| ICSC Legal Database - Cases | Monday, February 22, 1999 05:02 PM |
| Citation: |
| F.W.Woolworth Co. v. Plaza North, Inc., 493 N.E. 2d 1304 (Ind.App.1986). |
| Issue: |
| 1. Whether the tenant had the right to extend the term of the lease after having notified the shopping center |
| lessor that it was ceasing operations and after lessor failed to exercise its option to cancel the lease. |
| 2. Whether the contract between the tenant and another retailer constituted a sublease or an assignment. |
| Facts: |
| In 1965, Plaza North, Inc. (lessor) leased premises in its shopping center to F. W. Woolworth Co. (Woolco) for |
| use as a Department Store. The lease provided for an annual minimum rent and a percentage rent based upon |
| Woolco's annual gross sales. Upon the expiration of the lease in 1982, Woolco had five (5) successive options |
| extend the term of the lease up to five years each. The lease further provided that Woolco could discontinue the |
| operation of its Woolco store and, upon discontinuance, its obligation to pay percentage rent would cease. |
| Lessor, however, had an option to cancel the lease agreement in case of Woolco's discontinuance. Finally, the |
| lease stated Woolco could assign the lease only with lessor's consent, but had the right to sublease all or part |
| of the premises subject to certain restrictions. In July, 1980, Woolco exercised in writing its option for a five year |
| extension to January 31, 1987. In 1982, Woolco decided to close all of its stores nationwide and notified lessor |
| that it planned to discontinue operation of its Plaza North store which it accomplished on January 22, 1983. |
| failed to terminate the lease within 90 days from the notice of discontinuance and notified Woolco that it missed |
| its 90 day option date by about three weeks but still wished to exercise its right to terminate the lease. Woolco |
| responded that it did not want the lease terminated, and that it was negotiating to sublet the premises to SCOA |
| Industries, Inc. Eventually, Woolco and SCOA entered into an agreement entitled "sublease" with an expiration |
| date of January 1997 and two additional five year options. Woolco in April 1983 exercised its second and third |
| options to extend the term of its lease, but refused to disclose the terms of the sublease to lessor which then |
| filed a complaint for injunction and declaratory judgment, asserting that the Woolco/SCOA "sublease" was |
| assignment which was in violation of the main lease. The trial court concluded that Woolco did not have the right |
| to exercise its options to extend the term of the lease after it ceased operations and thus the lease expired on |
| January 31, 1987 when Woolco ceased operations. The court further ruled that the lease was a valid sublease, |
| but it only conveyed a term to expire on January 31, 1987. Finally, the court held that lessor had the right to |
| receive percentage rent based on the amount of gross sales in the premises, substituting SCOA's or any other |
| tenant's sales for those sales by Woolco in making such calculations. |
| Holding: |
| Affirmed in part and Reversed in part, with direction to grant Woolco's motion for summary judgment. The court |
| held that the tenant had the right to extend the lease after ceasing operations, since the lease does not state |
| that unexercised options to extend are no longer valid when operations cease. In addition, the court ruled that |
| the Woolco/SCOA agreement was a "sublease" and not an assignment. The lease gave Woolco an absolute |
| term until 1987 and a contingent term until 2007 at its option. The SCOA contract gave SCOA rights to the |
| premises until January 30, 1997, with two five year options. Woolco transferred the remainder of its absolute |
| term and a portion of its contingent term; but it retained at least a contingent term of one day. Thus, Woolco did |
| not transfer the entire interest in the lease. The trial court erred in holding that the sublease was only valid until |
| January 31, 1987. The trial court also erred in holding that lessor was entitled to receive percentage rent from |
| Woolco based on SCOA's sales, since the lease does not support such a conclusion. |
| Classification 1: |
| Assignment/Assumption/Sublease |
| 00344 - Legal Update - Winter 1986 |
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