Foundation Development Corp. v. Loehmann's, Inc.
| Decision Date | 17 November 1988 |
| Docket Number | CA-CIV,No. 1,1 |
| Citation | 162 Ariz. 26,780 P.2d 1074 |
| Parties | FOUNDATION DEVELOPMENT CORPORATION, an Arizona corporation, Plaintiff-Appellant, Cross-Appellee, v. LOEHMANN'S, INC., a New York corporation, Defendant-Appellee, Cross-Appellant. 9735. |
| Court | Arizona Court of Appeals |
We address whether a tenant's delay in paying a common-area charge was a material breach of the commercial lease, based on DVM Co. v. Bricker, 137 Ariz. 589, 672 P.2d 933, connected case, 43 B.R.Rep. 344 (D.Ariz.1983), and the "time is of the essence" provision in the lease. We also address whether the landlord's notice demanding payment was sufficiently clear to be effective.
In 1978, Loehmann's, Inc. became the anchor tenant in a shopping center. Loehmann's twenty-year lease provided that it would pay monthly rent in the amount of $3,750. Sections 6.5 and 6.6 of the lease provided that the landlord would furnish the tenant with a statement of the common-area maintenance costs and, at the end of each lease-year, the tenant would pay a percentage of the costs (the common-area charge). Sections 13.2, 13.7, 13.8 and 13.9 of the lease provided that if the tenant failed to pay any charge and did not cure its failure within ten days of receipt of notice of its failure, the landlord could terminate the lease or repossess the leased premises. Lease § 14.9 provided that no waiver by the landlord of any breach by the tenant would be construed as a waiver of any other breach. Section 14.10 provided that any notice to the tenant would be mailed to Loehmann's at both the address of the leased premises (the Phoenix address) and the address at 3450 Baychester Avenue, Bronx, New York 10175 (the Baychester Avenue address). Section 14.12 of the lease provided that, "in any case where either party hereto is required to do any act, the time for the performance thereof shall be of the essence."
In 1986, Foundation Development Corporation became the owner and landlord of the shopping center. On February 23, 1987, Foundation sent its statement explaining the $3,566.44 common-area charge to Loehmann's for the lease-year ending January 1, 1987. Foundation mailed this statement to Kevin Gaw, who worked in Loehmann's real estate department at 2500 Halsey Street, Bronx, New York 10461 (the Halsey Street address). On March 18, 1987, Gaw wrote Foundation questioning Loehmann's percentage of the common-area costs. On March 25, 1987, Foundation wrote Gaw explaining that one building in the shopping center had been sold, increasing Loehmann's percentage. By certified letter dated April 10, 1987, Foundation notified Loehmann's that the common-area charge had to be paid.
We have not yet received your payment in the amount of $3,566.44. We must reinstate time of the essence of your lease and insist that this amount be paid within ten days from the date of this letter.
Foundation did not address the notice to the attention of any individual, but addressed it to both Loehmann's Phoenix address and the Baychester Avenue address. Foundation also sent a copy of the notice to the Halsey Street address.
Loehmann's received the notice at the Phoenix address on April 13 and at the Halsey Street address on April 17, 1987. It had ceased to occupy the Baychester Avenue address in 1981. Loehmann's sent Foundation a check for the common-area charge on April 25, 1987, twelve days after Foundation's notice was received. On April 28, 1987, Foundation filed a complaint against Loehmann's for forcible detainer under A.R.S. § 33-361. Foundation subsequently received the check on April 29, 1987.
These dates may be summarized as follows:
2/23/87: Foundation sent statement
3/18/87: Gaw sent letter questioning assessment
3/25/87: Foundation explained assessment
4/10/87: Foundation sent ten-day notice that payment was due
4/13/87: Loehmann's received notice at Phoenix address
4/17/87: Loehmann's received notice at Halsey Street address
4/25/87: Loehmann's sent payment
4/28/87: Foundation filed complaint
4/29/87: Foundation received payment
On cross-motions for summary judgment, the trial court granted Loehmann's summary judgment, finding that the breach of the lease was trivial:
Forfeiture will not be granted even in a commercial setting where the breach in question is trivial. Bolon v. Pennington, 6 Ariz.App. 308, 309, 432 P.2d 274 (1967); DVM Co. v. Bricker, 137 Ariz. 589, 592, 672 P.2d 933 (1983); and The Court having further found that the landlord has ultimately been damaged at most by the loss of interest on $3,566.44 for 48 hours. (This assumes that had the check been timely mailed, the postal service would have delivered the check two days earlier than they did.) Given the magnitude of this lease, the obvious value of the property and the lease, the approximate amount of money annually due under the lease and the history of performance under the lease, the Court finds the breach in this case to be trivial. Certainly the breach in this case was dramatically less significant than the breaches in either Bolon or DVM....
Foundation raises the following issues:
(1) Was the breach material based on DVM Co. v. Bricker, 137 Ariz. 589, 672 P.2d 933 (1983); and
(2) Was the breach material based on the "time is of the essence" provision.
Loehmann's raises these issue in its cross-appeal:
(1) Was the notice effective; and
(2) Did Loehmann's remove the condition of default before Foundation filed the complaint?
Foundation argues that the trial court erred in finding that the breach by Loehmann's was trivial based on the Arizona Supreme Court's decision in DVM Co. v. Bricker, supra. Under Arizona law, the landlord has the right to commence a forcible detainer action if the tenant violates any provision of the lease:
When a tenant neglects or refuses to pay rent when due and in arrears for five days, or when tenant violates any provision of the lease, the landlord or person to whom the rent is due, or his agent, may re-enter and take possession, or, without formal demand or re-entry, commence an action for recovery of possession of the premises.
A.R.S. § 33-361 (Supp.1987).
In DVM Co. v. Bricker, the supreme court stated that there was no requirement in A.R.S. § 33-361 that the breach be material:
A.R.S. § 33-361 provides, 'When a tenant ... violates any provision of the lease, the landlord ... may re-enter and take possession....' There is no requirement that the breach be material. A.R.S. § 33-1368(A), which applies to residential leases, provides that the landlord may re-enter upon a 'material noncompliance' by the tenant of a lease provision. Had the legislature intended to hold commercial lessees and residential lessees to the same standard, it would have expressly so indicated.
DVM Co. v. Bricker, 137 Ariz. at 592, 672 P.2d at 936; see Annot., Commercial Leases: Application of Rule that Lease May Be Cancelled Only for "Material" Breach, 54 A.L.R. 4th 595, 615-16 (1987). The court stated that it might ignore a trivial breach, but did not define the term "trivial breach." However, it provided that if a tenant violated a lease provision and the lease provided that such violation would cause a forfeiture, then the courts would enforce such forfeiture.
While we might ignore a trivial breach, see Bolon v. Pennington, 6 Ariz.App. 308, 309-10, 432 P.2d 274, 275-76 (1967), if "[the lessee] violates any of the covenants of the lease, and it is provided that such a violation shall cause a forfeiture of his lease, the courts will enforce such a forfeiture." Karam & Sons Mercantile Co. v. Serrano, 51 Ariz. 397, 407, 77 P.2d 447, 451 (1938). DVM notified the Brickers of the breach of the lease, and the tenants refused to cease selling the T-shirts. DVM had a statutory right to terminate the lease upon breach by the Brickers. Thompson v. Harris, 9 Ariz.App. 341, 346, 452 P.2d 122, 127 (1969).
DVM Co. v. Bricker, 137 Ariz. at 592, 672 P.2d at 936.
In support of its statement that it might ignore a trivial breach, the court in DVM Co. v. Bricker cited the Arizona Court of Appeals' decision in Bolon v. Pennington, 6 Ariz.App. 308, 432 P.2d 274 (1967), which in turn cited the decision by the California District Court of Appeals in Keating v Preston, 42 Cal.App.2d 110, 108 P.2d 479 (1940). The Keating court held that the trial court was justified in refusing to terminate the lease of a tenant who accepted money from her customers to be bet in horse races. In addition to concluding that the tenant's activities constituted a trivial violation of the law and that the landlord waived any breach, the court concluded that the lease did not authorize rescission of the lease for the lessee's violation of the law.
Certainly the breach of an implied covenant will not result in a forfeiture of a lease unless the instrument declares that it shall be so construed. If a lease fails to specify that the demised premises shall be used only for a designated business, the inference is that it may be used for other appropriate purposes.
Based upon DVM Co. v. Bricker, we conclude that the trial court erred in finding that Loehmann's breach was trivial. Section 6.5 of the lease provided that, at the end of the lease-year, the tenant would pay the common-area charge. Section 13.2 provided that if the tenant did not pay any charge within ten days after receipt of notice that the charge was due, the landlord could terminate or repossess. Therefore, Loehmann's violated a provision of the lease, and the lease provided that such violation would cause a forfeiture within the meaning of DVM...
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Foundation Development Corp. v. Loehmann's, Inc.
...a court of appeals opinion dealing with grounds for termination of a long-term commercial lease. See Foundation Dev. Corp. v. Loehmann's Inc., 162 Ariz. 26, 780 P.2d 1074 (Ct.App.1988). The trial court ruled that Loehmann's delay in paying a common area charge was a trivial breach of its le......
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