Court Opinion

ID: 9478076
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:39:40.306276+00
Date Added: 2024-06-11T17:46:13.759052
License: Public Domain

McMILLIAN, Circuit Judge,
dissenting.
I respectfully dissent. In my view the district court erred in finding an implied covenant by the lessee to continue the operation of a business generating gasoline sales throughout the term of the lease. The district court based its implication of a covenant of continuous operation on two provisions in the lease: the rental provisions including a percentage of gasoline sales as rent, and the use provisions of the lease contemplating the use of the premises as the site of a Nickerson Farms store. I am unable to find support for the implied covenant in either of these lease provisions, particularly when the lease is viewed as a whole.
The law in Missouri is clear that a rental provision based in part on retail sales by the lessee is insufficient to give rise to an implied covenant to engage in continuous retail activity. In Crestwood Plaza, Inc. v. Kroger Co., 520 S.W.2d 93 (Mo.Ct.App.1974), the Missouri Court of Appeals construed a percentage lease where the lessee was required to pay both a minimum fixed rent plus a percentage of its sales. The lessee wished to sublet the premises to a company that would not continue to operate a similar “retail food supermarket.” The lessor brought suit to prevent the sublease, but the Missouri Court ruled in favor of the lessee. The court reasoned that
[i]n a situation where there is a percentage lease and the lessee is required to pay both a substantial guaranteed minimum rent plus a percentage of the sales, it has held that, in the absence of a provision forbidding subletting, subletting is not precluded even though a portion of the rent is computed on the basis of percentage of income.
Id. at 97. The holding in Crestwood Plaza that a percentage lease does not prevent subletting to a different type of lessee reveals that such a provision, under Missouri law, does not give rise to an implied covenant of continuous consistent operation. To the contrary, where, as here, there is a not unsubstantial minimum fixed rent in addition to the percentage rent, an implied covenant of continuous operation may not be implied. Although the majority finds the fixed rent unsubstantial, I do not. “A covenant will not be implied merely because without it the contract would be unwise.” Id. at 98.
The majority also points to the use provision of the lease in support of the district court’s implied covenant. This provision merely set forth the intention of the original lessee, Nickerson, to operate a Nicker-son Farms store on the premises:
The leased premises are to be used as a site for a Nickerson Farms store for the sale of food, gifts, candy, petroleum products and other merchandise customarily handled by such stores; and for the conduct of any other lawful business; and the Lessee is hereby given the right to assign the whole or any part of the term of the lease.
The majority reads the clause providing that the premises “are to be used as a site for a Nickerson Farms store” as restrictive — that the premises may only be used as a site for a Nickerson Farms store. The general rule, however, is that “a provision permitting a particular use ... is not to be interpreted as a single-purpose restriction,” and absent “express restrictions, a lessee is free to use the premises in any lawful manner.” Crestwood Plaza, 520 S.W.2d at 97; see also Soulway Realty Co. v. Machalek, 17 S.W.2d 682, 683 (Mo.Ct.App.1929) (“Generally speaking, it is held that a provision in a lease merely permitting a particular use of the leased premises does not amount to a restriction”). “[I]n light of the principle which gives the tenant free use, any restrictions are construed narrowly against the landlord.” Forman v. United States, 767 F.2d 875, 880 (Fed.Cir.1985).
*532[In] the specific instance in which a lease provision sets forth the use of the property, the authorities are in agreement that such a provision, absent a clear and specific indication that the landlord intended to limit the tenant’s use of the property, is generally permissive and not restrictive. That is, it indicates that the landlord is aware of and sanctions the tenant’s intended use, but does not limit [the] tenant to that use alone.

Id.

Accordingly, I read the use clause of the lease as permissive — merely stating the lessor’s acquiescence to one use of the premises but not restricting the lessee to only that use. This permissive reading of the provision is supported by the fact that the lease also gives the lessee the right to remove all buildings from the premises. Because the lease gives the lessee the right not to have any structure on the premises at all, the use clause must be read as permissive rather than restrictive in order for it to be consistent with the contract as a whole. Because I do not read the use clause of the lease to restrict the lessee’s use of the premises to a Nickerson Farms store, I accordingly find no authority in that clause to imply a covenant of continuous operation.
Construing the lease as a whole, I am unable under Missouri law to find any clause supporting an implied covenant of continuous operation. I would reverse the decision of the district court and remand the case with directions to enter judgment in favor of EMRO.