The $360,000 Question
by Ron Davis
A Missouri shopping center owner must pay a tenant $360,000 for terminating a lease that the two parties had agreed to.
The shopping center, located in suburban St. Louis, had leased space since 1990 to the tenant for the operation of a restaurant. Then in 1996, despite extensive damage to the restaurant as a result of a fire there, the center's owner and the tenant executed a new lease, with the payment of rent to begin when the restaurant reopened for business. The term of that lease was five years and contained an option for renewal for five additional years.
The two parties also agreed to restore the restaurant premises, with the shopping center owner and tenant each undertaking a certain portion of the restoration. The center's owner then hired a construction firm, which began work on the owner's part of the project – the "shell" of the building.
The construction firm soon realized, however, that it could not complete its portion of the restoration before the tenant had concluded his portion of the job – the work on the restaurant itself. And completion of the tenant's portion first would mean having to tear out some of the shell work.
The shopping center owner consequently notified the tenant of changes in the conditions of the project. In response, the tenant advised the center's owner that the changes were not acceptable and that he would simply comply with the terms and obligations of the new lease and open for business.
The shopping center owner then stated that he was canceling the new lease "since the parties cannot agree on the scope and/or quality of each party's work." The tenant then sued to force the shopping center owner to honor the lease agreement.
A jury decided that the shopping center owner had breached the lease contract and awarded the tenant $360,000.
And a Missouri appellate court recently upheld that award, explaining, "The jury could have found that the tenant was within his rights in saying that he would perform in accordance with the new lease and was not obliged to accept the further modifications required by the shopping center owner. It follows that the shopping center owner was not justified in canceling the new lease as modified.... As to the size of the award, there is ample evidence that the tenant could expect profitable operations for the five-year term of the lease and the guaranteed option for five more years." (Garavelli's Restaurant v. Colonial Square, 21 S.W.3d [Mo.App. E.D. 2000])
Decision: July 2000
Published: September 2000