Center as a cohesive group” with “consistent business operations, with minimal variations.” But the tenant was no longer operating.

The owner claimed that the “Conduct of Business by Tenant” section also applied to permanent store closures because it made no distinction between temporary and permanent closures, but simply referred to damages for the “failure to remain open on the days and at the hours designated.” The appeals court disagreed. It noted that nothing in the section suggested that the “days and hours designated” requirement was intended to apply in the event that the tenant permanently closed its store. The lease provided that the charge would be applied if the tenant breached the lease. But here, the tenant hadn't breached the lease. Rather, it permanently closed, which was permissible under the lease, and continued to pay rent.

The owner's remedy for the tenant's permanent closure of its store was the right to terminate the lease at any time thereafter. No provisions in the lease entitled the owner to an additional $200 daily charge. The appeals court determined that the owner wasn't entitled to the daily charge in the absence of a breach of the lease or a lease provision specifying that the charge was an additional remedy for a permanent store closure.

• Remy and Associates, L.L.C. v. Whole Foods Markets, Inc., February 2012