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Landlord/Tenant – Commercial Lease – Failure to Pay Rent – Default – Cure Period – Sublease – Rent Percentage

Landlord/Tenant – Commercial Lease – Failure to Pay Rent – Default – Cure Period – Sublease – Rent Percentage

McDonald’s Corp. v. Five Stars, Inc. (Lawyers Weekly No. 10-16-1110, 13 pp.) (Cheri Beasley, J.) Appealed from Hoke County Superior Court. (Kenneth C. Titus, J.) N.C. App. Unpub. Click here for the full text of the opinion.

Holding: Even though the “Joint Development Addendum” executed at the same time as the parties’ sublease said that its provisions controlled over any conflicting language in the sublease, and even though the addendum generally provided the defendant-sublessee 30 days to cure a default, the more specific default provision of the lease controls, and the sublessee had only 10 days to cure its failure to pay rent and taxes.

We affirm summary judgment for the plaintiff-sublessor.

The forfeiture provision of the sublease provides, “If [the sublessee] defaults in the payment of rent or any other sums payable by the [sublessee] and the default shall continue for a period of ten (10) days after written notice … then and in addition to any and all other legal remedies and rights, the [sublessor] shall have all remedies available to [the sublessor] in law and in equity and without limiting the foregoing shall further share the right to terminate this Lease and retake possession of the Premises. …”

The addendum states, “[The sublessee] accordingly agrees that if [the sublessee] does not cure or diligently commence to cure a default within thirty (30) days after written notice from [the sublessor] … then any breach or default shall be grounds for [the sublessor] to elect, at its option, to terminate this Agreement or cure [the sublessee’s] default(s) and add its costs to cure [the sublessee’s] default(s) to the rent and any other charges to be paid by [the sublessor] thereafter accruing. These remedies are in addition to all other remedies [the sublessor] may have in law or in equity.”

At the time that the sublessor filed its Complaint, the sublessee owed rental payments for the months of September through December 2007. The sublessee received formal notice of the amount of the outstanding rental payments and tax payments on Dec. 7, 2007.

By letter received by the sublessor on Dec. 26, 2007, the sublessee acknowledged “owing September through December 2007 land lease payments” and tendered payment for the amount in arrears. The sublessee did not include payment for the 2006 taxes. Because the sublessor did not receive rental payments for the past due amounts owed by the sublessee until after the 10-day limit established in the lease, there is no genuine issue of material fact as to whether the forfeiture event did indeed occur.

Despite the sublessee’s argument that it was entitled to a 30-day default limit, a plain reading of both provisions reveals that the ground lease specifically addressed the sublessor’s ability to terminate the lease agreement and take possession of the premises. Because the terms of the lease provision are more applicable to the relief actually sought by the sublessor, the more specific provisions of the ground lease controls.

The sublessor was also entitled to summary judgment as to the sublessee’s fraud claim.

When entering into the lease agreement with the sublessor, the sublessee believed that both parties were paying an equal share of the lease amount due to the landlord. Later, inspection revealed that the amount that the sublessee was paying in rent to the sublessor actually represented two-thirds of the rent due to the landlord.

However, the sublessee fails to present any evidence that it diligently investigated the terms allegedly discussed in the negotiation. Despite being aware of the original ground lease agreement, the sublessee failed to contact the landlord, obtain a copy of the ground lease agreement, or request any form of confirmation for this supposed material representation.

The sublessee’s reliance on representations, made during contractual negotiations, where the contract failed to incorporate the terms of the negotiations, was unreasonable. Accordingly, the trial court appropriately granted the sublessor’s motion to dismiss as to the sublessee’s counterclaim for fraud.



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