Tenant Triggered “Escape Clause”
Facts: A mattress store tenant signed a lease with a shopping center owner for space next to a national chain grocery store. The monthly rent was $5,000. After the grocery store moved out of its space, the tenant stopped paying rent, gave a 60-day notice to the owner, and moved out. At that time it already owed two months of back rent, or $10,000. The center’s owner sued the tenant for breaching its lease and demanded $50,000 for back rent and ongoing rent, since the owner claimed that the tenant’s notice didn’t terminate its lease and it would continue to be responsible for the space. The tenant asserted that it had validly invoked an “escape clause” in the lease, and for that reason it owed the owner only the back rent of $10,000 but no ongoing rent.
A trial court ruled in the owner’s favor, but awarded only $10,000 in damages (the amount the tenant claimed it owed), rather than $50,000 (the amount the owner claimed that the tenant owed it). The owner appealed.
Decision: An Alabama appeals court upheld the trial court’s ruling in part and reversed it in part.
Reasoning: The owner and the tenant each introduced into evidence their respective copies of the lease. However, the owner’s copy didn’t include a recent amendment to the lease, which had raised the tenant’s rent among changing other terms for payment. The tenant’s copy of the lease included the amendment, which stated that in the event that the grocery store ceased to operate in the center for more than 180 consecutive days, and the tenant’s sales decreased more than 30 percent or more for the 180 days after the store closed, the tenant would have the right to terminate the lease with a 60-day written notice to the owner, unless the owner replaced the grocery store with a comparable major tenant within the center. The tenant pointed out that it had given the owner the required notice that it would be exercising the escape clause in the lease because with the decrease in foot traffic it couldn’t afford to stay in business.
The appeals court noted that the trial court ruled in favor of the owner but simultaneously determined that the tenant should pay only $10,000, in essence “implicitly accepting the tenant’s proposition that the language included in the amendment—the so-called ‘escape clause’—was indeed a part of the parties’ lease…and that the tenant had properly invoked that escape clause by providing two months’ notice of its intent to terminate the lease agreement as amended.”
The appeals court determined that there was evidence to support the trial court’s implicit determination regarding the tenant’s timely and proper invocation of the escape clause—that the tenant properly invoked the escape clause—so it upheld that portion of the trial court’s decision. But it reversed the portion of the decision that set damages at $10,000. That was because there was evidence that the tenant owed additional fees and rent for the two-month period after the tenant triggered its escape clause. The appeals court sent the case back to the trial court to correctly determine the appropriate amount of damages to award to the owner.
- Chantilly Props. I, LLC v. Justice, April 2013