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Cornerstone Square Associates, Ltd. v. Bi-Lo

June 9, 2008

CORNERSTONE SQUARE ASSOCIATES, LTD.
v.
BI-LO, LLC, ET AL.



The opinion of the court was delivered by: Dennis H. Inman United States Magistrate Judge

MEMORANDUM OPINION

Cornerstone Square Associates, LTD ("plaintiff") and Bi-Lo, LLC ("defendant") were landlord and tenant respectively under a lease agreement executed in 1984 between the parties' predecessors-in-interest.

Plaintiff owns a strip shopping center in Morristown, Tennessee. The shopping center is one large building that is divided into numerous separate spaces of varying sizes. The largest space in the shopping center, by far, is the space that was leased to the defendant in which it operated a grocery store; that space accounted for 71.15 percent of the total square footage of the entire shopping center.

The term of the lease was twenty years, and the parties agree that the lease between plaintiff and defendant was to expire on November 17, 2005.

Defendant was to pay monthly rental of $17,482.50. Additionally, defendant was required to pay to the plaintiff a prorated portion of the taxes, insurance premiums, and "common area maintenance" expenses attributable to the entire shopping center. Specifically, defendant's responsibility for taxes, insurance, and common area maintenance expenses was "based on the ratio the square footage of [defendant's leased area] bears to the square footage of all leasable space in the Center."*fn1 Since defendant leased 71.15 percent of the total leasable square footage in the shopping center, it was obligated to pay 71.15 percent of the total insurance premiums, taxes, and expenses attributable to maintenance of the common areas.

It is the common area maintenance ("CAM") expenses that precipitated this litigation. The relevant section of the lease is ¶ 27:

COMMON AREA 27. Landlord will keep all parking areas and CHARGES other common areas on the Shopping Center property orderly and clear and free of dirt, debris or snow, in a good state of repair, including resurfacing of the parking lot, if necessary, and will provide adequate lighting and drainage of the same, and will keep parking lot striping in presentable and readily visible appearance. Red Food agrees to pay its proportionate share of such common area maintenance expenses during the term of this Lease and any renewals thereof in equal monthly installments with rental herein, which shall be one-twelfth (l/12) of the Landlord's estimate of such expenses. At the end of each lease year, Landlord shall provide Red Food with a written statement and proof in sufficient detail, including but not limited to, invoices and receipted bills, of such common area expense. If Red Food has underpaid said expenses, Red Food shall promptly pay Landlord the difference, and if Red Food has overpaid said expenses, such overpayment shall be credited against its obligation in the immediately following month, except that Landlord shall remit promptly to Red Food such overpayment applicable due to expiration or termination of the Lease.

Red Food's proportionate share of such common area maintenance expenses shall be the same fraction of the common area maintenance expenses as the ratio of Red Food's square footage in the Leased Premises bears to the total square footage of all leasable space in the Center. The term common area maintenance expenses shall include, without limitations, expenses related to the operating, managing, equipping, lighting, repairing, replacing, and maintaining of the common areas in the Shopping Center, specifically including landscaping and gardening, the maintenance, repairing and replacing of the parking lot, the cost of liability insurance for the common areas in the Shopping Center, line painting, lighting, traffic control, if any, sanitary control, removal of snow, trash, rubbish and garbage, and the cost of personnel to implement such services.

Plaintiff owns other properties and shopping centers around the country, and it retained the services of a property management company, SunVista Corporation, to oversee and manage those properties. SunVista's representative was Ms. Deborah Gulledge, the daughter-in-law of Keith Gulledge, who is the Chief Executive Officer of the plaintiff-landlord. Further, Keith Gulledge was also CEO of SunVista to insure that he had the last word on any decisions made by SunVista regarding plaintiff's properties which were managed by SunVista.

As noted, defendant's tenancy was to expire on November 17, 2005. In July 2005, Ms. Gulledge visited the shopping center and noted that the parking lot was in deplorable condition; the asphalt pavement was cracked and broken in many places, and there were a number of significant potholes. Although the parking lot had been patched at various times during the twenty years the shopping center had been in existence, it had never been completely repaved.

Deborah Gulledge instructed plaintiff's local maintenance supervisor, David Vaughn, to solicit bids for the repaving of the entire parking lot. John Hale Paving Company of Morristown ("Hale") submitted a bid in the amount of $120,145.00. Deborah Gulledge submitted that bid to Keith Gulledge, requesting authorization to accept Hale's bid and proceed with the repaving. Because of personal distractions and inattention, Keith Gulledge allowed his daughter-in-law's recommendation to languish on his desk for several months. Indeed, he allowed it to lay there until November 2005, the month in which defendant's lease was to end. Of course, defendant was far and away the largest tenant in the shopping center and thus had the proportionately largest responsibility for payment of common area maintenance expenses. If defendant became unavailable to pay its prorated share of the costs of repaving, the plaintiff-landlord would have had to pay that share. Thus, time was critical from Deborah Gulledge's standpoint. The evidence is clear that Ms. Gulledge was desperate to repave the parking lot before defendant's lease expired so that plaintiff could "stick" defendant with a portion of the cost.*fn2 Having become aware of the extreme urgency of the situation, Mr. Gulledge communicated to Deborah Gulledge his approval of Hale's bid. That bid was accepted on November 11, 2005, six days before defendant's lease was to expire; Hale started work on that same day. The actual repaving was not completed until December 1, 2005. Due to cold weather, the striping (painting) of the parking lot was not accomplished until sometime in January 2006.

On January 20, 2006, plaintiff demanded that defendant remit $89,012.00, which represented 71.15 percent of the total cost of repaving.*fn3 This was the first knowledge defendant had of the repaving. Defendant refused to pay on the basis that those expenses were incurred after the lease terminated on November 17, 2005.*fn4

Although there was testimony presented that as late as November 14, 2005, there was no indication that any work had commenced on the parking lot, the court credits John Hale's testimony that his company commenced work on November 11, 2005, based upon verbal instructions he received from someone (probably Mr. Vaughn, the local maintenance supervisor). Similarly, the court credits Mr. Hale's testimony that he received the formal written acceptance of his July bid on that same day, November 11, 2005. Further, based on Mr. Hale's testimony, the court finds that the repaving work itself was completed on December 1, 2005, and that the painting or striping work was delayed until January as a result of intervening cold weather.

The first issue that must be resolved is whether a repaving of the parking lot is a CAM expense under ¶ 27 of the lease. That paragraph undeniably contemplates that a repaving or resurfacing of the parking lot would be a CAM expense:

Landlord will keep all parking areas . . . in a good state of repair, including resurfacing of the ...


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