Opinion
Case No. 07-15723, (Jointly Administered).
March 24, 2008
ORDER OVERRULING OBJECTION OF BRENTWOOD PROPERTIES, LLC TO SALE OF LEASE FOR STORE NO. 29705
Jointly administered under the number set forth in the caption are a number of convenience store/gas station individual locations, each of which has filed a bankruptcy case. In addition to the individual cases being jointly administered under the number in the caption, there are a number of other similar locations which have also filed bankruptcy cases, all connected through various means to Petro Acquisitions, Inc. A trustee has been appointed to administer all of these cases. Pursuant to court order, the trustee conducted a sale through an auction process of assets of the debtors, including leases of non-company operated locations, which are referred to as franchise locations. One of the leases offered at the sale, and purchased at the sale, was the Lease for Store 705 for which Brentwood Properties, LLC (Hereafter "Brentwood") is the landlord. Brentwood has filed an objection to the sale of its Lease.
Brentwood objects, first, on the basis that the Lease on its store is due to expire on May 31, 2008, and all that the trustee can sell is the remainder of that term. The trustee, advocating on behalf of the lessee, responds that the franchise holder of the Brentwood store has renewed the Lease for an additional five year term after May 31, 2008. The second ground for objection by Brentwood is that adequate assurance of future performance has not been provided in connection with the sale of its Lease.
The Lessee of the Brentwood store holds possession pursuant to First Lease Addendum dated May 1, 2003. The Addendum incorporates by reference the original Lease between parties who are the predecessors of the present holders. The Addendum says that the initial term of the Lease will expire May 31, 2003, and recites that the Lessee has exercised the first of three five year options to renew, and the present expiration date is May 31, 2008. (The original Lease gave Lessee an option to renew the Lease for three additional five year periods, and it is the first of those periods which expires May 31, 2008.) It is not controverted that by letter dated August 20, 2007, Lessee gave timely notice of renewal for a second term ending June 2, 2013. The issue now before the Court is whether the notice for a second renewal period was effective. Brentwood says that it was not; the trustee contends that it was.
The Lease provides:
4. Options
"Lessee is hereby given the option to renew the within lease for three additional (5) year periods. Said option shall be exercised by the giving of written notice no less than six (6) months prior to the expiration of the initial term as to the first option, by the giving of written notice of no less than six (6) months prior to the expiration of the first option period and by the giving of written notice of no less than six (6) months prior to the expiration of the second option period, provided that Lessee shall not be in default (for which default notice shall have then been given) at the time of the exercise of any of the abovementioned options. Upon the exercise of the options, the within Lease shall be continued for the extended period upon the same terms and conditions as herein set forth except that the rental consideration shall be adjusted to reflect the changes that may have taken place in the Consumers Price Index, Newport News, Virginia Area or U.S., All Urban Consumers (CPI-U) for "All Items" group, as prepared by the U.S. Department of Labor; for the period since the commencement of the expiring term until six months preceding the expiration of said term." (Emphasis supplied.)
The central point of contention is whether the Lessee properly exercised the second option pursuant to the language of the Lease. Brentwood contends that Lessee was in default at the time that notice to renew was given. Brentwood contends also that notice of that default, as required by the language of the Lease, was given by it to the Lessee. The trustee's position is that there was no notice of default.
Brentwood supports its position that notice was given with its Exhibit C, a document dated April 17, 2007, and entitled "BB T Environmental Risk Evaluation", which document was forwarded to the Lessee by Brentwood. The Evaluation states that an environmental risk is present at the property, and the risk "can either be quickly remediated or further mitigated."
The Court holds that the Risk Evaluation report cannot serve as notice of default for the purpose of disavowing Lessee's right to exercise its second option under the Lease. In Gallagher v. Borden, Inc., 84 Oh. App.3d 185, 616 N.E.2nd 577 (Franklin County, 1992), the landlord sent a letter stating that it was written notice regarding a default for a non-payment of rent. The notice failed to specify the month or months for which rent was due. The landlord then declared that it considered the lease to have been terminated. The lessee did not agree. The landlord filed suit in Common Pleas Court seeking, inter alia, a declaration that the lease was no longer in effect. The lessee filed a motion for summary judgment, including a declaration holding that the lease had not been terminated. The motion was granted in the trial court. On appeal, that decision was sustained. The appellate court in Gallagher said that a notice about default of the lease had to give the lessee knowledge "of what is in default." The appellate court in Gallagher in affirming the trial court, held that in order for a lessee to know in what respect its conduct has led to a default under the lease, the notice of default has to specify what lease provision or provisions have been offended.
The present case differs from the Gallagher case in that it is not failure to pay rent which is in issue as a default, but rather allowing a leak detector system in its tanks to fail. But in the case sub judice, unlike Gallagher, there is no evidence that the landlord sent a letter to the lessee stating that it was intended to serve as a notice of default. At the very least,Gallagher suggests that something stated to be a notice of default must be given. The Risk Evaluation notice contains no such notice. Furthermore, the communication from the Environment Risk Evaluation firm did not specify how its subject matter offended the Lease. Nothing in the record before us shows that either a notice of default, or notice of which provisions of the Lease had been offended.
While Brentwood in its objection makes various unsubstantiated assertions of factual matters, which the Court cannot accept, even if true they could not avail Brentwood. At most, they would give rise to a claim for damages.
In his brief on the present objection, the trustee informs the Court that the issue of adequate assurance of future performance has been resolved.
The objection of Brentwood is overruled in its entirety.
So Ordered.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio. IT IS SO ORDERED.