Tenant Shalt Not Go Dark
by Ron Davis
A supermarket tenant must reverse a decision to cease operations at a California shopping center while retaining control of its leased premises. The tenant is an Albertson’s affiliate, and the decision to “go dark” came just after the company extended its lease for a five-year period.
Albertson’s occupies 60 percent of the shopping center, located in the San Diego area, and the remaining tenants are small local businesses that depend on the foot traffic generated by the Albertson’s supermarket. So the closing of the Albertson’s store came as a huge economic blow to the other tenants. Moreover, even though Albertson’s continues to pay regular rent, the closing means the loss of income that the shopping center received from additional rent based on gross sales of the supermarket.
Albertson’s pointed out, however, that the lease allows the company to close the supermarket–just so long as the rent is paid each month on time. In fact, a provision of the lease states, “Nothing contained in this lease shall be deemed or construed...that tenant shall continuously operate a business of any type at the [leased] premises.”
But the lease also states that “the tenant shall use the premises for the purpose of conducting and carrying on the business of a supermarket. The center’s owner therefore sued Albertson’s, claiming a breach of the terms of the lease.
A California court ruled that Albertson’s violated the lease by ceasing operations at the shopping center. Explained the judges, “The term ‘the tenant shall use the premises’ for the purpose of carrying on the business of a supermarket makes the lease reasonably susceptible to the interpretation that cessation of all use of the leased premises violates the agreement of the parties. The presence of the percentage rent clause also makes the lease reasonably susceptible to the interpretation that cessation of all use of the leased premises violates the lease, because the value to the landlord is obviated if the lease is construed to allow Albertson’s to cease all business operations.”
Concluded the judges, “Accordingly, both the language of the lease and the surrounding circumstances under which the parties negotiated and entered into the lease make it reasonably susceptible to the interpretation that permanently ‘going dark’ violates the express and implied terms of the lease.” (MAR, LLC v. Albertson’s, Inc., 2005 WL 32876 [Cal.App. 4 Dist.])
Decision: January 2005
Published: February 2005