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The Law
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Western Auto Nearly Driven Out of Lincoln – for $100
by Ron Davis Non-payment of a $100 annual fee almost caused a tenant's ownership of a $1.1 million property at a Nebraska shopping center to revert to the center's owner. The shopping center, located in Lincoln, had leased space for the tenant - Western Auto Supply Co. (a subsidiary of Sears, Roebuck & Co.) - to build a store there. Western Auto eventually completed the building project at a cost of $533,868, which increased the market value of the shopping center by $1,128,000. As part of the agreement, Western Auto agreed to pay the shopping center a lump sum of $494,730 for the term of the lease (through 2043). Western Auto also agreed to pay the shopping center $100 annually, with each payment due on the first of the year. Western Auto paid the $494,730 and soon began operations at the shopping center. In 1998, however, the shopping center did not receive the $100 payment by the first of the year. On February 17, the owner of the shopping center sent a letter to Western Auto's real estate department, which had recently moved from Kansas City to Sears' offices in Hoffman Estates, IL, notifying it of the non-payment. Because of confusion resulting from the move to Illinois, the real estate department didn't respond to the letter until mid-March. By then, the shopping center owner was ready to declare a default of the lease agreement and he sent notification to that effect to both the Sears and Western Auto offices. The shopping center owner finally received a check for $100, but he refused to accept. He then sued to force Sears and Western Auto to surrender the store and real estate at the center to him. A Nebraska appellate court, in ruling in favor of Western Auto, explained, "Nothing suggests that Western Auto's failure to pay the annual payment was willful or a result of culpable neglect. Even assuming that the annual payment was rent, that the shopping center owner's notification complied with the notice provisions and that he was thus entitled to terminate the lease, it would be manifestly contrary to equity and good conscience to enforce the lease's forfeiture provision and require Western Auto to forfeit over $1 million simply for failure to pay a $100 annual payment." (McCombs Realty vs. Western Auto Supply Co., 641 N.W.2d 77 [Neb.App. 2002])
Decision: March 2002 |
