Mere Description as ‘Store Space’ Didn’t Restrict Tenant’s Use of Leased Property

July 21, 2016
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The use clause in your lease is incredibly important. If it’s not negotiated well, you could end up not being able to operate your business in a certain space the way that you must in order to be profitable. When a tenant changes its use of space in a way that the owner doesn’t want it to, it can lead to a dispute over whether the tenant can do so under the use clause. But the way the use clause is worded can make all the difference, as a Montana grocery store recently learned.

There, an owner argued that some descriptive lease terms restricted the tenant’s use of its space. But a court disagreed. Under its lease, the tenant was required to give the shopping center owner a percentage of its net sales. The tenant began using its space for storage instead of sales, and opened another location for retail sales. The center’s owner sued the tenant. Among several other claims, the owner alleged that the tenant had breached its lease by not using its space for retail sales. The owner said that it was entitled to the same amount of net sales made at the new location as it had been at the shopping center location. The tenant and owner each asked for a judgment in its favor without a trial.

A Montana trial court concluded that the lease was unambiguous, and it contained no express terms or provisions requiring the tenant to use the space as a retail grocery store. The only provision in the lease that expressly describes the manner in which the tenant agreed to use the space stated: “Business Use. Tenant shall promptly comply with all laws, ordinances, and regulations affecting the premises and promulgated by duly constituted governmental authority affecting the cleanliness, safety, use, and occupation of the premises.”

The trial court said that neither this section nor the other sections of the “Operation and Use of Premises” portion of the lease imposed upon the tenant any obligation or duty to operate the premises as a retail grocery store. Rather, they limited the tenant’s use only to the extent that the tenant must comply with all laws and must not abuse the space or interfere with other tenants’ businesses or their rights.

The owner asserted that the language “Landlord does hereby lease to Tenant and Tenant does hereby hire and take from Landlord store space containing approximately 20,000 square feet….” imposed a duty upon the tenant to operate a retail grocery store in the premises rather than use it for storage space. But the trial court determined that the use of the phrase “store space” in describing the premises in the preliminary section of the lease merely described the “space to be leased” and not the “use to which it must be put.”

In another case, the Montana Supreme Court had addressed the topic of “space description” in leases. It said that words used in a lease that are merely descriptive of the character of the premises, although indicating a particular use, are not to be construed as restrictions upon the tenant confining its right to use the premises to the particular use that those words may suggest. The trial court here followed its lead, declining to agree with the owner that the mere description “store space” restricted the tenant to use the premises only as a retail grocery store [Clark v. F.T. Reynolds Co., December 2015].