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The $33,000 Question
by Ron Davis

Is a shopping center tenant bound by the terms of a lease even after the lease expires?

That question arose recently after a Georgia shopping center owner allowed a tenant to continue operating his business at the center after expiration of the tenant’s lease.

The shopping center, located in the Atlanta area, had leased space to the tenant for the operation of a dry-cleaning business. The lease term was for five years beginning in 1999 and obligated the tenant to pay rent plus operating costs in the form of “additional rent.”

Those operating costs covered a wide range of obligations, such as contributions toward maintenance, security, insurance, and taxes. The tenant’s monthly payments of those operating costs were based on estimates that the center’s owner calculated.

In 2001, officials of the county in which the shopping center is located began reclassifying property. The purpose of that action was to more accurately appraise and tax the owners of county property. As a result, the shopping center owner was unable to accurately calculate operating costs. And the owner therefore did not bill nor try to collect that portion of the rent from his tenants.

A few years later, however, the county completed its reclassification. The center’s owner responded to that completion by notifying his tenants that they would get a bill to cover the operating costs for the period in which the county was conducting its reappraisal.

By that time, the dry-cleaning tenant’s lease had expired. He then notified the center’s owner that he intended to vacate his leased premises. The center’s owner responded by presenting the tenant with a bill for $33,000. That was the amount covering the period of time the tenant occupied the premises without paying operating costs.

After reviewing the bill, the tenant told the center’s owner that he would not pay the $33,000. The center’s owner then sued the tenant, charging breach of contract.

A Georgia court found that the tenant became a “tenant at will” when the lease expired and that after that expiration, his status as a tenant at will voided the claim for operating costs.

The shopping center owner appealed that ruling, arguing that the lease specifically classifies operating costs as “additional rents.” As such, he added, the tenant is obligated to pay those costs as he did his rent.

A Georgia appellate court reversed the lower court ruling, explaining, “Given that the lease specifically characterizes operating costs as “additional rent,” the lower court erred in finding that the tenant held the property as a tenant at will but was not subject to the general terms and condition of the lease.” (Radha Krishna, Inc. v. Desai, 2009 WL 4802503 [Ga. App.])

Decision: December 2009
Published: January 2010



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