718 Assoc. v. Sunwest N.O.P.
| Decision Date | 31 August 1999 |
| Docket Number | No. 10-98-135-CV,10-98-135-CV |
| Citation | 1 S.W.3d 355 |
| Parties | (Tex.App.-Waco 1999) 718 ASSOCIATES, LTD., Appellant v. SUNWEST N.O.P., INC., Appellee |
| Court | Texas Court of Appeals |
Before Chief Justice Davis, Justice Vance, and Justice Gray
O P I N I O N
This is an appeal from a summary judgment granted in favor of SunWest N.O.P., Inc. ("SunWest") against 718 Associates, Ltd. ("718 Associates"). The court determined that SunWest held the lessee's interest under a certain lease and was authorized to exercise options to extend the lease. 718 Associates appeals on eleven issues. The ultimate question is whether SunWest was an assignee entitled to exercise the options provision to extend the term of the lease. We will affirm the judgment.
On October 21, 1976, Robert F. Gossett, Jr. ("Gossett"), as trustee, and Safeway Stores, Inc. ("Safeway/Maryland") executed a lease ("the lease") on property at 110 East Loop 340 in Lacy Lakeview. Under the terms of the lease, Safeway/Maryland agreed to rent the premises for 20 years. The lease also provided that the lessee had the right to extend the term of the lease for seven consecutive five-year periods after the original term. The lease agreement was part of a "net sale/leaseback" transaction whereby 718 Associates purchased the property from Safeway/Maryland, and Safeway/Maryland "leased back" the premises from 718 Associates. On November 30, 1976, Gossett conveyed the property and assigned the lease to 718 Associates.1
On November 1, 1986, Safeway/Maryland entered an "Assignment and Assumption" agreement with Safeway Stores 83, Inc. ("Safeway 83"). The agreement stated that Safeway/Maryland "assigns, sets over and transfers to [Safeway 83], its successors and assigns, all of Assignor's estate, right, title and interest in" the October 21, 1976, lease. This agreement acknowledged that Safeway/Maryland, as "assignor," continued to have liability under the lease. Safeway 83, as "assignee," accepted the assignment and assumed all obligations contained in the lease. Safeway 83 acknowledged that the assignment was "subject and subordinate to the terms of said Lease."
On November 30, 1987, Safeway 83 entered into an "Assignment of Lease" with Property Development Associates ("PDA"). This agreement states that Safeway 83, as assignor, "transfers, sets over and assigns to [PDA] all right, title and interest of assignor in and to the Lease . . . together with any options in favor of Assignor under the Lease . . . ." The assignment expressly stated that PDA, the assignee, acquired the options to extend the term of the lease.
On May 16, 1988, PDA entered into an "Assignment of Lease" agreement with SunWest. The agreement states that PDA, as assignor, "transfers, sets over and assigns to [SunWest] all right, title and interest of assignor in and to the Lease . . . together with any options in favor of Assignor under the Lease . . . ." The assignment expressly stated that SunWest, the assignee, acquired the options to extend the term of the lease.
On December 31, 1994, SunWest sent notice to 718 Associates that it intended to exercise all seven five-year options to renew the lease, for a total of 35 additional years. By letter dated February 28, 1995, 718 Associates responded that SunWest was in default because it had allowed mechanic's liens to be filed against the property in violation of the lease covenants.2 On September 21, 1995, SunWest again notified 718 Associates of its intent to exercise all the options to extend the lease term. 718 Associates responded by letter dated February 28, 1996, that it had no documentation that SunWest was Safeway/Maryland's "successor-in-interest" under the lease or that 718 Associates had consented to such a substitution. By letter dated May 7, 1996, 718 Associates rejected SunWest's notice on several grounds: that the terms of the lease did not allow a true "assignment"; that the right to extend the lease was personal to Safeway/Maryland because of its financial obligations; and that, at the time the lease was executed, any "assignment" provision in Article Seventh "was intended solely to permit Safeway to transfer its occupancy rights under the lease."
In June 1996, 718 Associates forwarded a "Renewal/Estoppel Certificate" to SunWest, for execution by Safeway/Maryland. The Estoppel Certificate stated that Safeway/Maryland3 was the current tenant under the lease and "shall remain liable as a principal, and not merely as a guarantor or surety, for the full observance and performance of all the obligations of the Tenant under the Lease . . . ." Safeway/Maryland did not execute the certificate.
On June 27, 1996, SunWest filed a declaratory judgment action seeking a judicial determination of the parties' rights under the lease. Both SunWest and 718 Associates filed motions for summary judgment, which were denied in January 1997. On February 18, 1998, Sunwest filed a Motion for Reconsideration of the court's prior summary judgment ruling. The court heard the matter on April 14, 1998, at which time it granted SunWest's motion for summary judgment and denied 718 Associates' motion for summary judgment.
The court's summary judgment found:
* the transfer of the lessee's interest from Safeway/Maryland to Safeway 83 under the October 21, 1976, lease was a valid assignment (not a sublease) and was authorized by the lease;
* the transfer of the lessee's interest under the lease from Safeway 83 to PDA was a valid assignment (not a sublease) and was authorized by the lease * the transfer of the lessee's interest under the lease from PDA to SunWest was a valid assignment (not a sublease) and was authorized by the lease;
* SunWest had the right and was entitled to exercise the options to extend the lease;
* SunWest properly exercised the options, extending the lease term through November 30, 2031; and
* SunWest and/or its subtenant are entitled to possession of the leased premises under the lease.
718 Associates has five general areas of complaint. Four areas relate to the construction of the terms of the original lease: (1) Safeway/Maryland did not have the right or power to make a true "assignment" of its leasehold interest and its "assignees" are actually "sublessees" under which the tenant would lack the ability to exercise the options; (2) the options provision is a "personal right" of Safeway/Maryland's, exercisable solely by Safeway/Maryland; (3) the options provision is not a covenant running with the land, and is therefore personal to Safeway/Maryland; and (4) SunWest is precluded from exercising the options to extend because 718 Associates did not consent to any of the "assignments" through which SunWest claims an interest. 718 Associates' fifth area of complaint asserts evidentiary errors by the court.
The pertinent lease provisions are as follows:
This Lease, made the 21st day of October, 1976, between ROBERT GOSSETT, Trustee, hereinafter referred to as lessor, and SAFEWAY STORES, INCORPORATED, a Maryland corporation, hereinafter referred to as lessee;
WITNESSETH: That in consideration of the mutual agreements herein contained, the parties hereto do hereby covenant to and with each other as follows:
Article First: Lessor does hereby lease to lessee the following described real property and the buildings and improvements thereon [property description omitted].
* * * * * * *
Article Seventh: Lessee shall have the right to assign or transfer this lease or to underlease or sublet the whole or any part of said leased premises. Should lessee assign this lease it shall nevertheless remain liable to lessor for full payment of the rent and lessee's other obligations under this lease.
* * * * * * *
Article Seventeenth: Lessor hereby grants to lessee, the right, at lessee's option, to extend the term of this lease for seven (7) separate and additional periods of five (5) years each after the expiration of the term hereof at an annual rental payable in equal monthly installments, equivalent to three per centum (3%) of SIX HUNDRED NINETY-ONE THOUSAND AND N0/100 dollars ($691,000.00) less any net surplus award paid to lessor under Article Twelfth hereof, and upon the terms (other than length of term and monthly rental) herein specified. These options shall be exercised by written notice given to lessor or delivered or mailed to lessor, at the address at which the rent is then payable, at least sixty (60) days before the expiration of the original term hereof, or, in the event lessee has previously exercised one or more options herein given, such notice shall be given at least sixty (60) days before expiration of the option term then in effect. The parties hereto agree that a new lease need not be executed upon the exercise of any of these options, but that this lease will remain in full force and effect, changed only as to the matters specified in this Article . . . .
The standards for reviewing a summary judgment are well established. Nixon v. Mr. Property Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985). The movant has the burden of showing that no genuine issue of material fact exists and that it is entitled to the summary judgment as a matter of law. Id. The reviewing court must accept all proper summary judgment evidence favorable to the non-movant as true. Id. at 548-49. Every reasonable inference must be indulged in favor of the non-movant and all doubts resolved in its favor. Id. at 549.
Our review is additionally guided by the rules of contract construction. In construing a lease, the court seeks the intention of the parties as that intention is expressed in the lease. Sun Oil Co. (Deleware) v. Madeley, 626 S.W.2d 726, 728 (Tex. 1982). The court will enforce an...
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