Percentage Rent Obligation Doesn't Survive Closing of Purchase Option

A dental clinic's lease required the tenant to pay percentage rent and gave it a purchase option. When the tenant tried to exercise the purchase option, the owner refused unless the tenant agreed to continue paying percentage rent. The tenant refused and sued the owner, asking the court to force the owner to let it exercise the purchase option. The owner argued that under a prior agreement, the tenant's obligation to pay percentage rent survived the closing of the purchase option.

A Minnesota appeals court ruled that the tenant's obligation to pay percentage rent didn't survive the closing of the purchase option. The court rejected the owner's argument that the tenant was bound by the prior agreement. The court said that the lease had a “merger clause” that said the lease represented the “entire agreement between the parties,” so the terms of the prior agreement—including the survival of the percentage rent obligation—didn't apply. Also, the lease said that once the tenant closed on its purchase option, the parties were relieved from their lease obligations, including the tenant's percentage rent obligation, noted the court [Alpha Real Estate Co. of Rochester v. Delta Dental Plan of Minn.].