718 Associates, Ltd. v. Sunwest N.O.P., Inc.

1 S.W.3d 355, 1999 WL 682060
CourtCourt of Appeals of Texas
DecidedOctober 13, 1999
Docket10-98-135-CV
StatusPublished
Cited by30 cases

This text of 1 S.W.3d 355 (718 Associates, Ltd. v. Sunwest N.O.P., Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
718 Associates, Ltd. v. Sunwest N.O.P., Inc., 1 S.W.3d 355, 1999 WL 682060 (Tex. Ct. App. 1999).

Opinion

OPINION

BILL VANCE, Justice.

This is an appeal from a summary judgment granted in favor of SunWest N.O.P., Inc. (“SunWest”) against 718 Associates, Ltd. (“718 Associates”). The court determined that SunWest held the lessee’s interest under a certain lease and was authorized to exercise options to extend the lease. 718 Associates appeals on eleven issues. The ultimate question is whether SunWest was an assignee entitled to exercise the options provision to extend the term of the lease. We will affirm the judgment.

HISTORY

On October 21, 1976, Robert F. Gossett, Jr. (“Gossett”), as trustee, and Safeway Stores, Inc. (“Safeway/Maryland”) executed a lease (“the lease”) on property at 110 East Loop 340 in Lacy Lakeview. Under the terms of the lease, Safeway/Maryland agreed to rent the premises for 20 years. The lease also provided that the lessee had the right to extend the term of the lease for seven consecutive five-year periods after the original term. The lease agreement was part of a “net sale/leaseback” transaction whereby 718 Associates purchased the property from Safeway/Maryland, and Safeway/Maryland “leased back” the premises from 718 Associates. On November 30, 1976, Gossett conveyed the property and assigned the lease to 718 Associates. 1

On November 1, 1986, Safeway/Maryland entered an “Assignment and Assumption” agreement with Safeway Stores 83, Inc. (“Safeway 83”). The agreement stated that Safeway/Maryland “assigns, sets over and transfers to [Safeway 83], its successors and assigns, all of Assignor’s estate, right, title and interest in” the October 21, 1976, lease. This agreement acknowledged that Safeway/Maryland, as “assignor,” continued to have liability under the lease. Safeway 83, as “assignee,” *358 accepted the assignment and assumed all obligations contained in the lease. Safeway 88 acknowledged that the assignment was “subject and subordinate to the terms of said Lease.”

On November 30, 1987, Safeway 83 entered into an “Assignment of Lease” with Property Development Associates (“PDA”). This agreement states that Safeway 83, as assignor, “transfers, sets over and assigns to [PDA] all right, title and interest of assignor in and to the Lease ... together with any options in favor of Assignor under the Lease.... ” The assignment expressly stated that PDA, the assignee, acquired the options to extend the term of the lease.

On May 16, 1988, PDA entered into an “Assignment of Lease” agreement with SunWest. The agreement states that PDA, as assignor, “transfers, sets over and assigns to [SunWest] all right, title and interest of assignor in and to the Lease ... together with any options in favor of Assignor under the Lease.... ” The assignment expressly stated that SunWest, the assignee, acquired the options to extend the term of the lease.

On December 31, 1994, SunWest sent notice to 718 Associates that it intended to exercise all seven five-year options to renew the lease, for a total of 35 additional years. By letter dated February 28, 1995, 718 Associates responded that SunWest was in default because it had allowed mechanic’s liens to be filed against the property in violation of the lease covenants. 2 On September 21, 1995, SunWest again notified 718 Associates of its intent to exercise all the options to extend the lease term. 718 Associates responded by letter dated February 28, 1996, that it had no documentation that SunWest was Safeway/Maryland’s “successor-in-interest” under the lease or that 718 Associates had consented to such a substitution. By letter dated May 7, 1996, 718 Associates rejected SunWest’s notice on several grounds: that the terms of the lease did not allow a true “assignment”; that the right to extend the lease was personal to Safeway/Maryland because of its financial obligations; and that, at the time the lease was executed, any “assignment” provision in Article Seventh “was intended solely to permit Safeway to transfer its occupancy rights under the lease.”

In June 1996, 718 Associates forwarded a “Renewal/Estoppel Certificate” to Sun-West, for execution by Safeway/Maryland. The Estoppel Certificate stated that Safeway/Maryland 3 was the current tenant under the lease and “shall remain liable as a principal, and not merely as a guarantor or surety, for the full observance and performance of all the obligations of the Tenant under the Lease.... ” Safeway/Maryland did not execute the certificate.

On June 27, 1996, SunWest filed a declaratory judgment action seeking a judicial determination of the parties’ rights under the lease. Both SunWest and 718 Associates filed motions for summary judgment, which were denied in January 1997. On February 18, 1998, Sunwest filed a Motion for Reconsideration of the court’s prior summary judgment ruling. The court heard the matter on April 14, 1998, at which time it granted SunWest’s motion for summary judgment and denied 718 Associates’ motion for summary judgment.

The court’s summary judgment found:

• the transfer of the lessee’s interest from Safeway/Maryland to Safeway 83 under the October 21, 1976, lease was a valid assignment (not a sublease) and was authorized by the lease;
• the transfer of the lessee’s interest under the lease from Safeway 83 to PDA was a valid assignment (not a sublease) and was authorized by the lease;
*359 • the transfer of the lessee’s interest under the lease from PDA to Sun-West was a valid assignment (not a sublease) and was authorized by the lease;
• SunWest had the right and was entitled to exercise the options to extend the lease;
• SunWest properly exercised the options, extending the lease term through November 30, 2031; and
• SunWest and/or its subtenant are entitled to possession of the leased premises under the lease.

SUMMARY OF ARGUMENTS

718 Associates has five general areas of complaint. Four areas relate to the construction of the terms of the original lease: (1) Safeway/Maryland did not have the right or power to make a true “assignment” of its leasehold interest and its “assignees” are actually “sublessees” under which the tenant would lack the ability to exercise the options; (2) the options provision is a “personal right” of Safeway/Maryland’s, exercisable solely by Safeway/Maryland; (3) the options provision is not a covenant running with the land, and is therefore personal to Safeway/Maryland; and (4) SunWest is precluded from exercising the options to extend because 718 Associates did not consent to any of the “assignments” through which SunWest claims an interest. 718 Associates’ fifth area of complaint asserts evidentiary errors by the court.

THE LEASE

The pertinent lease provisions are as follows:

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Bluebook (online)
1 S.W.3d 355, 1999 WL 682060, Counsel Stack Legal Research, https://law.counselstack.com/opinion/718-associates-ltd-v-sunwest-nop-inc-texapp-1999.