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by Ron Davis

A North Carolina tenant’s misinterpretation of lease terms has led to a legal clash that the tenant’s shopping center landlord has decidedly won.

The shopping center’s owner is East Town Market, L.P., in Charlotte, and the legal problem cropped up when the tenant, 550 Foods, LLC, balked at having to vacate the premises it occupies at the shopping center. 550 Foods argued that its lease term extends beyond the alleged deadline that requires vacating the shopping center.

In response, East Town’s principals have informed 550 Foods that its presence at the center is “subject and subordinate to” the lease and that the lease is currently operating on a month-to-month basis. Therefore, East Town adds, 550 Foods no longer has a legal right to occupy the shopping center premises as a tenant.

550 Foods has battled on, however. Its principals point out that its sublease was in the second of six five-year renewal periods and was not due to expire until July 23, 2016. Therefore, 550 Foods adds that East Town’s unilateral termination of the lease is “ineffective to the extent that the termination affected the term of the sublease.”

The impasse required the North Carolina courts to intervene. And at trial, a judge made the following pertinent findings:

  1. Nothing serves to extend “or purports to extend” the term of the ground lease beyond its initial 20-year term, which was set to expire by March 2007.

  2. There is no record of a notice being given to any person, including the tenant under the ground lease or the sublease to “exercise or purport to exercise the first option to extend the term of the ground lease beyond its initial 20-year term.”

  3. Nor was there anything acting to amend the provision of the sublease that states that “if the ground lease terminates, this sublease will terminate.”

550 Foods counters on appeal that even those findings are “unsupported by competent evidence,” adding that the record shows that the first as well as the second renewal option was effectively exercised beyond its initial term.

But the Court of Appeals of North Carolina agreed with the trial court’s decision, explaining, “We conclude that the trial court correctly found, based on competent evidence, that the ground lease began operating on a month-to-month basis after March 2007, which made it such that causation was no longer required for East Town to terminate the ground lease.

“Further, because the sublease was subordinate to the ground lease and specifically provided that ‘if the ground lease terminates, this sublease shall terminate,’ we hold that the trial court did not err in concluding 550 Foods’ right to occupy the grocery store building ceased after East Town terminated the ground lease. East Town was entitled to declaratory judgment and order for summary ejectment in its favor.

“Thus, the trial court did not err in dismissing 550 Foods’ counterclaims for declaratory judgment, breach of contract, and damages. To the extent that we have not addressed each of 550 Foods’ specific arguments on appeal, we deem the arguments to be without merit and unnecessary to the outcome of this appeal.”

(East Town Market, L.P v. 550 Foods, LLC, 2015 WL 4448455 [Table])

Decision: August 2015
Published: August 2015

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