Be Aware of Co-Tenancy Violation Prescription Period

July 20, 2018
| Share | Print

If you own multiple businesses, it’s easy to lose track of things like co-tenancy requirements. Unfortunately, you might run into a situation where the owner of the shopping center where you lease space for one of your businesses breaches the lease by not replacing a tenant that went out of business with a suitable replacement tenant under your co-tenancy provision. If you continued to pay rent until the end of your lease term and remembered about the violation only when you were ready to move out, you might be thinking about suing the owner for the violation to recoup the rent you’ve paid since the time when you could’ve withheld it as a remedy until the violation was cured, or fixed. You might be wondering what the likelihood is that you’ll prevail despite the lapse in bringing this lawsuit.

The time frame during which a tenant can bring a lawsuit against an owner for breach of a commercial lease will vary from state to state. That time frame is called a “prescription period.” The key to whether you are outside the prescription period for your state, and thus can’t bring a lawsuit, is when you learned of the violation.

A recent Louisiana case is a perfect example of the importance of paying attention to violations of a lease and taking action while you’re still within the prescription period. There, a shopping center tenant signed a lease that included a co-tenancy provision. The owner of the shopping center was required to continue leasing space to a regional grocery store. If the grocery store closed and wasn’t replaced by a suitable tenant, as spelled out in the co-tenancy provision, the tenant was entitled to certain remedies involving the payment of rent.

When the owner breached the co-tenancy provision, the tenant continued to pay full rent until the end of its lease term, rather than assert its rights under the lease. At the end of the term, the tenant sued the owner, in order to recoup some of that rent.

The owner argued to a Louisiana trial court that the tenant had missed its opportunity to sue for breach of the lease because it was outside of the 10-year prescription period for commercial lease disputes in the state. The tenant argued that the co-tenancy provision operated “automatically,” and that the tenant was under no obligation to put the owner on notice of default.

The trial court found this to be unpersuasive. The clear language of the lease stated that, in the event the owner violated a lease provision, the tenant could either: (1) cancel the lease; or (2) invoke the co-tenancy provisions. Here, the tenant did neither.

When asserting that the tenant had missed the prescription period during which it could bring suit, the owner provided two dates that it said the tenant had been put on notice of the closure, which started the clock on the 10-year period to bring suit. The owner argued that the grocery store closed on June 21, 2000, and that the lease provided that it had six months to find a comparable replacement to lease the space. The owner’s corporate representative testified that it had completed a “co-tenancy violation review project” in 2013, and as part of that project, the owner’s internal records indicate that the grocery store closed on June 21, 2000. The owner argued that, therefore, the tenant’s right of action for breach of contract prescribed 10 years after Dec. 21, 2000, which would have been Dec. 21, 2010.

The owner also showed that on Nov. 22, 2000, the property manager informed all the shopping center tenants that the grocery store had closed and that attempts to convince it to reopen had been unsuccessful. Pursuant to that information, the tenant’s cause of action for breach of contract began to run six months from Nov. 22, 2000, which would be May 22, 2001. The 10-year prescriptive period would therefore have ended on May 22, 2011.

The tenant disputed that it received the letter and that the grocery store closed in June 2000, arguing that the evidence in this case doesn’t support such a finding, but providing no evidence of its own to show when the grocery store actually closed its doors and ceased operations. Nevertheless, a Louisiana trial court found that the undisputed evidence supports that the tenant “knew or should have known” of the closure by June 2000.

The trial court noted that, even assuming that the tenant did not have knowledge of the closure in June 2000, “resolution of the prescription issue does not mandate a determination as to whether [the grocery store] actually closed its doors on June 21, 2000, because the tenant has admitted in response to a request for admission propounded by the owner that it had knowledge of the closure in August 2005.”

Thus, it’s undisputed that the tenant was aware of the closure as of Aug. 31, 2005. At the very latest, therefore, the tenant’s cause of action for breach of contract began to run six months from Aug. 31, 2005, which would be the end of February 2006. The 10-year prescriptive period would therefore have ended in late February 2016. The record shows that the tenant sent its demand letter to the owner on Dec. 17, 2015, and it filed suit on March 9, 2016, after its claim prescribed. Therefore, the trial court said, even if the court were to assume that the tenant did not have notice that the grocery store ceased to operate in the shopping center until August 2005, as the tenant has admitted, the tenant nevertheless failed to invoke the co-tenancy provision in the lease within the applicable prescriptive period, and the date that it filed suit was beyond the prescriptive period [K&B La. Corp. v. Caffery-Saloom Retail, LLC, May 2018].