Specify that Tenant Must Operate Continuously in Lease

If you’re like most owners, you’ll want your tenants to operate continuously in the space they rent from you. And why wouldn’t a tenant want to operate continuously? It is, after all, paying rent to use the space so it would stand to reason that it would want to bring in as many sales as possible. But, in some cases, a tenant might not care so much about this. For example, if the end of the lease is nearing and the tenant is focusing on getting its operations up and running at a new location, it might slack off at your center. But is your tenant’s failure to operate continuously a lease violation? Not if you haven’t specifically addressed it in the lease.

That was the case where a Missouri court ruled in favor of a tenant that had stopped operating a parking lot continuously. There, the owner leased a parking lot to the tenant, and both agreed that the tenant would use the lot only for off-airport parking and related uses. Subsequently, the tenant opened up a second lot nearby and focused primarily on its operations. Eventually, the tenant moved all of its business to the second lot, but continued to pay the owner for the vacant premises until the lease ended.

The owner sued the tenant, arguing that the tenant violated the lease and devalued the lot by not continuously running a parking lot on the premises. But a Missouri court sided with the tenant. The court determined that the lease didn’t contain an “implied covenant of continuous use”—that is, a legal expectation that the tenant would continuously conduct business on the premises, as agreed upon in the lease. Courts usually find that a lease contains an implied covenant of continuous use if: (1) the business functions as an anchor store; (2) the rent is tied to the store's sales; and (3) the lease allows the tenant to transfer his rights to another tenant without restriction. None of these factors applied to the lease in this case. Even if these factors apply to a tenant in your center, you’re better safe than sorry by including continuous operations provisions in the lease [Adbar Company, L.C. v. PCAA Missouri, LLC, January 2008].

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