Hornwood v. Smith's Food King No. 1, 18980

• Docket Nº: No. 18980
• Citation: 105 Nev. 188, 772 P.2d 1284
• Case Date: April 25, 1989
• Court: Supreme Court of Nevada

Page 1284

772 P.2d 1284 105 Nev. 188 Sanford and Rita HORNWOOD, Appellants/Cross-Respondents,
v.
SMITH'S FOOD KING NO. 1 and Smith Management Corporation,
Respondents/Cross-Appellants. No. 18980. Supreme Court of Nevada. April 25, 1989.
Rehearing Denied June 23, 1989.

Marquis, Haney & Aurbach, Las Vegas, for appellants/cross-respondents.

Jolley, Urga, Wirth & Woodbury, Las Vegas, for respondents/cross-appellants.

Thorndal, Backus, Maupin & Armstrong, Las Vegas, for amicus curiae.

OPINION

PER CURIAM:

On June 2, 1975, Smith's Food King No. 1 (Smith's) entered [105 Nev. 189] into a thirty year lease

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of shopping center property owned by Sanford and Rita Hornwoods' (Hornwoods) predecessor in interest. ¹ Smith's leased approximately 28,000 square feet of space at 27 cents per square foot. The lease called for approximately $92,398 minimum annual rent and approximately 2.7 million dollars in total rent over the thirty year span of the lease. In addition, the agreement required Smith's to pay "percentage rent" calculated at 1.5 percent of sales generated by Smith's during the previous calendar year, less the aggregate amount of minimum rent paid during that calendar year. Smith's paid percentage rent for 1979 and 1980, but has not paid percentage rent since 1980 due to insufficient sales volume.

On November 1, 1986, Smith's closed its business at the leased premises and ceased its retail grocery operations. The closure occurred without any prior notice to the Hornwoods. The Hornwoods allege that Smith's closed its store at the leased premises because a new Smith's, built a short distance away, directly competed with the store Smith's operated at the leased premises. However, Smith's alleges that it closed its store as a result of various market studies, lost profits, and increased competition. Smith's further claims that it failed to give notice of the closure to the Hornwoods due to company policy. The policy is allegedly a result of previous experience with diminished employee morale, pilfering, and other attendant problems when notice of closure is given.

Smith's retained possession of the demised premises and continued to pay minimum rent after closing the store. The Hornwoods took no action to evict Smith's, instead choosing to allow Smith's to retain the premises and locate suitable subtenants. In May 1987, Smith's subleased 18,128 square feet to HUB Distributing, Inc., d/b/a Millers Outpost. Smith's subleased the remaining 10,000 square feet to Video Tyme in early 1988.

On December 4, 1986, the Hornwoods filed a complaint against Smith's charging that Smith's breached its lease by ceasing operations and vacating the demised premises prior to the expiration of the lease. After trial, the district court held that Smith's breached an implied covenant of continuous operation by ceasing operations with approximately twenty years remaining on the thirty year lease. However, the district court held that, because Smith's has continued to pay minimum rent, the Hornwoods were not entitled to an award of compensatory damages for breach of lease.

Additionally, the district court refused to award damages to the Hornwoods on any of their consequential damages theories. The [105 Nev. 190] Hornwoods sought consequential damages based on the diminution in value of the shopping center, lost future percentage rents from Smith's and the other tenants of the shopping center, and lost rent and other expenses associated with the other tenants. The court ruled that all of the alleged consequential damages were unforeseeable as a matter of law.

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