Deadline for Repairs Not Extended by Appeals Process

Facts: For 30 years, a fitness center leased space in a shopping center under a series of leases. After a fire damaged the center, the center’s owner made some repairs and asked the tenant to resume its operations in the space. The tenant, however, claimed that the repairs were incomplete; that they had not been performed within the period required by the lease; and that the center was in violation of applicable fire and safety regulations. Based on these assertions, the tenant declared that its current lease was, in effect, terminated, and it sued the owner for breach of contract. The owner sued the tenant for breach of contract and negligence and asked the court to declare that the lease is valid. The owner and tenant each asked a Rhode Island trial court for a judgment in its favor without a trial.

Decision: The trial court ruled in favor of the tenant.

Reasoning: The trial court ruled in favor of the tenant because the owner’s failure to address safety violations prior to the fire, and its inadequate restoration of the center after the fire, were breaches of its lease with the tenant. The trial court noted that there wasn’t a dispute that would necessitate a trial as to whether the owner had violated safety laws prior to the fire, nor whether it had failed to adequately restore the tenant’s space—two instances that, under the lease, entitled the tenant to terminate the lease.

The trial court pointed out that, in this case, the owner had warranted—that is, promised—in the lease that the center would at all times be in compliance with all ordinances, rules, regulations, and restrictions governing the operation of the center. The lease entitled the owner to a 30-day cure period—that is, the owner would have 30 days to fix the problems that constituted a breach of the lease—and gave the tenant the right, if the breach hadn’t been cured, to pursue legal remedies against the owner. Here, the owner had been cited by the city for multiple violations of the local fire codes, but instead of remedying the problems, which included a broken sprinkler system, it had stretched a series of appeals to those citations for over seven years. The trial court noted that the appeal of a citation didn’t affect or pause a tenant’s cure period for the underlying issue that had been cited. Therefore, the tenant had the right to termination of the lease for that breach.

After the fire rendered the center untenantable, the owner opted to repair the premises rather than terminate the lease with the tenant, yet it failed to do so, the trial court noted. Under the lease, the restoration and repair had to be completed within 180 days. But the tenant asserted that, after that period of time, no operational sprinkler system was in place, and that, because the center was still not in compliance with fire or safety regulations, the restoration wasn't complete. The owner didn’t dispute that the sprinkler system wasn't in place, nor did it explicitly dispute the tenant’s allegations that the restoration wasn't complete. Instead, it suggested that the sprinkler system wasn't required at that time “because only the governmental authorities had the right to make that determination,” and that several temporary certificates of occupancy had been issued for the premises, meaning that the tenant could begin operating there again.

The owner admitted that the types of restoration and repair of the center that were spelled out in the lease weren’t completed during the 180-day period, as required. The owner argued that the appeals it had made to local authorities requesting additional time to bring the center into compliance precluded the tenant from claiming that it was in breach. But the trial court pointed out that appealing fire code violations to give itself more time to fix them and actually fixing the violations were two separate things. The owner’s supposed ongoing effort to bring the center into compliance “didn’t halt the tenant’s right to terminate the Lease for failure to complete restoration of the premises within the set time period.” Therefore, said the trial court, the tenant was entitled to terminate the lease any time after the 180-day period expired, when the restoration remained incomplete and the center still wasn't in compliance with the fire code. The trial court concluded that the tenant effectively terminated the lease.

• Bally Total Fitness of the Mid-Atlantic, Inc. v. Iaciofano, June 2012