The Indiana Court of Appeals recently held that a Hendricks County shopping center tenant, the retail chain Claire’s Boutiques, Inc. (“Claire’s”), properly exercised its option to terminate its lease by vacating the shopping center without giving the Landlord prior notice. In reaching this conclusion, the Court of Appeals reversed the lower courts judgment in favor of the shopping center owner, Brownsburg Station Partners (“Brownsburg”).
In 2007, Claire’s and Brownsburg negotiated a lease, which included a co-tenancy provision providing that Claire’s could terminate the lease, if “the Shopping Center’s occupancy level falls below 70%” (“Co-tenancy Provision”.) On June 14, 2009, Claire’s stopped paying rent, removed its personal property, and vacated the premises without providing notice to Brownsburg.
In response, Brownsburg sent Claire’s a notice of default and filed a complaint for breach of lease in July 2009. At issue was the interpretation of the Co-tenancy Provision language. Claire’s argued that the provision provided that Claire’s could terminate its lease if less than 70% of the total units available were occupied. Brownsburg argued that the Co-tenancy Provision provided that Claire’s could only terminate its lease if less than 70% of the total leasable area was occupied.
The Trial Court found that the Co-tenancy Provision language was ambiguous, sided with Brownsburg, and held that in order for Claire’s to terminate the lease, less than 70% of the total amount of leasable area must be occupied. Thus, Claire’s had no option to terminate its lease and, therefore, violated the lease by failing to pay rent and vacating the premises prior to the lease termination.
On appeal, the Court of Appeals reversed and found that the lease language was not ambiguous. Brownsburg argued that the parties did not intend for this provision to mean 70% of the units were occupied, but rather, as evidenced by other provisions of the lease, the parties meant for this provision to refer to leasable area. The court reasoned that “[w]hen interpreting a written contract, the court should attempt to determine the parties’ intent at the time the contract was made, which is ascertained by the language used to express their rights and duties.” Further, “the first rule to be applied is the plain meaning rule. . . . When the terms of a contract are clear and unambiguous, they are conclusive, and courts will not construe the contract or look to extrinsic evidence.” The Court relied heavily on the fact that the co-tenancy lease provision began with the language “[n]otwithstanding anything to the contrary contained in this Lease,” thus, precluding consideration of other conflicting provisions.
In addition, the Court of Appeals held that Claire’s properly exercised its option. Although Claire’s simply stopped paying rent and vacated the premises, the court reasoned that the lease did not define “termination.” Thus, Claire’s was not required, under the lease, to provide any advance notice that it was exercising its termination option, and Claire’s properly exercised its termination option under the co-tenancy provision.
This case demonstrates the importance of good lease drafting. If the lease was clearly written, with key terms, such as “termination,” properly defined, both parties could have saved the expense (and the headache) of litigation. If you have any questions about lease drafting, or any another real estate matter, please contact us at (812) 426-1231.