Beckenheimer's Inc. v. Alameda Associates Ltd. Partnership

RODOWSKY, Judge. This case involves efforts by a subtenant to renew a sublease of food supermarket premises in a shopping center. The principal question is whether certain departures by the subtenant from strict compliance with the renewal provisions nevertheless leave the renewal efforts within tolerances that permit equity to enforce the sublessor’s covenant to renew. ⁵³⁹ The shopping center involved is in the northwest quadrant of the Alameda and Chinquapin Parkway in northeast Baltimore City. The center was developed in the mid-1950s as “Alameda Shopping Center,” but was later renamed “Belvedere Plaza Shopping Center,” (Shopping Center).

The supermarket premises, containing 20,000 square feet on the first floor and a 10,000 square foot basement, with the use of 876 parking spaces, were leased in 1957 by Samuel M. and Constance Y. Pistorio (the Pistorios) to American Stores Company, assignor of Acme Markets, Inc. (Acme), one of the two appellees herein (the Prime Lease). That original Prime Lease was for a term of fifteen years, with renewals. The fixed rent was $3,333.34 per month, plus a percentage rent of one percent of gross sales in excess of $4 million per year. The tenant covenanted to “furnish Landlord with a statement supporting said rental payment certified to as correct by Tenant’s Accounting Department.” Amendments to the Prime Lease in 1958 reduced the parking to spaces for 745 cars.

In 1978 the Pistorios and Acme again amended their lease when Acme obtained the right to make certain improvements, at its expense. The then current term was extended through August 31, 1989, with an option in the tenant to renew for five additional terms of five years each. The fixed rent was changed to $5,000 per month, with a percentage rent of one percent on gross sales exceeding $10 million per year. The sublease with which we are here concerned was made in 1982, after the Pistorios had sent Acme a notice of termination.

That notice was withdrawn when Acme, on November 29, executed a sublease (the Sublease) with one of the appellants, Beckenheimer’s, Inc. (Beckenheimer’s). The Sublease “continue[d] for the remainder of the term of the Lease (less one month) and any renewal or extended term(s) (less one month).” Acme and Beckenheimer’s agreed that “each and every covenant and agreement of the Lease” was “a term, condition, covenant and agreement of [the] Sublease,” except as provided in the Sublease. The rent was $60,000 per year, payable monthly in advance in ⁵⁴⁰ $5,000 installments, and a percentage rent. At the same time the percentage rent under the Prime Lease was modified to one percent on gross sales exceeding $7,500,000.

This change was effected by a “Consent Agreement” executed by the Pistorios and agreed to both by Acme and by Beckenheimer’s. 1 The Sublease contains the following paragraph concerning Beckenheimer’s right to renew. “Sublessee shall have the right to renew this Sublease for the additional five (5) year [sic] terms of five (5) years each (the ‘Renewal Term(s)’) provided for in the Lease, provided as a precondition to the exercise of each Renewal Term, (1) Sublessee shall have given Sublessor notice of Sublessee’s election to do so at least one hundred twenty (120) days prior to the expiration of the initial ten (10) year term or the then current Renewal Term of the Lease (2) Sublessee shall not be in default under this Sublease at the time of such notice and (3) the net worth of Sublessee on the date of such notice (as evidenced by the most recent certified financial statements of Sublessee which shall be included with such notice) is at least equal to the net worth of Sublessee on the date hereof All terms and conditions of this Sublease for each Renewal Term shall remain the same as for the initial term except that the annual base rental ⁵⁴¹ (not including percentage rental) shall be Sixty-six Thousand and 00/100 Dollars ($66,000).” (Emphasis added). The Sublease also provided that notices from one party to the other be in writing and personally delivered or sent by registered or certified mail. Further, “[a]ny such notices shall not be deemed to have been given to Sublessor until actual receipt thereof by Sublessor.” Thus, any Beckenheimer’s notice of a renewal to follow expiration of the original term of the Sublease was to be received by Acme on or before May 4, 1989. Cf.

Maryland Rule l-203(b) (computation of time before a day). At the end of 1983 all of the Pistorios’ interest in the Shopping Center was acquired by the other appellee, Alameda Associates Limited Partnership (Alameda). Counsel for Beckenheimer’s represent that “[t]he outstanding stock of Beckenheimer’s [was] purchased by B. Green [ & Co., Inc. (B. Green) ] in 1986, and was subsequently sold by B. Green to Farm Fresh Supermarkets of Maryland in 1989.” Brief of Appellant at 1 n. 1. On April 26, 1989, a letter was sent by certified mail to Acme in Philadelphia, to the attention of Acme’s Director of Real Estate, Mr. Henry Flieck, and received on May 1,1989.

It reads as follows: “Dear Henry, In accordance with the terms of the sublease dated November 29, 1982 between Acme Markets, Inc. and Beckenheimer’s, Inc. and the lease between Samuel M. Pesterio [sic] and Constance Pesterio [sic], husband and wife with American Stores Company, as amended ... which collectively are referred to as the lease, we wish to exercise our option to renew the lease for another five years at the expiration of our present term. Sincerely, Martin Braun, Jr.” This letter was on the letterhead of B. Green, 3601 Washington Boulevard, Baltimore. ⁵⁴² By letter dated May 4,1989, signed by Benjamin L. Green as president of Beckenheimer’s, Beckenheimer’s wrote to Acme, to the attention of its house counsel, John Doerr, Esquire, as follows: “Dear Mr. Doerr, You are in possession of a certified letter dated April 26, 1989 addressed to Mr. Henry Flieck of your organization putting you on notice of the intention to renew our lease for the store in The Alameda Shopping Center. It was on B. Green & Co., Inc. stationary and signed by Martin Braun, head of real estate for B. Green and all of its subsidiaries. In further discussion with you, we found out that the lease in question was in Beckenheimer’s, Inc. name, our wholly owned subsidiary, rather than B. Green & Co., Inc. The purpose of this letter is to clarify the prior letter and to formally acknowledge on the part of Beckenheimer’s, Inc., the intent to renew the lease of our store in The Alameda Shopping Center.

I sincerely apologize for any difficulty this oversight may have caused. Sincerely, Benjamin L. Green President Beckenheimer’s, Inc.” The foregoing letter, which does not appear to be registered or certified, was received by Acme on May 8. Prior thereto, on May 5, 1989, Acme, by Henry Flieck, had written to Beckenheimer’s, by certified mail, addressed to 1607 North Washington Boulevard, the address for Beckenheimer’s appearing in a notice paragraph of the Sublease. This letter advised that Beckenheimer’s had failed to renew the Sublease by failure to give “timely notice and failure to provide a required net worth statement.” 2 ⁵⁴³ Nevertheless, with respect to the Prime Lease, Acme, by letter of May 15 to Alameda, “exercise[d] the first five year option granted under [the Prime Lease], thereby extending the termination to August 31, 1994.” The net worth requirement in the conditions for renewal of the Sublease was addressed by Beckenheimer’s in a letter of May 16 from counsel for Beckenheimer’s, courier delivered to Acme on May 19.

Among enclosures to that letter was a copy of the federal income tax return for the fiscal year of Beckenheimer’s ended June 27, 1988. The balance sheet in the tax return reflected a net worth of nearly $3.7 million. Also enclosed was a “[certificate” by the president of Beckenheimer’s representing that records showing that corporation’s net worth in 1982 had not been located, that as of August 25, 1984, the net worth was $791,937, and that “[t]he last certified financial statement,” as of December 28, 1985, showed a net worth of $1,581 million. Meanwhile Alameda, apparently because it hoped to put a fast food operation on the parking lot, sought to have Acme withdraw its renewal of the Prime Lease.

There is no evidence that Acme ever did so. 3 Thereafter, by an agreement intended to be effective August 31, 1989, and in consideration of the payment by Alameda to Acme of $100,-000, Alameda and Acme terminated the Prime Lease (Lease Termination Agreement). In the Lease Termination Agreement Acme certified that the Sublease was the only sub ⁵⁴⁴ lease to which the supermarket premises were subject, Acme assigned all of its interest in the Sublease to Alameda, and Alameda agreed to assume all of Acme’s obligations, if any, under the Sublease, and to hold Acme harmless under the Sublease after the termination of the Prime Lease. Eventually, following some confusion concerning the rent paid by Beckenheimer’s and after a “standstill” agreement had been effected, Alameda brought the subject declaratory judgment and injunction action. 4 The principal theory alleged in Alameda’s complaint is that the Lease Termination Agreement terminated the Sublease. Acme intervened as a plaintiff, seeking a declaration that the Sublease expired for want of an effective renewal.

Alameda moved for summary judgment, and that motion was referred to the General Master of the Circuit Court for Baltimore City for report and recommendation. The master recommended that the adjudication sought by Alameda be entered on summary judgment. Beekenheimer’s excepted to the master’s report, and the matter was heard by the court on exceptions. Of four issues which had been identified by the master, the circuit court concluded that its rulings on two issues furnished grounds for granting Alameda’s motion.

The court permanently enjoined Beckenheimer’s from occupying the supermarket premises at the Shopping Center, but, upon the posting of a bond, the court stayed that injunction pending this appeal. One ground on which the circuit court relied, as reflected in the injunction order, is “that Beckenheimer’s failed to renew the Sublease in accordance with its terms.” The second ground recited in the injunction order for granting Alameda’s motion for summary judgment is “that the [S]ub ⁵⁴⁵ lease, by itself, does not confer on Beckenheimer’s a right to renew the primary lease or to compel Acme to renew it for the benefit of Beckenheimer’s.” 5 Beckenheimer’s appealed to the Court of Special Appeals. We granted certiorari on our own motion prior to consideration of the case by that court. Beckenheimer’s contends that its notice of renewal was timely and effective and that equity can relieve from a failure strictly to comply with all of the provisions for renewal.

Acme and Alameda view each of the renewal provisions as conditions with which Beckenheimer’s must strictly comply. They further deny that equity can give Beckenheimer’s any relief, because Beckenheimer’s has not demonstrated any substantial, irreparable injury. I Beckenheimer’s did not cause Acme to have in hand on or before May 4, 1989, a notice of renewal that strictly complied with the Sublease’s renewal provisions. To determine whether Maryland equity can assist Beckenheimer’s we must first determine precisely what deficiencies taint the attempted renewal.

The appellees say that Beckenheimer’s did not act within the time required by the Sublease. This argument, more precisely, is that the letter of April 26 ⁵⁴⁶ should not be considered to have any effect, not because it was untimely, but because it did not comply with certain conditions for renewal, other than timeliness. Between them, the appellees argue three defects: (A) that the notice timely received by Acme was really an attempted renewal by B. Green; (B) that the notice timely received by Acme did not include any statement of net worth; and (C) that Beckenheimer’s never has submitted any net worth statement certified by an independent public accountant. A Alameda advances two reasons why the letter of April 26 should be read as an attempt by B. Green to exercise the option.

First, the letter is on the letterhead of B. Green while the author is not otherwise identified. Second, the letter of May 4 from Beckenheimer’s to Acme indicates that the mistaken, subjective belief of the author of the April 26 letter was that the Sublease was held by B. Green. Neither reason supports summary judgment. The exercise of the option to renew should be viewed much like the formation of a contract.

The option is a continuing offer by Acme which may be accepted by complying with the conditions of the offer. The April 26 letter clearly manifests an intent to accept that offer. The letter specifically refers to the Sublease between Acme and Beckenheimer’s. It is addressed to the sublessor.

Acme knows that the sublessee is Beckenheimer’s. And, indeed, an Acme representative pointed ^out that Beckenheimer’s was the sublessee in a discussion with a representative of Beckeiiheimer’s had after receipt jpf the April 26 letter and prior to the mailing by Beckenheimer’s of its May 4 letter. The objective, reasonable interpretation of the April 26 letter is that it is an acceptance by the legal owner of the Sublease. On the other hand, to construe the April 26 letter as written on behalf of B. Green, because of the letterhead, as Alameda contends, is an unreasonable interpretation.

It ignores the clear manifestation of intent to accept the offer ⁵⁴⁷ to renew. The argument seeks to attribute the renewal to an entity which is not a party to the Sublease and is not the optionee. Because the reasonable, objective interpretation of the April 26 letter is that Beckenheimer’s, the sublessee, was exercising the option, it is irrelevant whether the author of the April 26 letter harbored, at the time it was written, a mistaken subjective intent as to the ownership of the sublessee’s interest. A party’s intention will be held to be what a reasonable person in the position of the other party would conclude the manifestations to mean.

Sands v. Sands, 252 Md. 137, 143, 249 A.2d 187, 191 (1969); Slice v. Carozza Properties, Inc., 215 Md. 357, 368 , 137 A.2d 687, 693 (1958); Ray v. William G. Eurice & Bros., Inc., 201 Md. 115, 127 , 93 A.2d 272, 279 (1952). Appellees’ argument can be tested by reversing the direction of the action. Assume that, after receipt by Acme of the April 26 letter, Beckenheimer’s vacated the premises, and Acme was suing Beckenheimer’s to enforce an allegedly renewed lease. Further assume that Beckenheimer’s moves for summary judgment on the ground that it thought that B. Green held the sublease and that an attempted renewal by B. Green was of no legal effect.

Summary judgment for Beckenheimer’s would be denied. The renewal letter identifies the sublease being renewed by its date, by the parties to it, namely, Acme and Beckenheimer’s, and by the original prime landlords. The first name salutation of Acme’s Director of Real Estate, used by the head of real estate for B. Green and its subsidiaries, raises an inference of prior dealings and familiarity between the real estate arms of the two organizations. Were a trier of fact to find, in the hypothetical, that a reasonable person in the position of Acme objectively would conclude that it was Beckenheimer’s that was renewing by the April 26 letter, there would be sufficient evidence to support that conclusion. ⁵⁴⁸ B The second notice deficiency argued by the appellees is factually correct, namely, that Beckenheimer’s did not submit any statement of net worth with the April 26 letter.

The balance sheet included in the fiscal 1988 federal income tax return was received by Acme fifteen days into the 120 day notice period. C The certification by the president of Beckenheimer’s to the balance sheet in the tax return must be considered, in the present posture of the case, as the type of certification referred to in the renewal provision of the Sublease, for two reasons. First, “the most recent certified financial statements of Sublessee,” as used in the renewal paragraph of the Sublease, is ambiguous. What constitutes certification of the net worth statement is not spelled out in the Sublease.

The Prime Lease does not require any statement of net worth for the tenant to exercise rights of renewal, so that the incorporation into the Sublease of nonconflicting provisions of the Prime Lease is of no assistance. The ambiguity is highlighted by comparison to provisions of the Prime Lease dealing with the annual statement of gross sales for the purpose of calculating percentage rent. As originally drafted, the Prime Lease required Acme to furnish the Pistorios “a statement supporting [the percentage] rental payment certified to as correct by Tenant’s Accounting Department.” This is consistent with the general practice described in M. Friedman, Friedman on Leases § 6.5, at 216 (3d ed. 1990). The author states that percentage leases “generally require an annual statement, prepared by a public accountant, often one specializing in the tenant’s type of business, and verified by the tenant or an executive officer if the tenant is a corporation.” Id.

The three-party Consent Agreement of November 1982, on the other hand, provides that the annual statements of ⁵⁴⁹ gross sales “shall be signed and certified as true and correct by an independent certified public accountant.” Given two competing constructions of “certified,” and absent any evidence as to which party drafted the renewal provisions, the ambiguity should be construed against the movant for summary judgment. In any event, even if the Consent Agreement version of “certified,” as applied to gross sales statements, should be read into the Sublease renewal provisions, the inference most favorable to Beckenheimer’s on the present record is that