The Law

Not Nice But Not Unlawful by Ron Davis Some very generous lease terms have allowed the anchor tenant of a Utah shopping center to abandon the property–at great cost to the center’s owners. The shopping center, Oakwood Village in Murray, leased ground space in 1978 to the tenant–Albertson’s, Inc.–for the construction and operation of a retail supermarket. But that lease failed to anticipate later events that would prove significant in the relationship between the two parties. First, the lease did not require Albertson’s to pay any rent based on a percentage of sales, nor was there any requirement for escalations in the rental amount over the 25-year lease term. The lease also failed to include a “use clause” specifying the type of retail business in which Albertson’s could engage at the shopping center. Finally, the lease lacked any sort of provision preventing Albertson’s abandonment of the property while continuing to pay rent (known as “going dark”). In fact, going dark was exactly what Albertson’s did in 2001. After getting a better opportunity in a new shopping center across the street from Oakwood Village, Albertson’s ceased operating at Oakwood Village, but continued to pay the monthly rent on the vacant building. The objective, admitted by attorneys for Albertson’s, was to intentionally keep the Oakwood Village store unoccupied in order to restrict competition with the new Albertson’s store. The owners of Oakwood Village subsequently sued Albertson’s, alleging that the tenant breached a promise of good faith and fair dealing. Moreover, the center’s owners pointed to such lease terms as a noncompete clause, the long-term duration of the lease, the nominal rent, and the agreement of Albertson’s to participate in the development of the center. Those terms, the center’s owners argued, imply an intent to continuously operate at Oakwood Village. In reply, Albertson’s noted significant lease terms that prevent any implication of an agreement of continuous operation. First was an absence of a percentage-rent provision. Second was an absence of a use clause specifying the kind of retail business that Albertson’s could operate at the center. And third was the lack of a “default” lease term to prevent Albertson’s from abandoning the property and going dark. The Supreme Court of Utah, in siding with Albertson’s, explained, “The language of the lease contemplates very broad use of the premises by Albertson’s with no specific business restriction and no apparent requirement of ongoing operation. This contradicts the argument that the lease contains an implied agreement under which Albertson’s assumed responsibility for drawing consumer traffic to the center as a continuous tenant.... What Albertson’s did may not have been nice, but its conduct in vacating the leased premises while continuing to pay rent in order to restrict competition with its new store was not unlawful under the lease.” (Oakwood Village LLC v. Albertson’s, Inc., 104 P.3d 1226 [Utah 2004]) Decision: December 2004 Published: April 2005