Benjamin L. Bailey
Kenneth E. Webb, Jr.
Bowles, Rice, McDavid, Graff & Love
Charleston, West Virginia
Attorneys for Plaintiffs
Stephen R. Crislip
David A. Barnette
Angela M. Fenton
Jackson & Kelly
Charleston, West Virginia
Attorneys for Defendants
JUSTICE MILLER delivered the Opinion of the Court.
1. Where a tenant assigns a lease to a third party for
the lease's remaining term, and the assignee is bound by all the
terms and conditions contained in the master lease, the assignee
becomes directly liable to the landlord. The assignee also has the
right to exercise any renewal option in the master lease.
2. Regardless of the form of the transaction, an
assignment of an estate for years occurs where, and only where, the
lessee transfers his entire interest in the estate without
retaining any reversionary interest.
3. 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.
4. 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.
5. 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 exercise the
option, must ask the tenant, who does have privity of contract with
the landlord, to exercise the tenant's renewal option with the
landlord. The failure of the tenant to exercise its renewal option
with the landlord after such a request will render the tenant
liable to the sublessee.
6. "'A motion for summary judgment should be granted
only when it is clear that there is no genuine issue of fact to be
tried and inquiry concerning the facts is not desirable to clarify
the application of the law.' Syllabus Point 3, Aetna Casualty and
Surety Co. v. Federal Insurance Co. of New York, 148 W. Va. 160,
133 S.E.2d 770 (1963)." Syllabus Point 2, Pasquale v. Ohio Power
Co., 186 W. Va. 501, 413 S.E.2d 156 (1991).
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']."See footnote 1 M & H exercised the first renewal option and extended the lease for a five-year term beginning in September of 1984.
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
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.See footnote 2 Burgess also claims that it relied upon Fleming's
representations and incurred new debt to its detriment when it
refurbished the leased premises.
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
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.See footnote 3 The trial court concluded that
Fleming, which stood in M & H's shoes, was like the landlord in the
master lease, and Burgess was like the tenant under the master
lease. The trial court found that Burgess thereby possessed the
option to renew and that Burgess terminated the sublease by leaving
the premises. Therefore, the trial court granted summary judgement
for Fleming on that issue.
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 footnote 4 and the
assignee is bound by all the terms and conditions contained in the
master lease, the assignee becomes directly liable to the landlord.
Consequently, the assignee has the right to exercise any renewal
options in the master lease. We expressed an assignee's
obligations in Bankers' Pocahontas Coal Co. v. Monarch Smokeless
Coal Co., 123 W. Va. 53, 59-60, 14 S.E.2d 922, 926 (1941):
"[W]here one takes a lease by assignment and also expressly assumes the payment of rent or other obligations of the lessee, he becomes not only an assignee, but an assumptor, as well, and is absolutely bound to the lessor for the residue of the term upon the obligations assumed, whether he ever occupies the premises or not. Nor can such assumptor relieve himself of the obligations undertaken by the simple device of voluntarily transferring the leasehold to another, even though that other, in turn, assumes the obligation."
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:
"In 51 C.J.S., Landlord and Tenant, § 37, subsection a, it is said: 'Regardless of the form of the transaction, an assignment of an estate for years occurs where, and only where, the lessee transfers his entire interest in the estate without retaining any reversionary interest[.]'"
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
"Where a lessee by written agreement underlets the premises to a third party and retains certain reversionary interests in the premises, and the written agreement does not disclose a clear intent to the contrary, the written agreement will constitute a sublease, not an assignment."
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-
"The approach which appears to be followed in the majority of jurisdictions focuses on the time remaining on the lease at the time of transfer. If the tenant transfers the entire remaining term, retaining no reversion, the transfer is an assignment. Conversely, if the tenant retains a reversionary right to possession at the end of the term, no matter how small, the transfer is a sublease." (Footnote omitted).See footnote 5
See also 51C C.J.S. Landlord & Tenant § 37(1) (1968 & Supp. 1993);
49 Am. Jur. 2d Landlord & Tenant § 392 (1970 & Supp. 1993).See footnote 6
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."See footnote 7 (Emphasis added). This document acknowledged the
provisions of the master lease and that M & H had exercised the
first of four renewal options by stating: "WHEREAS, in accordance
with the provisions of said Lease, TENANT by continued occupancy
automatically exercised the first of four (4) renewal options
provided under said Lease, extending the Term for the period
commencing September 1, 1984, and ending August 31, 1989[.]"
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 exercise the option,
must ask the tenant, who does have privity of contract with the
landlord, to exercise the tenant's renewal option with the
landlord. The failure of the tenant to exercise its renewal option
with the landlord after such a request will render the tenant
liable to the sublessee. This general rule is set out in Section
1195 of 50 Am. Jur. 2d Landlord & Tenant at 84-85 (1970):
"A lessee may not deny his
obligation to renew or extend a sublease in
accordance with a covenant to renew or extend
contained in the sublease, where the lessee
obtains a renewal or extension of the head
lease or a new lease from the lessor,
irrespective of whether such renewal,
extension, or new lease is taken at a higher
rental or upon more onerous terms; and a
lessee who sublets a portion of the premises
with the privilege of renewal for a specified
term in case he obtains from the original
lessor an extension of his lease, is bound by
his covenant when he secures a new lease
instead of an extension[.]" (Footnotes
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:
"4. Contracts. One who by contract imposes a duty upon himself must substantially comply with that undertaking.
"5. Leases: Contracts: Liability.
A sublessor who undertakes to grant renewal
options he cannot deliver becomes, by reason
of that breach of contract, liable in
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 ___, 75 S.W.2d at 1029, found the tenant liable stating:
"[The tenant] seeks to enjoy the fruits of his original contract, without the burden of his contract, by abandoning one instrument and securing another of like tenor.
"'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."
See also Bsales v. Texaco Inc., 516 F. Supp. 655 (D.N.J. 1981);
Gilman v. Nemetz, 203 Cal. App. 2d 81, 21 Cal. Rptr. 317 (1962).
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.See footnote 8
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:
"This is your notification that we do not wish to exercise the renewal option on the lease at the By-Pass store and will permit the lease to expire August 31, 1989.
"This advanced notice will give you
time to make appropriate plans to vacate the
premises or negotiate direct with the landlord
for a new lease."
Burgess immediately responded, through its attorney, by letter
dated March 10, 1989. He advised Fleming that "[i]t is the
intention of Burgess to extend this Lease for another five year
period, which he has the right to do under the Lease." Moreover,
the letter contained this admonition: "I need not remind you that
if your company fails to live up to the terms of this Lease, it may
be required to respond in damages to Burgess for all losses which
Burgess may sustain[.]"See footnote 9 Moreover, there was deposition testimony
by Mr. Burgess regarding his efforts after Fleming's March 7, 1989
letter to extend the sublease with both Fleming and the landlord,
By-Pass Plaza, Inc.
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.See footnote 10
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):
"2. 'A motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law.' Syllabus Point 3, Aetna Casualty and Surety Co. v. Federal Insurance Co. of New York, 148 W. Va. 160, 133 S.E.2d 770 (1963).
"3. 'The question to be decided on
a motion for summary judgment is whether there
is a genuine issue of fact and not how that
issue should be determined.' Syllabus Point
5, Aetna Casualty and Surety Co. v. Federal
Insurance Co. of New York, 148 W. Va. 160, 133
S.E.2d 770 (1963)."
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.See footnote 11 This
was the date the trial court determined that the Burgess sublease
expired. We have found that Burgess was entitled to the additional
five-year option.See footnote 12
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.
Footnote: 1The parties agree that the interest conveyed in the 1982 document resulted in a true assignment whereby M & H assumed all the benefits as well as the burdens that were vested in A & P under the master lease. See Bankers Pocahontas Coal Co. v. Monarch Smokeless Coal Co., 123 W. Va. 53, 14 S.E. 922 (1941).
Footnote: 2When M & H subleased the premises to Burgess, it loaned Burgess $400,000. At that time, Burgess bought its food from M & H, a wholesale food distributor.
Footnote: 3The applicable language in the Burgess sublease is:
"Except as herein otherwise
provided, all of the terms, agreements and
conditions in the Lease, as amended, attached
hereto and marked Exhibit "A", are hereby
made a part of this Sublease, TENANT herein
being considered as if Landlord in said
Lease, and SUBTENANT herein being considered
as if TENANT in said Lease."
The master lease was attached to the sublease as Exhibit A.
Footnote: 4This principle assumes that a tenant has the right to assign the lease. This issue is not contested here because the master lease gave the tenant the right to assign or sublet. However, we note that the master lease also provided that, even if the original tenant assigned or subleased the property, it would still be liable to the landlord.
Footnote: 5M. Friedman, Friedman on Leases § 7.403 at 283-84 (1983), states the historical basis for the rule:
"The ancient technical system of feudal law based the landlord-tenant relation on the existence of a reversion in the landlord. A tenant who sublet for the rest of his term parted with all his interest in the premises, leaving no reversion in himself, and thereby created an assignment. Briefly, tenant's sublease for the balance of his term creates an assignment, not a sublease. This occurs regardless of the terms of the instrument and regardless of the intentions of the parties. This is the rule established in England and adopted by the majority of our states. Feudal concepts permitted no other result." (Footnote omitted).
Footnote: 6Where the entire term of the lease has been conveyed, there still may be an issue of whether the retention of certain rights, such as a right of re-entry, is a sufficient reversionary interest to make the document a sublease. See generally 49 Am. Jur. 2d Landlord & Tenant § 395 (1970 & Supp. 1993).
Footnote: 7The relevant text of the paragraph of the sublease is:
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, for a minimum monthly rental of Two Thousand Eight Hundred Fifty-Four and 95/100 Dollars ($2,854.95) (which is rental from Lease, as amended, plus 5%), to be paid on the first day of each month during the Term of this Sublease or any renewal thereof."
Footnote: 8The parties do not dispute that Fleming purchased the assets of M & H and, thus, accrued to its position as the tenant under the master lease.
Footnote: 9The quoted sentence concluded with the phrase "during the period of fifteen years beginning September 1, 1989." As we have earlier pointed out, the sublease gave Burgess only a renewal right for one five-year option beginning September 1,1989. This would be the extent of the damage period.
Footnote: 10Fleming quotes the term of the sublease as follows:
"TENANT leases to SUBTENANT and
SUBTENANT leases from TENANT the above
described premises for the remainder of the
. . . five-year extension, commencing March
1, 1985 for a minimum monthly rental of Two
Thousand Eight Hundred Fifty-Four and 95/100
Dollars ($2,854.95) (which is rental from
Lease, as amended, plus 5%), to be paid on
the first day of each month during the Term
of this Sublease or any renewal thereof."
(Alteration in original).
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.
Footnote: 11The trial court made the following finding:
"The covenant not to compete expired with the lease, and to the extent that the claim for violation of that covenant is based on the operation of [Fleming's grocery store] after August 31, 1989, a cause of action does not exist, and partial summary judgement should be granted Fleming for that portion of the claim. It is noted that Fleming claims that the operation of [Fleming's grocery store] began no earlier than October, 1989. If this is undisputed, there is no cause of action for a violation of the covenant not to compete and summary judgement should be granted on this issue."
Footnote: 12In making this ruling, we are not passing on the validity of the restrictive covenant claim.