Carter v. Safeway Stores, Inc.

744 P.2d 458, 154 Ariz. 546, 1987 Ariz. App. LEXIS 542
CourtCourt of Appeals of Arizona
DecidedOctober 6, 1987
Docket2 CA-CV 87-0139
StatusPublished
Cited by6 cases

This text of 744 P.2d 458 (Carter v. Safeway Stores, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals of Arizona primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Carter v. Safeway Stores, Inc., 744 P.2d 458, 154 Ariz. 546, 1987 Ariz. App. LEXIS 542 (Ark. Ct. App. 1987).

Opinion

OPINION

FERNANDEZ, Judge.

Appellants George and Amanda Carter contend that the trial court erroneously found against them on their complaint for breach of an implied covenant of continuous operation, breach of lease, declaratory judgment, breach of the implied covenant of good faith and fair dealing, unjust enrichment and intentional interference with contractual relationships. We affirm.

In April 1972 appellee Safeway Stores, Incorporated entered into a lease with E,G,S, & W Development Co., the Carters’ predecessor in interest. The company developed shopping centers and had entered into five other similar leases with Safeway in southern Arizona in the early 1970’s. The lease provided that E,G,S, & W would build a supermarket to Safeway’s specifications in a neighborhood shopping center at the southeast corner of the intersection of Grant and Swan Roads in Tucson. The lease term commenced June 1, 1973, the estimated date for the store opening, and runs until May 31, 1993. The lease also contains options for five additional terms of five years each.

Safeway operated a supermarket in the premises from 1973 to August 1984 when it closed the store and moved out. The premises were vacant until spring of 1985 when a Millers Outpost clothing store opened. Safeway entered into a sublease with HUB Distributing, Inc., Millers Outpost’s parent company, in December 1984, and the lease commenced January 1, 1985. The sublease runs until March 31, 2003 and contains options for three additional five-year periods.

The Carters purchased E,G,S, & W’s interest in the lease in 1979. When they learned that Safeway had vacated the premises in 1984, they gave notice that Safeway had breached the lease and demanded that the store re-open. They gave an additional notice of breach when they learned that Millers Outpost was subleasing the store. They filed suit in January 1985.

After a two-day court trial, Safeway was awarded judgment. The court made findings of fact and concluded that no implied covenant of continuous operation existed, that no breach of the implied duty of good faith and fair dealing had been shown and that Safeway had not been unjustly enriched. No evidence was produced in support of the claim of intentional interference with contractual relationships. Safeway moved to dismiss that cause of action at the close of trial, but no ruling was made on the motion.

The Carters complain on appeal that the court erred in failing to find that Safeway had breached the lease, in failing to find a breach of the implied covenant of good faith and fair dealing, in failing to find that Safeway has been unjustly enriched and in one of its findings of fact and several conclusions of law. Appellants have not raised an issue with regard to the court’s finding that there was no implied covenant of continuous operation.

BREACH OF ASSIGNMENT CLAUSE

The Carters’ main concern appears to be the fact that Safeway subleased to a clothing store rather than to another grocery store. The evidence showed, and the trial court so found, that grocery supermarkets have a high volume of business and a low profit margin whereas other retail establishments, such as clothing stores, generally have a lower volume of business and a higher profit margin. Because of those facts, the figures used in percentage lease clauses based on gross sales vary according to the type of business involved.

Safeway’s lease provides for a base rent of $5,650 per month for the balance of the *548 lease term. It also provides for a percentage rent of 1.25% of gross sales in excess of $4,250,000 per year. The court found that “[t]here is no reasonable probability that the plaintiffs will ever collect percentage rent under defendant’s sublease to Millers Outpost.”

Safeway’s sublease with Millers Outpost provides for fixed rents of approximately $9,000 per month for five years, $10,000 per month for the next five years, $11,000 per month for the next five years and $12,000 per month for the last three years. The court found that the present value of the sublease is $991,000, and the present value of Safeway's lease with the Carters is $660,000.

The Carters contend that Safeway is required to generate gross sales and to sublease to a business of the same character, citing First American Bank & Trust Co. v. Safeway Stores, Inc., 151 Ariz. 584, 729 P.2d 938 (App.1986). We disagree and find that case inapposite for a number of reasons. First, the issue in First American was whether or not the lease contained an implied covenant of continuous operation. Appellants have specifically declared that that is not an issue on appeal in this case. Second, the evidence in this case as to fair market rent was very different from that in First American. The Carters’ appraiser testified that the base rent required under the lease plus the existence of the percentage rent clause constituted a fair market rent at the time the lease was entered into. He agreed that that was true even if no percentage rent was ever paid. Safeway’s appraiser testified that the base rent provided for in the lease was above market rent at the time the lease was entered into. 1 In First American the evidence was that the base rent was not a fair rent at the time the lease was executed.

Third, the evidence showed that Safeway paid rent only once pursuant to the' percentage rent provision in the 11-year period it operated the store. That payment was in 1979, five years before the store closed, and the total payment was only $659. In addition, the court found, and the evidence supported the finding, that Safeway’s base rent accounted for 48% of the lessor’s mortgage payments for the shopping center although the store occupies only 30.4% of the leasable space in the center. Although the lease provides that only Safeway is permitted to sell food for off-premises consumption, with certain exceptions, it also provides that that restriction does not apply if Safeway “ceases to operate a supermarket, unless such cessation is of a temporary nature.”

The assignment and subletting clause of the lease between the Carters and Safeway reads as follows:

Lessee may assign this lease or sublet the whole or any part of the leased premises if the use thereof is for retail or service purposes, and the use thereof will not conflict substantially with any other existing exclusive granted by lessor to any other tenant then in the shopping center, provided lessor has previously notified lessee in writing of such exclusive. If lessee assigns this lease, lessee shall remain liable as a surety to lessor for full performance of lessee’s obligations.

There is nothing in that provision which requires Safeway to sublet to a grocery store or to a business that will generate percentage rents. Since Millers Outpost is a retail store, Safeway did not breach the lease by subletting to it.

The percentage rent provision also does not aid the Carters in their appeal. That clause does not limit the type of business which may be operated in the shopping center. It refers only to a percentage of “gross sales made by lessee in the leased premises in each calendar year of the lease term.”

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Cite This Page — Counsel Stack

Bluebook (online)
744 P.2d 458, 154 Ariz. 546, 1987 Ariz. App. LEXIS 542, Counsel Stack Legal Research, https://law.counselstack.com/opinion/carter-v-safeway-stores-inc-arizctapp-1987.