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Piggly Wiggly Southern, Inc. v. Heard

    Brief Fact Summary. This case is based on a lessor’s suit against a lessee of commercial realty, where the lessee discontinued its business prior to ending of the lease term and vacated the premises, but continued to pay the base rent and would not allow the sublease of the premises to another similar business.

    Synopsis of Rule of Law. In the absence of any express or implied covenant of continuous operation in the lease, the Court will not substitute such a covenant when the intent of the parties is manifest in the plain language of the contract.

    Facts. In 1963 the predecessor to the Appellee (lessor) and the Appellant (lessee) entered into a lease agreement where the lessor agreed to construct a supermarket for the lessee according to the lessee’s plans. The lessee drafted the lease which was to commence in 1964 for a term of 15 years, and called for an annual base rent of $29,053.00 as well as a percentage rent of annual gross sales exceeding $2,000,000. The lease was renewed in 1979 for an additional seven years, with options to renew for two additional three year terms. The lessee exercised both subsequent two year options, and after it was acquired by a new corporation, one month into the second term of three years, closed its store, vacated the premises and moved to a new shopping center belonging to the new corporate owner. The lessee continued to pay the annual base rent under the lease and refused to sublease the premises to another store, despite interest from other supermarkets. The lessor filed suit against the le
    ssee for the alleged breach of the lease. The trial court found for the lessor. Lessee appealed.

    Issue. Does the lease contain any express or implied covenant of continuous operation such that the lease must terminate when the lessee discontinues its business on the premises?

    Held. No. Judgment reversed.
    The Court finds that the lease clearly did not contain any express provision regarding any duty of the lessee to maintain continuous operation of the premises as a grocery store.
    The Court finds that the plain language of the contract contains a provision which is directly opposite of any covenant to maintain continuous operation. The language is as follows: “LESSEE’s use of the leased building . . . shall not be limited . . . to such purposes [supermarket], and said building . . . may be used for any other lawful business, without the consent of LESSOR” [emphasis in original]. Thus, the property could be used by lessee to any lawful purpose without having to ask the permission of the lessor.
    There is no evidence in the lease to indicate an intention of the parties to create an implied covenant of continuous operation. The contract, read in total, indicates otherwise. The portion of the lease cited above which allows for free assignation by the lessee without the consent of the lessor runs contrary to the purpose of any implied covenant of continuous operation.
    The provision in the lease for payment of a minimum base rent, in addition to the provision of rent as a percentage of gross sales, suggests the absence of any implied covenant of continuous operation. Because the parties did not specifically agree to a covenant of continuous operation, the Court could not substitute such an agreement.

    Dissent. The dissent would hold that contract language provided that the lessee agreed to use the premises in any lawful business. Even though allowing the premises to sit vacant while paying rent is legal, it does not constitute a “lawful business.” Also, any ambiguity in contracts should be construed against the drafting party, here, the lessee.

    Discussion. This case is an example of the necessity of re-drafting portions of leases from time to time. The lessor’s minimum base rent was at the level agreed to in 1964 some 28 years later. Of course, so long as the business was operated, the percentage rent of gross sales would climb, but the terms of the lease were unfavorable when the business discontinued.


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