Opinion
Case No. 399-02649
November 18, 2003
MEMORANDUM
This matter is before the court on RC Properties II's (hereinafter "RC") Expedited Motion Requesting Abstention from Adjudication, or in the Alternative, Scheduling Matter for Hearing, and KLA/SM LLC and SM NEWCO LEXINGTON LLC ("Respondents") objection hereto. Specifically at issue is whether RC, as landlord, is entitled to terminate the Lease due to alleged breaches under both the terms of the applicable Lease and the Stipulation dated March 16, 2002 entered between RC, the debtor, Service Merchandise Company, Inc., and Respondents. For the reasons contained herein, the court finds that RC has failed to demonstrate any breach that would result in Lease termination, and that even if such a breach did occur, RC either did not terminate in accordance with the Lease provisions or the Respondents have timely cured any default making termination an unavailable remedy to RC.
Factual History
The factual background of this case is not dispute. The parties entered into the following factual Stipulations to assist the court in resolution of the issues;
1. On or about September 17, 1977, Service Merchandise Company, Inc. ("SMC") and R-C Properties entered into a Lease for certain property (the "Property") located at Woodhill Circle Plaza Shopping Center. The Lease was amended by First Amendment to Lease dates September 22, 2000. The Lease as amended is hereafter referred to as the "Lease." . . . RC Properties 11 is the successor in interest to R-C Properties under the Lease.
2. On March 27, 1999, SMC filed a voluntary petition for relief and became a debtor in possession in bankruptcy.
3. On June 2, 2000, SMC and TJX Companies, Inc. entered into a Sublease (the "TJX Sublease")under which 31,431 square feet, or approximately one half of the Property, was subleased to the TJX Companies, Inc. . . .
4. On October 4, 2000, RC and The TJX Companies, Inc. entered into a Non-Disturbance, Recognition and Attornment Agreement (The "TJX NDA) with respect to the TJX Sublease. . . .
5. Prior to 2002, TJX or its designee began retail operations in the space Leased under the TJX Sublease, and that retail operation has continued without interruption.
6. On March 16, 2002, the Bankruptcy Court entered an Order Pursuant to 11 U.S.C. § 363 and Bankruptcy Rule 6004 (A)Authorizing and Approving the Sale Of the Designation Rights with Respect to Substantially All of Debtor's Real Estate Assets, Subject to Higher and Better Offers; and (B)Granting Related Relief (The "Designation Rights Order"). . . .
7. Contemporaneously with the Designation Rights Order, to resolve RC's objection to the proposed Designation Rights Order, KLA/SM, LLC, SMC, and RC entered into a Stipulation dated March 16, 2002.
8. Pursuant to the Designation Rights Order and Stipulation, SMC assumed and assigned the Lease to SM/NEWCO Lexington, LLC under a Lease Notice dated September 12, 2002, and under an Assignment and Assumption of Lease dated October 15, 2002. . . .
9. SMC assumed and assigned the TJX Sublease to SM/NEWCO Lexington, LLC under a Quitclaim Assignment and Assumption of Sublease dated October 15, 2002. . . .
10. DDR SM LLC as "owner managing agent" entered into an agreement dated October ___, 2002 (no day given) entitled "License and Indemnity Agreement" with The Book Market, Inc. d/b/a Book Market (the"Book Market"), under which The Book Market Inc. conducted retail operations in that portion of the Property described in the agreement in the months of October, November, and December 2002, and January and February of 2003. . . .
11. SM Newco Lexington, LLC entered into an agreement entitled "License and Indemnity Agreement" with Ron Schwartz d/b/a Ultimate Furniture Services dated June 6, 2003 (the "Ultimate Furniture Agreement"), under which Mr. Schwartz was given the right to occupy that portion of the Property described in the Ultimate Furniture Agreement . . . On August 11, 2003, under the name "Real Deal," Mr. Schwartz or his agents commenced retail operations in the space described in the Ultimate Furniture Agreement.
12. On July 1, 2003, RC sent a letter, a true and correct copy of which is included as R-55 and is deemed admitted into evidence.
13. Counsel for SM Newco Lexington, responded to the July 1, 2003 letter by letter dated July 24, 2003, a true and correct copy of which is included as R59 and is deemed admitted into evidence.
Stipulation for October 29, 2003 Hearing, Docket Number 9701. Developers Diversified Realty, a REIT specializing in leasing, developing and managing of shopping centers, is involved with approximately 75 former Service Merchandise locations, including the shopping center in Lexington, KY. According to the deposition testimony of leasing agent for DDR, Mr. Bryan Zabell, the Book Market deal was understood to be a short term or "ancillary income" deal (typically use of a space for one year or less while a more permanent tenant is sought). The Book Market began operations in October 2002 and vacated the space in February 2003.
In May, 2003, Mr. Zabell and Mr. Daniel DiCillo (also of DDR) became aware that Mr. Ron Schwartz d/b/a Ultimate Furniture Services might be a possible tenant for the other half of the space. After discussing possible leasing options with DDR and Mr. Harry Cohen, Ron Schwartz d/b/a Ultimate Furniture, executed a "License and Indemnity Agreement" on June 26, 2003 with Respondents. The License and Indemnity Agreement permitted Mr. Schwartz to obtain a license to operate the premises for slightly longer than one year. On August 11, 2003, under the name "Real Deal," Mr. Schwartz or his agents commenced retail operations in the space described in the Ultimate Furniture Agreement.
Under the March 16, 2002 Stipulation, it was agreed that the Leased property would be put into retail operation by June 30, 2003. RC contends that not only was the space not in retail operation by June 30, 2003, but that the Respondents filled the space without court approval as is required by the Stipulation, and that the tenant, Real Deal, does not have the intention, nor ability to occupy the space for at least one year as is required by the Stipulation. Finally, RC contends that the signage violations by Respondents or their tenants provides a basis for termination of the Lease.
According to the Agreed Pretrial Order entered on November 3, 2003, the issues to be decided at the October 29, 2003 hearing included:
1. Whether RC is entitled to terminate the Lease (the "Lease") assigned by Service Merchandise Company, Inc. to SM Newco Lexington based on the alleged failure of Newco to cause the property to be in retail use by June 30, 2003 as set forth in the Stipulation dated March 16, 2002 (the Stipulation).
2. Whether RC is entitled to terminate the Lease based on Newco's alleged subleasing of that portion of the property not occupied by TJX or its affiliates without court approval in violation of the Stipulation.
3. Whether RC is entitled to terminate the Lease based on the fact that the current user of the non-TJX portion of the property does not have the ability or intention to do retail operation in the space for one year from the date of occupancy.
4. Whether RC is entitled to terminate the Lease based on the alleged failure by Newco to comply with the signage requirements of the Lease.
5. Whether RC is barred from obtaining the relief sought pursuant to the doctrines of waiver and or estoppel.
This entire matter arose out of RC's expedited motion requesting abstention or to set a hearing on whether Respondents had violated the March 16, 2003 Stipulation by failing to put the property into retail operation by June 30, 2003. Somehow, this discreet issue morphed into an all out war over other terns of the Lease.
At the hearing on these issues, the court heard proof, and then permitted the parties additional time to file post-trial briefs. Now having closed the proof and upon receipt of the post-trial briefs, the court finds that RC Properties has provided shown no basis to terminate the Lease.
Discussion
A. Signage Issues
RC claims that several signage violations have occurred that justify termination of the Lease. The signage violations range from improper signage by a former licensee of the Respondents (The Book Market), to current signage violations by Mr. Schwartz's business. In settlement of RC's objection to the sale of Designation Rights, the parties entered into the March 16, 2002 Stipulation which contained the following provision:
1. Reservation of Rights. The parties hereto recognize and agree that the provisions of this Stipulation are inconsistent with the terms of the order granting the Motion (the "Order"). The parties agree that the terms and provisions of this Stipulation shall fully govern over any and all terms of the Order that are inconsistent, in whole or in part, with the terms set forth herein . . . The parties hereto expressly agree that no rights, restrictions, conditions, easements, or agreements, if any, applicable to the Lease arising under applicable law or contained in the Lease or in any other document or instruments affecting the use or transfer of the Property, or any related or contiguous property are in any way negated or impaired by this Stipulation or the entry of the Order. . . . This reservation of rights and these exceptions to the Order shall be construed as broadly as possible.
March 16, 2002 Stipulation, pp. 2-3. The Order approving the Sale of the Designation Rights provides:
22. The Successful bidder's designees are authorized to perform alterations and remodel and to replace and modify existing signage notwithstanding any provision in any Lease, REA or local law to the contrary.
Order Pursuant to 11 U.S.C.5 363 and Bankruptcy Rule 6004(A) Authorizing and Approving the Sale of designation Rights with Respect to Substantially All of the Debtors' Real Estate Assets, Subject to Higher and better Offers; and (B)Granting Related Relief , (March 16, 2002). Respondents claim that paragraph 22 of the Designations Rights Order permits Newco's designee to modify existing signage. RC, however, relies upon the specific protections of paragraph 1 of the Stipulation to argue that signage issues are specifically governed by the Lease.
Because the signage issues are governed by the Lease, RC argues, Respondents and/or their designees' violation of the Lease provides a basis for termination. The specific signage violations complained of by RC include: (1)violations and damage caused by the former licensee, The Book Market and (2) signage violations by the Real Deal during August and September 2003. The court finds that the more specific terms of the March 16, 2002 Stipulation, rather than the Designation Right Order, governs the signage issue, and that herefore the Lease is controlling on the signage issue, and that therefore the Lease is controlling on the signage issues.
The Sign provision in the Lease is found at Article 25:
Section 1. Tenant shall have the right to install and maintain one or more signs substantially similar to the exhibits to this Lease in conformity with applicable law to the exterior of the demised premises. . . . Tenant shall have the right from time to time to change such signs with Landlords approval, such approval not to be unreasonably withheld. . . .
Based on the terms of the Lease, the parties have exchanged numerous letters on the signage issue with respect to the Book Market and the Real Deal. After reviewing all of the documentary evidence, the hearing testimony, and the deposition testimony, the court finds it is unclear whether Respondents and/or their designees violated signage restrictions contained in the Lease. If, however, any default with respect to signage did occur, it was promptly cured under the provisions of the Lease. Respondent's commencement of action to cure all signage issue is evident in the myriad of letters exchanged between the parties. A timely cure by the
For example: Sender Recipient Date Contents th th
Respondents renders any effort by RC to terminate the Lease based on signage defaults a nullity.
Article 13 of the Lease, entitled "Default by Tenant — Remedies of Landlord" provides in relevant part as follows:
Section 1. Each of the following shall be deemed a default by Tenant and a breach of this Lease;
(b) (ii) A default in the performance of any other covenant or condition of this Lease on the part of the Tenant to be performed for a period of thirty (30)days after notice. For purposes of this subdivision (b) (ii) hereof, no default on the part of Tenant in performance of work required to be performed or acts to be done or conditions to be modified shall be deemed to exist if steps shall have been commenced by Tenant diligently after notice to rectify the same and shall be prosecuted to completion without reasonable diligence, subject, however, to unavoidable delays.
Section 2. In case of any such default under Section 1(b)and at any time thereafter following the expiration of the respective grace periods above-mentioned, Landlord may serve a notice upon the Tenant electing to terminate this Lease upon a specified date not less than twenty (20)days after the date of serving such notice and this Lease shall then expire on the date so specified as if that date had been originally fixed as the expiration date of the term herein granted; however, a default under section 1(b) hereof shall be deemed waived if such default is made good before the date specified in the termination in the notice of termination served on the Tenant.
1977 Lease, As Amended, September 22, 2000, p. 29-30. If in fact signage defaults did occur, Respondent's timely response served as a cure under the Lease provision providing no default is deemed to exist if "steps have been commenced" by Respondents to rectify the breach. Respondents' letters and prompt actions regarding the signage issues cured any default, if ever one existed.
The court, therefore, finds no basis for termination of the Lease by RC based on alleged signage defaults.
B. Court Approval of Sublease
RC seeks to terminate the Lease because Respondents did not obtain court approval of the Ultimate Furniture Deal. RC relies upon the provisions in the March 16, 2002 Stipulation:
Newco shall not conduct any retail business at the Property, provided, however, that current subtenants may continue to operate under the terms of their subleases, and subject to court approval, the Debtors and Newco may execute additional subleases subject to the landlord's right to object to any such proposed sublease.
With respect to subleasing, the Lease permits subleasing without Landlord approval:
ARTICLE 7. ASSIGNMENT AND SUBLETTING BY TENANT.
Section 1. Landlord hereby consents that Tenant may sublet the demised premises or any portion thereof, or license or enter into concession agreements covering departments therein and may assign this Lease in writing . . .
The March 16, 2002 Stipulation also provides that:
the parties hereto expressly agree that no rights, restrictions, conditions, easements or agreement, if any, applicable to the Lease arising under applicable law or contained in the Lease on in any other documents of instruments affecting the use or transfer of the Property or any related contiguous property are in any way negated or impaired by this Stipulation or the entry of the Order.
Based on these three provisions, RC argues that Respondents should have sought court permission for the Ultimate Furniture Deal. Respondents contend that because the underlying Lease did not require Landlord consent, the Stipulation does not require court approval. Furthermore, if court approval is required, then Respondents seek such approval now.
The court finds that the Stipulation does appear to require court consent for a subsequent sublease, even though the underlying Lease does not. Because the parties agreed that the Stipulation was to be as broadly interpreted as possible, the court finds that court approval may have been required. Unfortunately, finding that the Stipulation may render court approval necessary creates more questions than it answers.
The court states "may" have been required because the transaction allegedly involved the granting of a license by Respondents to Mr. Schwartz's business instead of a sublease. Although labeled a license agreement, the substance of the agreement may actually point to a sublet of the premises. However, because resolution of the License versus sublease issue is not controlling as to the court's ultimate finding, the court need not decide whether the transaction was a license agreement or a sublease.
The Lease provides for an absolute right to sublet without RC's consent. Furthermore, the use provisions in the Lease allow the space to be operated as "a catalogue store and other retail sales and services customary in shopping centers, except as a supermarket, drugstore, or fast food restaurant. . . ." Because the Lease itself relinquishes control of the space both as to use and subletting, the standard to approve a proposed subtenant would be extremely low. However, even under a "reasonably withheld consent" standard applied when consent is required, RC would be unlikely to demonstrate reasonably withheld consent when the Lease terms granted Service Merchandise and its subtenant complete control of the space as long as the occupant did not operate as a supermarket, drugstore or fast food restaurant.
Therefore, to the extent that the Stipulation required court approval of the transaction with Mr. Schwartz, such approval, even though not timely sought under the Lease, is now granted. Like the signage breach of the Lease, if a breach did occur, the failure of Respondents to seek court approval would only give rise to RC's right to seek termination of the Lease based on an alleged default. Such notice of default, if it had been given by RC, would have begun the cure period available to Respondents. The court's approval of the sublease, provides a cure of any such default. The court finds that to the extent court approval was required, and to the extent that Respondents breached the Stipulation by not obtaining prior court approval, the breach is hereby cured by the court's ratification of the transaction upon Respondent's request to do so.
Accordingly, the court finds that RC may not terminate this Lease upon the basis that Respondents failed to obtain court approval as required under the March 16, 2002 Stipulation.
C. Retail Operation by June 30, 2003
Although other issues have subsequently been "piled on," the issue originally brought to the court was Respondents failed to put the property into retail operation by June 30, 2003 as required by the March 16, 2002 Stipulation. The Stipulation provides in relevant part:
Regardless of whether the Lease has a continuous use or going dark provision, any assignments to end-user designees (whether by pre-confirmation designation or post-confirmation assignment from Newco) shall provide that, unless the end-user designee put the property into retail operation by June 30, 2003 (the "Outside Date"), the Lease shall be deemed in default effective as of the Outside Date and Landlord shall be entitled to exercise the rights and remedies provided in the Lease . . .
Notwithstanding the foregoing, if an end-user designee does not put the property into retail operation by June 30, 2003 as a result of permitting or licensing delays beyond the reasonable control of such end-user designee, the Outside Date shall be extended for a reasonable period of time to allow such end-user designee time to obtain such permits or licenses and complete the build out necessary to commence operations.
March 16, 2002 Stipulation, Paragraph 4. RC argues that because Real Deal Furniture did not commence retail operations until August 11, 2003, that the Lease was in default as of June 30, 2003, giving RC the right to terminate the Lease. Respondents counter that the property was in retail operation as of the effective date because the other half of the Service Merchandise space was being run as a retail operation by Homegoods, and if Homegoods' operation did not count, then Respondents contend the June 26, 2003 signing of the License and Indemnity Agreement met the deadline with reasonable delays permitted for licenses and build out. Finally, if the court finds that a default did occur, Respondents argue that improper notice of termination was given by RC, and furthermore, Respondents timely cured any default.
The court finds that operation of the Homegoods Store in the other half of the premises did satisfy the June 30, 2003 deadline. The 1977 Lease provided that Service Merchandise could use the space as:
a catalogue store and other retail sales and services customary in shopping centers, except as a supermarket, drugstore, or fast food restaurant, including without limit, storage, merchandise , alterations, TBA facility, offices, and off street parking, and such other purposes as indicated on the final approved working plans and specifications.
1977 Lease, Article 9, page 23. Under the use provision in the Lease, Service Merchandise had control of the premises such that it could even use at least part of the space for storage. This was a fixed rent Lease, and RC contracted away control of the "use" in favor of the steady fixed rent. The court therefore finds that use by Homegoods of approximately one-half of the retail space satisfied the "retail operation" provision in the Stipulation.
In the event that the court is incorrect that Homegoods' operation met the Stipulation provision, the court nonetheless finds that occupation and operation of the retail space by Mr. Schwartz on August 11, 2003 satisfied the Stipulation requirement. It is undisputed that the License and Indemnity Agreement was signed on June 26, 2003. The Stipulation provided that if the property was not put in retail operation by June 30, 2003 due to permitting or licensing delays beyond the reasonable control of the end-user designee, then the "end-user designee" would be provided a reasonable period of time to obtain permits and licenses and to complete build out. In other words, if Mr. Schwartz was not able to put the property into retail operation due to licensing or permitting issues beyond his reasonable control, he would be given a reasonable amount of time to obtain the licenses and complete build out necessary to commence operations.
The court finds that a reasonable extension was warranted to put the property into retail operation because of factors beyond Mr. Schwartz's control. The License and Indemnity Agreement was signed on June 26, 2003, and within six weeks, Mr. Schwartz had commenced retail operations. The court finds this turnaround time highly reasonable. The last minute signing of the agreement certainly created a licensing, permitting, and build out problem that was beyond Mr. Schwartz's control and entitled him to a reasonable extension of time to put the property into retail operation. Mr. Schwartz accomplished that task in a reasonable amount of time. Accordingly, the court finds that even if Homegoods' operations did not satisfy the "retail operation" requirement of the March 16, 2002 Stipulation, Mr. Schwartz's commencement of retail operations on August 11, 2003 did meet the "retail operation" provision.
Finally, even if neither Homegoods' operation, nor Mr. Schwartz's August 11, 2003 commencement of operations prevented a default of the Stipulation and Lease, the court finds that Respondents and their end-user designee have cured any performance defaults pursuant to Article 13 of the Lease thereby cutting off all efforts of RC to terminate the Lease.
As discussed in conjunction with the signage issues, Article 13 contains the default provisions under the Lease. The Stipulation provides that if the property is not put into retail operation by June 30, 2003, then RC will be entitled to "exercise the rights and remedies provided in the Lease." Assuming that the court's prior ruling is incorrect, and a default did occur, the default, effective June 30, 2003, gave the Landlord the right to terminate the Lease pursuant to Article 13.
Article 13 sets out the different types of default. Article 13, Section 1(a) declares the Lease is in default for various insolvency issues. Section 1(b)(i) provides the Lease is in default for non-payment of rent, and Section 1(b)(ii) provides for performance defaults:
(ii) A default in the performance of any other covenant or condition of this Lease on the part of the Tenant to be performed for a period of thirty (30)days after notice. For purposes of this subdivision (b)(ii) hereof, no default on the part of Tenant in performance of work required to be performed or acts to be done or conditions to be modified shall be deemed to exist if steps shall have been commenced by Tenant diligently after notice to rectify the same and shall be prosecuted to completion without reasonable diligence, subject, however, to unavoidable delays.
Section 2. In case of any such default under Section 1(b) and at any time thereafter following the expiration of the respective grace periods above-mentioned, Landlord may serve a notice upon the Tenant electing to terminate this Lease upon a specified date not less than twenty (20)days after the date of serving such notice and this Lease shall then expire on the date so specified as if that date had been originally fixed as the expiration date of the term herein granted; however, a default under section 1(b) hereof shall be deemed waived if such default is made good before the date specified in the termination in the notice of termination served on the Tenant.
RC may terminate the Lease upon twenty days notice following the expiration of the cure period of thirty days under section 1(b)(ii) for failure to meet the retail operation requirement of the Stipulation. RC started the termination process by the July 1, 2003 letter to Respondents:
Ladies and Gentleman:
Pursuant to a Stipulation dated March 16, 2002, among KLA/SM, L.L.C., RC Properties II and Service Merchandise, Inc., pertaining to In re: Service Merchandise. Inc., et al., Debtors, United States Bankruptcy Court for the Middle District of Tennessee, Nashville Division, Case No. 399-0269, the parties agreed that the Lease for Service Merchandise Store No. 78 location in Lexington, KY (of which RC Properties II is Landlord), would be deemed in default if such property were not put into retail operation by June 30, 2003.
Such property was not put into retail operation by June 30, 2003, as intended by the Stipulation, and the Lease is therefore in default. Pursuant to Article 13, Section 1 of the Lease, the Landlord hereby elects to terminate this Lease as of July 31, 2003. PLease proceed accordingly.
July 1, 2003 Letter from RC to KLA/SM, LLC and Kla/SM Newco, GC, LLC. According to Article 13, Respondents then had thirty days to cure the June 30, 2003 default. When no cure occurred, in order to terminate the Lease, RC should have sent a second notice providing that the Lease would terminate in twenty days unless a cure was effected that would "waive the default." Article 13, Section 2.
In this case, no second notice was forthcoming, and therefore RC did not terminate the Lease in accordance Article 13. Instead, Respondent effected a cure of any default under Section 1(b)(ii) and/or Section 2. Under Section 1(b)(ii), no default was deemed to exist if "steps shall have been commenced by Tenant to diligently after notice, to rectify" the default, and the act to be corrected is completed with reasonable diligence. The June 26, 2003 License and Indemnity Agreement was certainly a commencement of steps by Respondent to cure the default, and the subsequent operation of the space by Mr. Schwartz by August 11, 2003 brought about completion with reasonable diligence.
Even if the cure were not effective under Section 1(b)(ii), Respondents cured the performance default before the expiration of the second twenty day cure period to terminate the Lease pursuant to Section 2. Assuming that no cure occurred by July 31, 2003, Respondents would have still had until August 20, 2003 to cure before the Lease was terminated had RC given proper notice of the Lease termination on July 31, 2003. It is undisputed that the property commenced retail operation on August 11, 2003. Section 2 is plain and unambiguous if the act causing the default was "made good" before the termination date, then the default was waived. Article 13, Section 2.
Therefore, the court finds that RC did not given proper notice under the Lease to terminate the Lease, but even if RC had given the proper notice, Respondents effected a cure of the performance default pursuant to Article 13, Section 1(b)(ii) and/or Section 2. The court finds that the cure or waiver of the default, if a default even occurred, prevented RC from terminating the Lease based on the March 16, 2002 Stipulation provision.
D. Operations for Less Than One Year
Lastly, RC argues that even if no default occurred otherwise, the Respondent's failure to install a tenant in the space that will remain in retail operation for at least one year is a basis for termination under the Stipulation and Lease. The March 16, 2002 Stipulation requires:
Regardless of whether the Lease contains any continuous use or going dark provisions, in the case of any assignment to an end-user designee, `adequate assurance of future performance' shall include evidence that the end-user designee has the ability and intention to engage in continuous operation of the Property as a retail operation for at least one year from the Outside date (defined herein).
The License Agreement, as amended, provides for a term of more than one year. Furthermore, Mr. Ron Schwartz provided clear and unrebutted testimony that he had both the ability and intention to operate for at least one year in this space. RC's circumstantial proof that Mr. Schwartz has Leased apartments for his warehouse manager, office manager and two sales people, none of whom are local, does not rebut Mr. Schwartz's credible testimony that he has the ability and intention to operate in this space for at least one year.
The court, therefore, finds no basis for RC to terminate the Lease based upon the one-year operation provision in the Stipulation.
Conclusions
Based upon the foregoing, the court finds that RC has failed to demonstrate any breach that would result in Lease termination, and that even if such a breach did occur, RC either did not terminate in accordance with the Lease provisions or the Respondents have timely cured any default making termination an unavailable remedy to RC, as Limited herein. The court will instruct Respondents to prepare an Order consistent with the Court's Memorandum Opinion and submit such to the court within ten (10) days of entry of this Opinion.
It is therefore so ORDERED.
Ryan Singleton, DDR 11-11-02 "The Book Market Inc. has installed a sign on the canopy of the former Service Merchandise building with obtaining the Landlord's consent in violation of Article 25 of the Lease for this building. The Book Market Inc. has punctured the canopy in several locations and in a manner that resulted in permanent damage to the canopy. You are hereby notified pursuant to Article 13 of the Lease, that you will be in default of the Lease if the damage and signage are not corrected to the Landlord's reasonable satisfaction within thirty days." Ryan Singleton DDR 11-18-02 "In addition to the issue with the Book Market's banner mentioned in our letter dated November 11, we now have other issues. First, a Richard Ellis sign has now been place on the canopy violating Article 25 of the Lease once again. The same damage we were concerned with before has been multiplied. Second, we are further concerned that there are now two signs on the canopy for a single space. Neither of the signs should have been place without the Landlord's prior consent. And third, signage has been placed on the back of the building, which is penetrating the vertical concrete slabs. Without proper care this will eventually deteriorate the slabs and diminish the structural integrity. Thus, pursuant to Article 13 of the Lease, you will be in default of the Lease if all three signs, and their respective damages are not corrected to the Landlord's reasonable satisfaction within the original 30 day time frame. Daniel DiCillio, DDR Ryan Singleton 12-10-02 "Reference is made to your November 11 and 18 letters to developers Diversified Realty Corporation regarding the signage on the canopy and the rear of the former Service Merchandise building. We were not aware of the fact that the Book Market had not obtained your consent to install their signage. For that reason, we are not seeking your consent to allow the signs to remain, of course, with the proviso that any damage done to the canopy or the building caused by the installation of said sign would be repaired. Fast Signs of Lexington, KY installed the Book Market signs. According to FastSigns, they used customary means and methods to install the signs. In fact, there are several existing holes in the canopy that relate to some of the former Service Merchandise signage that was removed. The holes from the Service Merchandise signage are 1" in diameter. The new holes relating to the Book Market's signs are only 1/4'" in diameter. So we fail to understand why you would object to an installation method that is the same or similar to methods previously employed. Nevertheless, we invite your input as to an alternative manner of affixing the signs to the canopy and rear of the building. In the interim, we will repair any existing holes in the canopy that are no longer being used. Additionally, pLease note that we expect the Book Market to vacate the property in mid Februay 2003 at which time the signs will be removed and any remaining holes will be repaired. As far as the realtor's canopy sign, it is our understanding that the realtor has been in contact with you, and that this issue has been resolved." Ryan Singleton SM Newco 8-28-03 "This letter is to inform you that the occupant of part of this location, International Furniture Store, has bolted a banner sign into the storefront canopy — putting more holes into the canopy. The occupant has also littered the Shopping Center and New Circle Road with multiple yellow yard signs. All this has been done without the Landlord's approval, in direct violation of the Lease. Please have all unpermitted signs removed, and p h a s e have the storefront canopy restored to its original condition, within thirty days of this letter. Also, pLease forward a copy of this letter to the occupant in question, as we have yet to receive any information from you as to who they are and how they may be contacted directly." Daniel DiCillo Ryan Singleton 9-16-03 "Reference is made to your August 28, 2003 letter to SM Newco Lexington, LLC regarding the banner signage on the canopy of the former Service Merchandise building. PLease be advised that we have contacted the subtenant and instructed them to remove the banner sign and repair any damage to the canopy. It is our understanding that they subtenant is preparing a proposal for permanent signage and will be submitting same to us and to you for approval prior to installation."The court states "may" have been required because the transaction allegedly involved the granting of a license by Respondents to Mr. Schwartz's business instead of a sublease. Although labeled a license agreement, the substance of the agreement may actually point to a sublet of the premises. However, because resolution of the License versus sublease issue is not controlling as to the court's ultimate finding, the court need not decide whether the transaction was a license agreement or a sublease.