The appellants, plaintiffs below, Burgess Pic-Pac, Inc., d/b/a Burgess Discount Foods; Richard Burgess and Linda Burgess (collectively "Burgess"), appeal an order of the Circuit Court of Raleigh County entered February 5, 1993, granting partial summary judgement for the appellees, defendants below, Fleming Companies, Inc., Fleming Foods of Ohio, Inc., Fleming Foods of Virginia, Inc., and Fleming Foods of Tennessee, Inc. (collectively "Fleming"). The case below related to a claim for damages by Burgess as a result of an alleged breach by Fleming due to Fleming's failure to renew an option in the sublease. The trial court found that the option to renew was Burgess's to exercise, not Fleming's, and that Burgess had failed to effectively exercise that right. For the reasons that follow, we reverse.
In 1968 the original landlord, By-Pass Plaza, Inc., leased commercial property in Beckley to the Great Atlantic & Pacific Tea Company ("A & P"). That lease (the "master lease") provided for an original term of years to run through August 31, 1984, and then provided the tenant, A & P, with four options to renew the lease for five-year terms. In 1982, A & P granted, conveyed, transferred and assigned "all of [A & P's] leasehold estate and rights, title and interest under the lease [between A & P and By-Pass Plaza, Inc., the original landlord] to Malone & Hyde, Inc. [`M & H']."
Thereafter, in 1985, M & H transferred the premises to Burgess by way of a document entitled "sublease." After entering into the sublease with Burgess, M & H sold its business to Fleming, including the Burgess sublease. Fleming notified Burgess of the sale of the sublease by letter dated June 27, 1986, and also included an estoppel certificate that Fleming requested Burgess execute and return. The estoppel certificate stated, in part: "There are no extension or renewal options, options or rights of refusal on additional portions of any building, or options to acquire the Premises in favor of Subtenant, except as provided in the Sublease." Burgess crossed out the above-quoted language and wrote in two separate places on the estoppel certificate that Burgess had the right to exercise the three remaining five-year renewal options. Burgess then returned the certificate to Fleming. Fleming did not acknowledge the changes Burgess made to the estoppel certificate.
It does appear, however, that Burgess and Fleming discussed the possibility of Fleming stepping aside as a tenant under the master lease and allowing Burgess to negotiate a new lease directly with the landlord. This potential arrangement was apparently agreeable to both Burgess and Fleming, but, despite negotiations between Burgess and the landlord, a new lease was not consummated. Burgess contends that Fleming represented to Burgess that it would exercise the renewal option under the master lease. In reliance upon those representations, Burgess claims that it settled debts owed to Fleming that Fleming had acquired from M & H.
In March of 1989, over five months before the Burgess sublease was to terminate if it was not renewed, Fleming informed Burgess that Fleming was not going to exercise its renewal option with the landlord. Fleming further advised Burgess that it should therefore plan to vacate the premises by the end of the lease term (August 31, 1989). In turn, Burgess, by counsel, responded and informed Fleming that Burgess had the right to renew its sublease and that it intended to do so. At about this same time, Fleming commenced construction of a new grocery store near the leasehold. Burgess vacated the leasehold shortly prior to the expiration of the lease.
In its complaint, Burgess contended, among other things, that Fleming had breached the sublease. Subsequently, Fleming moved for summary judgment on this issue. In its memorandum opinion, the trial court rejected Burgess's allegations, and found that the option to renew the sublease was Burgess's to exercise, not Fleming's. The trial court so found because there was language in the sublease between Burgess and M & H that embodied the conditions of the master lease.
The primary legal issue is who had the right to exercise the renewal option under the master lease. The answer to this question is determined by examining the relationship between Fleming and Burgess under the 1985 document that gave Burgess the right to occupy the premises. Our initial inquiry is whether the 1985 document was an assignment or a sublease.
It is generally recognized that where a tenant assigns a lease to a third party for the lease's remaining term,
See generally 49 Am.Jur.2d Landlord & Tenant § 397 (1970 & Supp.1993); 51C C.J.S. Landlord & Tenant § 44 (1968 & Supp.1993).
We defined the assignment of a lease in Bowlby-Harman Lumber Co. v. Commodore Services, Inc., 144 W.Va. 239, 246, 107 S.E.2d 602, 606 (1959), where we stated:
We pointed out in Syllabus Point 2 of Bowlby-Harman Lumber Co., supra, that where a reversionary interest is retained by a tenant who is granting the premises to a third party, the instrument is a sublease:
The retention of a reversionary interest occurs when a tenant conveys less than the entire term of a master lease to a third party. When a reversionary interest is retained, the third party is then a sublessee rather than an assignee. This rule is explained in 2 R. Powell, The Law of Real Property ¶ 248 at 17-50 (1993):
See also 51C C.J.S. Landlord & Tenant § 37(1) (1968 & Supp.1993); 49 Am.Jur.2d Landlord & Tenant § 392 (1970 & Supp. 1993).
In this case, when we review the 1985 document between M & H and Burgess, we find that M & H did retain a reversionary interest in the master lease. The term extended to Burgess by M & H was as follows: "TENANT leases to SUBTENANT and SUBTENANT leases from TENANT the above described premises for the remainder of the Term and the aforementioned five-year extension, commencing March 1, 1985."
Consequently, we find that the word "Term" as used in the sublease referred to the current term by which M & H was bound and that would expire on August 31, 1989. As explained in the "WHEREAS" clause quoted above, this "Term" was the first of the four five-year renewal options. The sublease then granted "and the aforementioned five-year extension." The word "and" makes it clear that the five-year extension was in addition to the existing term ending August 31, 1989. Moreover, this paragraph ended with the following statement concerning the payment of the rent: "[Such rent is] to be paid on the first day of each month during the Term of this Sublease or any renewal thereof." (Emphasis added). Clearly, Burgess did not receive the full term available to M & H under its lease, which consisted of three additional five-year renewal options. Therefore, M & H retained a reversionary interest in the master lease. Burgess only received one five-year renewal option. Thus, under the foregoing law, Burgess occupied the position of a sublessee rather than that of an assignee.
The question then becomes what right Burgess had, as a subtenant, to exercise its option of renewal. We spoke generally of the relationship between a sublessee and a landlord in Hawley Corp. v. West Virginia Broadcasting Corp., 120 W.Va. 184, 187, 197 S.E. 628, 629 (1938): "A sublease creates no privity of contract between the landlord and the sublessee. The latter's estate is but parcel of the lessee's estate, and is subject to the conditions imposed thereon by the [master] lease."
Because a sublessee has no privity of contract with the landlord, where an option to renew has been granted by the tenant to the sublessee, the sublessee, in order to
See also 51C C.J.S. Landlord & Tenant § 58(3) at 184 (1968 & Supp.1993); Annot., 39 A.L.R.4th 824, 842 (1985 & Supp.1993).
Although we have not had occasion to discuss this principle, it has been followed in other jurisdictions under different facts. For example, in Occidental Savings & Loan Association v. Bell Federal Credit Union, 218 Neb. 519, 357 N.W.2d 198 (1984), the court held the tenant liable to its sublessee where the tenant had granted two additional five-year renewal options to the sublessee, even though the tenant had no authority under the master lease to grant renewal options. The court stated in its Syllabus Points 4 and 5:
A similar result was reached in Brummitt Tire Co. v. Sinclair Refining Co., 18 Tenn. App. 270, 75 S.W.2d 1022 (1934), where the sublessee sought to exercise his option to renew under the sublease, but the tenant failed to exercise his renewal option under the master lease. Instead, the tenant entered into a new lease with its landlord. The court in Brummitt Tire Co., 18 Tenn.App. at 282, 75 S.W.2d at 1029, found the tenant liable stating:
"`The defendants were not relieved from their covenant to extend the plaintiffs' term for four years because they obtained a new lease, instead of a technical renewal of their old one.' Hausauer v. Dahlman, 18 App.Div. 475, 45 N.Y.S. 1088, 1091, affirmed in 163 N.Y. 567, 57 N.E. 1111."
As earlier stated, Burgess was a sublessee because it had not been conveyed the entire term of the master lease. As sublessee, Burgess was granted, under the M & H sublease, one five-year renewal option at the expiration of the term ending August 31, 1989.
From the record, we find that there were sufficient facts developed below to indicate that Burgess attempted to have Fleming exercise its renewal option with the landlord (By-Pass Plaza). On March 7, 1989, Fleming wrote Burgess advising as follows:
Burgess immediately responded, through its attorney, by letter dated March 10, 1989.
Fleming failed to recognize that it owed a duty to Burgess to exercise its renewal option with the landlord in order to meet its obligation under the sublease to give the five-year renewal option. While Fleming argues in its brief that the sublease did not give Burgess a renewal option, we have found that it does.
Fleming relies on Regional Pacesetters, Inc. v. Eckerd Drugs of Georgia, Inc., 183 Ga.App. 196, 358 S.E.2d 481 (1987). However, in that case the court found that the sublessee had not been granted a renewal option in its sublease. Thus, the sublessee had no right to demand that the tenant exercise the renewal option in the master lease. Nor was there a renewal option granted to the sublessee in the sublease in two other cases cited by Fleming, i.e., Loudave Estates, Inc. v. Cross Roads Improvement Co., 28 Misc.2d 54, 214 N.Y.S.2d 72 (1961), aff'd, 20 A.D.2d 864, 251 N.Y.S.2d 408 (1964), and First Trust Co. v. Downs, 230 S.W.2d 770 (Mo.App.1950).
Finally, Fleming argues that even if Burgess had the option to renew, it failed to do so. However, as we have previously discussed, there was sufficient evidence to demonstrate that Burgess did attempt to have Fleming exercise its right of renewal under the master lease in order to effectuate Burgess's renewal option contained in its sublease. Our traditional rules on the sufficiency of the evidence precluding summary judgment are stated in Syllabus Points 2 and 3 of Pasquale v. Ohio Power Co., 186 W.Va. 501, 413 S.E.2d 156 (1991):
For the foregoing reasons, we conclude that the circuit court erred in granting partial summary judgment for Fleming. Moreover, our ruling may require reconsideration of the trial court's holding which appears to exclude the Burgess claim for violation of the restrictive covenant after August 31, 1989.
Based upon the foregoing, the partial summary judgment order of the Circuit Court of Raleigh County is reversed as to the breach of the sublease allegations.
Reversed and remanded.
The master lease was attached to the sublease as Exhibit A.
The ellipsis omits the critical language "Term and the aforementioned." The full text of this paragraph is set out in note 7, supra. In the accompanying text, we discussed why Burgess received the right to only one five-year extension.