Gotlieb v. Taco Bell Corporation

Brief Fact Summary.

Plaintiffs entered into a lease agreement with Taco Bell. The lease agreement contained specific terms regarding the payments and lease requirements. Thereafter, Taco Bell sent Plaintiffs a letter requesting to change the terms. Taco Bell later filed to obtain a permit, as required under the lease, and sent Plaintiffs a letter renouncing their lease agreement. Plaintiffs denied the request to change the terms of the agreement and brought suit against Taco Bell seeking damages.

Synopsis of Rule of Law.

When a landlord sends a new tenant a proposed lease, the landlord has accepted a prior tenant’s repudiation of a lease.

Facts.

Gotlieb and Blaymoreand Taco Bell Corporation (Taco Bell) entered into a 20-year lease agreement. Under the lease, Taco Bell’s rental payments were to begin on June 15, 1992, and Taco Bell was obligated to pay a monthly base rent, includingan additional rent for taxes and utilities. Also, Taco Bell was required to attain permits and approvals for restaurant construction and operation, however, it could cancel the lease if Taco Bell was unable obtain the permits and approvals by February 15, 1992. Lastly, Taco Bell was required to pay Gotlieb and Blaymore’sliquidated damages in case of a breach of the lease terms. Community groups were against the construction of the restaurant. On February 10, 1992, Taco Bell sent the plaintiffs a letter asking to change some of the lease agreement terms. Thereafter, Taco Bell filed to receive a permit application on February 14, 1992, and sent the plaintiffs a letter renouncing the lease on the same day. Subsequently, Gotlieb and Blaymore responded to Taco Bell’s letter by denying the request to change the terms of the agreement and stating Gotlieb and Blaymorewould hold Taco Bell liable for the agreement. On June 1992, Gotlieb and Blaymore brought suit against Taco Bell for past and future rent, and for acceleration of all future rent due under the lease. Nonetheless, Taco Bell did not pay. During trial, both, Gotlieb and Blaymore, provided testimony that on October 19, 1993, they met with Rite-Aid Corporation representative to speak about renting the premises, and on November 3, 1993, Gotlieb and Blaymore presented a proposed lease to Rite-Aid. Then, Gotlieb and Blaymore entered a new lease agreement with Rite-Aid, which had a higher rental payment fee, compared to their lease with Taco Bell.

Issue.

Whether a landlord accepts a prior tenants repudiation of a lease when a landlord sends a new tenant a proposed lease.

Held.

Yes, a landlord accepts a prior tenants repudiation of a lease when a landlord sends a new tenant a proposed lease.

Discussion.

When a landlord sends a new tenant a proposed lease, the landlord has accepted a prior tenant’s repudiation of a lease. A landlord has the following options when a tenant repudiates a lease:  the landlord may reject the repudiation and do nothing, re-renting the premises for the tenant’s benefit, or free the tenant from liability by accepting the repudiation and re-renting the premises for the landlord’s benefit. For ones actions to be deemed repudiation, ones actions must be inconsistent with the general landlord-tenant relationship. In this case, the Gotlieb and Blaymore accepted Taco Bell’s surrender of the lease agreement by operation of law the moment they met with the Rite-Aid representatives and sent the representatives a proposed lease. Nonetheless, Taco Bell remains liable for base and additional rent from June 15, 1992 to November 1993, the month of the Gotlieb and Blaymore’s acceptance of the repudiation because a lessee is required to pay rent, even if the lessee later decides not to occupy the premises. Further, Gotlieb and Blaymoreare not entitled to an acceleration of future rent because the agreement does not contain an acceleration clause. Also, Gotlieb and Blaymore lost their right to receive future rent under the liquidated-damages clause the moment they terminated the lease by engaging with Rite Aid. Therefore, Gotlieb and Blaymore accepted Taco Bell’s repudiation of the lease in November 1993, which terminated Taco Bell’s obligation to pay rent.