Owner Didn't Waive Right to Collect Taxes

Facts: A tenant rented space for its bakery in a shopping center. After the tenant moved out of the space, the center’s owner demanded that it pay real estate taxes and operating expenses incurred while it still occupied its space, plus the cost of restoring the space after it left. The tenant refused to pay, and the owner sued it.

The tenant and the owner each asked the trial court for a judgment in its favor without a trial on all claims. The trial court determined that, under the lease, the owner was responsible for restoring the space at its own expense. The trial court disagreed with the tenant’s assertion that the owner’s failure to charge it during its lease term for real estate taxes and operating expenses precluded the owner from charging it after it vacated the space. The tenant and owner appealed.

Decision: A Massachusetts district court affirmed in part and reversed in part the decision of the trial court.

Reasoning: The appeals court stated that many of the expenses the owner sought to pass on to the tenant were its own responsibilities according to the lease. The appeals court agreed with the trial court that the tenant wasn’t required to pay for the costs of maintenance and repair. And the owner couldn’t provide a valid basis for the charges that actually were the tenant’s responsibility.

The appeals court ruled in favor of the owner on its claim for real estate taxes, noting that the lease obligated the tenant to pay its proportionate share of them. The tenant didn’t dispute that it owed its share; it asserted that the owner had waived its right to collect taxes by not billing the tenant for those expenses during its tenancy.

The appeals court pointed out that, generally, waiver is the “intentional relinquishment of a known right.” In Massachusetts, to find waiver, there must be “decisive and unequivocal conduct” by an owner indicating that it would not insist on adhering to the lease provisions applicable to taxes. Here, the owner took no such unequivocal step. The owner stated that he decided to try to collect the taxes from the tenant after he had a dream that he could hold it accountable for its share. The appeals court noted that the owner’s failure to do so during the tenancy should be characterized as “inaction based on lack of knowledge” rather than an intentional relinquishment of its right to collect.

• Cranberry Commons, Ltd. v. Orograin Bakeries, Inc., September 2013