| ICSC Legal Database - Cases | Monday, February 22, 1999 05:01 PM |
| Citation: |
| 202 Marketplace v. Evans Products Co., 824 F.2d 1363 (3rd Cir. 1987). |
| Issue: |
| (1) Does the Pennsylvania Statute of Frauds bar oral notice of the termination of a written lease where the lease |
| does not specify that such notice by Tenant must be in writing? |
| (2) Whether an implied covenant arose on the part of the Tenant not to use the common areas for certain |
| purposes expressly reserved to the demised area where the lease delineated the uses of the common areas |
| and the demised premises? |
| Facts: |
| Tenant, Evans Products Co., which sold lumber, hardware, storage sheds and heating and plumbing supplies, |
| leased a storeroom and a retail store sales area at Landlord's shopping center. The lease was for six |
| successive five-year terms which were to renew automatically unless Tenant gave proper notice of its intention |
| to terminate. No specific form of notice was required by the lease or the lease agreement. Default by Tenant in |
| any covenant would, as per the lease, cause a forfeiture of possession of the leased premises to the Landlord. |
| Landlord's partner and an agent complained by letter to Tenant that Tenant was using undemised area for |
| storage and was failing to keep that area clear of trash and debris. Approximately one and one-half months |
| later, Tenant's real estate negotiator proposed to Landlord's agent various changes in the lease. Tenant sent a |
| written proposal to Landlord's agent which was forwarded to Landlord's partner. Landlord's partner thereafter told |
| Tenant orally that Land lord would not agree to the changes. Tenant communicated orally to Landlord that, |
| unless the proposed changes were accepted, it might terminate the lease. Tenant telephoned Landlord and |
| Landlord again rejected the changes desired by Tenant. Tenant then or ally reaffirmed Tenant's intention to |
| terminate. One week later, Tenant's agent, in a letter to Landlord, stated that it intended to renew the lease for a |
| new five year period. Landlord's counsel then notified Tenant's counsel that: (1) Landlord considered the lease |
| to be terminated at the conclusion of the term due |
| to the telephone conversation (2) that Tenant's letter to Landlord, stating that it intended to renew the lease, was |
| ineffective attempt to withdraw the termination. In addition, a subsequent letter from Landlord's counsel stated |
| that Landlord elected to terminate the lease, bec ause Tenant had breached it by violating lease covenants. In |
| particular, Landlord stated that Tenant had improperly maintained the exterior, used undemised areas of the |
| premises, advertised in ways prohibited by the lease, and allowed trash and debris to accumulate in areas |
| where it was not permitted. |
| Landlord brought an action seeking a declaration of its right to terminate the lease. It alleged that: (1) Tenant |
| had orally surrendered the leasehold (2) that Landlord had a right to declare a forfeiture because of Tenant's |
| breach of the lease covenants listed above. Tenant counterclaimed for a declaration that it had properly |
| exercised its option to renew the lease. The District Court granted summary judgement for Tenant on the first |
| count and, on count two, entered an order declaring a default by Tenant and Landlord's right to terminate the |
| lease. Tenant appealed. In a cross appeal, Landlord appealed the District Court's entry of summary judgment |
| against it on a count alleging an oral surrender by Tenant of the leasehold interest. |
| Holding: |
| As to count one: Affirmed. As to count two: Reversed. (1) Where the lease does not require that the surrender |
| be in writing, the Pennsylvania Statute of Frauds, which requires that the evidence of surrender be in writing, had |
| been waived; and tenant could raise the statute as an affirmative defense to an allegation that it has |
| surrendered. Here, Landlord did not produce a writing by Tenant evidencing its intention to surrender the |
| leasehold; therefore, the alleged surrender was ineffective. |
| (2) Although breach of a covenant is required before the Landlord may invoke the forfeiture clause under a lease, |
| the Court would not imply a covenant to use the common areas for those purposes expressly reserved to the |
| demised area where the lease delineates the uses of the common areas and the demised premises. In |
| essence, the Court refused to convert the use clause permitting certain uses in the demised area into a tacit |
| promise not to use the common areas for those purposes. It held that the rule of construction in Pennsylvania |
| does not permit the conversion of a demise into a covenant by negative inference in order to sustain a forfeiture. |
| The Court reasoned that forfeitures are enforced only when there is clear evidence that forfeiture is what wa s |
| meant by the agreement. Landlord's remedy for the unauthorized use of its common area was not forfeiture but |
| rather a suit for trespass damages or an injunction. The Court additionally held that the phrase in the lease |
| agreement stating that "Landlord |
| will not permit occupants of the shopping center to paint their names or any advertisement directly on any part |
| of the buildings of the shopping center..." did not constitute a covenant by Tenant to refrain from painting the |
| exterior of the building but rather constituted a promise by Landlord for the benefit of all tenants. The Court |
| refused to thereby imply a covenant on the part of Tenant and sustain a forfeitu re on the basis of an implied |
| 00107 - Legal Update - Winter 1987 |
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