Don't Assume Deletion of One Lease Clause Removes Related Provisions

Amending your lease with a tenant can work in your favor if you can remove certain portions that would've worked against you if exercised by the tenant. But keep in mind that removing a clause dealing with one right doesn't make a related right invalid. You must expressly delete each provision when amending the lease. Otherwise, the provisions are still in effect. That was a hard lesson to learn for a mall owner that assumed getting rid of the percentage rent clause in favor of his tenant also negated the excessive vacancies clause in the lease.

In that situation, a tenant that sold electronic equipment leased space in a shopping center in 1973. A significant provision of the lease—the excessive vacancies clause—provided for abatement of rent in the event that the occupancy of the shopping center dropped below a certain amount. Over the course of the next several decades, the tenant and owner agreed to multiple extension agreements, the last of which excused the tenant from paying percentage rent and required it to pay only fixed minimum rent.

In 2007, the tenant invoked the excessive vacancies clause and began paying reduced fixed minimum rent. The owner called the tenant and demanded that the full rent be paid. The tenant refused and continued to pay the reduced amount under the excessive vacancies clause until October 2011. In November 2011, the owner sent the tenant a letter seeking to buy out the tenant’s remaining interest in the lease so that it could demolish the shopping center. When the tenant requested a higher buyout, the parties were unable to come to an agreement.

Soon after, the owner sent the tenant two separate notices to quit the premises, asserting that the tenant had failed to pay the full rent due under the lease. The owner claimed that the excessive vacancies clause was no longer in effect; it had been extinguished by the most recent amendment to the lease. The owner filed a forcible detainer action, and a trial court ruled in its favor. The tenant appealed. A Kansas appeals court reversed the decision.

On appeal, the tenant asserted that the excessive vacancies clause was still in effect when it sought to invoke it in 2007 and, in the alternative, if it was not in effect the owner had waived its right to receive fixed minimum rent after it accepted reduced rent payments in accordance with the excessive vacancies clause for over four years.

The owner argued that the removal of the percentage rent clause by the most recent amendment had also served to remove the excessive vacancies clause. But the excessive vacancies clause hadn’t been deleted from the lease, said the appeals court. Rather, just the percentage rent clause had been deleted. The appeals court noted that the most recent renewal option that extended the lease stated that the “same terms and conditions as set forth in the Lease” would still apply. And that included the excessive vacancies clause, it determined.      

The court also noted that, if the owner had wanted to delete the excessive vacancies clause it had a chance to do so when it deleted the percentage rent clause, but it chose not to. Therefore, the trial court erred when it determined that the excessive vacancies clause was no longer in effect in 2007, said the appeals court. It reversed the decision, allowing the tenant to stay in its space until the end of the renewal term, and sent the case back to the lower court to recalculate the correct amount of rent the tenant owed to the owner under the excessive vacancies clause [Ruffin v. Radioshack Corp., June 2013].