Pofabe Development Corporation, Appellant, vs. Ra SM, Inc. d/b/a Once Upon a Child, et al., Respondents.

Pofabe Development Corporation, Appellant, vs. Ra SM, Inc. d/b/a Once Upon a Child, et al., Respondents. A07-164, Court of Appeals Unpublished Decision, December 18, 2007.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2006).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A07-0164

 

Pofabe Development Corporation,
Appellant,
 
vs.
 
Ra SM, Inc. d/b/a Once Upon a Child, et al.,
Respondents.

 

Filed December 18, 2007

Affirmed

Stoneburner, Judge

 

 Ramsey County District Court

File No. C5-06-4462

 

Michael A. Rosow, Kyle J. Kaiser, Karl Robinson, Winthrop & Weinstine, P.A., 225 South Sixth Street, Suite 3500, Minneapolis, MN 55402 (for appellant)
 
Douglass E. Turner, Robert P. Schwartz, Hanbery & Carney, P.A., 33 South Sixth Street, Suite 4040, Minneapolis, MN 55402 (for respondents)

 

            Considered and decided by Halbrooks, Presiding Judge; Stoneburner, Judge; and Minge, Judge. 

U N P U B L I S H E D   O P I N I O N

STONEBURNER, Judge

Appellant, a commercial landlord, challenges summary judgment dismissing its claim against respondent tenant for anticipatory repudiation of a commercial lease.  The district court held that the tenant's notice of intent to continue the lease did not constitute a binding agreement because the lease contained a renewal option that could only be effected by the parties executing a new lease.  Because the district court determined that there was no renewal, it did not reach appellant's argument that the guarantor of the original lease was liable for damages caused by breach of the renewed lease.  We affirm.

FACTS

Respondent Ra SM, Inc. d/b/a/Once Upon a Child (Ra SM) had a 75-month lease covering a portion of a commercial mall in Woodbury where it conducted a retail business.  Respondent Roger Mrugala, a shareholder of Ra SM, was a guarantor of the lease.  By its terms, Mrugala's guaranty was "irrevocable, absolute and unconditional" and was to "remain and continue in force and effect for (a) any renewal, extension, modification or amendment of the Lease . . . ."  The termination date of the lease was September 30, 2006.  Appellant Pofabe Development Corporation (Pofabe) acquired the mall subject to Ra SM's lease.  Thomas O'Brien is a shareholder and president of Pofabe. 

The 25-page lease contained the following provision titled "Renewal Option":

Tenant shall have the option to extend the Term of this Lease for one (1) additional period of forty-eight (48) months commencing upon the expiration of the initial Term.  In order to exercise this renewal option, Tenant shall give Landlord written notice of its election to exercise the renewal option not less than one hundred eighty (180) days prior to the Termination Date of the initial Term.  As a further condition of its right to exercise the renewal option, Tenant shall not be in default under this Lease either at the time of giving the extension notice or at the commencement date of the renewal term.  Annual Minimum Rent during the renewal term shall be at fair market value as mutually negotiated by Landlord and Tenant.

 

The lease also provided that the "marginal or topical headings of the several article[s], paragraphs and clauses are for convenience only and do not define, limit or construe the contents of such articles, paragraphs or clauses."

            On July 5, 2005, Mrugala, on behalf of Ra SM, gave O'Brien written notice of intent to exercise the option.  Mrugala's letter stated:

Dear Tom:

Per our current lease, I'm writing to notify you of our intent to exercise our option to renew and to request a new lease option for another five [5] years.  Perhaps we can negotiate the rent and new option, when we get together concerning [a separate] lease.

 

O'Brien and Mrugala met in August 2005 to discuss the possibility of Ra SM leasing another space in the mall for another business.  At the lunch, Mrugala decided not to pursue a lease for a different business.  Mrugala does not recall any discussion about renewing the existing lease, but O'Brien claims that Mrugala mentioned his renewal letter and asked if they could talk about it later.  O'Brien asserts that "[w]e just said if there's . . . going to be any changes in the lease that we would talk about it later."  O'Brien's understanding was that rent would continue at its current level unless the parties had further discussions.  The parties had no further discussions about the terms of the lease renewal or a new lease option. 

In February 2006, Mrugala provided notice that he was withdrawing the exercise of Ra SM's option and would vacate the premises on September 30, 2006.  Pofabe sued Ra SM and Mrugala seeking a declaratory judgment that the lease had been extended through 2011 and that Mrugala remained a guarantor on the lease.  In the alternative, Pofabe sought damages for anticipatory repudiation of the lease from Ra SM and Mrugala.  Ra SM counterclaimed seeking a declaratory judgment that the lease had not been renewed and that it was not breaching the lease.  The parties filed cross-motions for summary judgment.  The district court granted summary judgment to Ra SM, concluding that the relevant provision in the lease was not an option to extend the terms of the original lease but an option to renew the lease which, to be enforceable, required negotiation of the price term and execution of a new lease.  This appeal followed.

D E C I S I O N

Summary judgment is properly granted when the pleadings, depositions, affidavits, or other evidence show that there is no genuine issue of material fact and that either party is entitled to judgment as a matter of law.  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).  On appeal from summary judgment, we ask: (1) whether there are any genuine issues of material fact and (2) whether the district court erred in its application of the law.  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).  The evidence is viewed in the light most favorable to the party against whom judgment was granted.  Fabio, 504 N.W.2d at 761.

            The primary issue in this case is whether Ra SM's notice of intent to exercise the renewal option effectively continued the lease.  "A lease is a contract which should be construed according to ordinary rules of interpretation."  Amoco Oil Co. v. Jones, 467 N.W.2d 357, 360 (Minn. App. 1991).  "The general rule for construction of contracts is that where language is plain and unambiguous, there is no room for construction."  City of Virginia v. Northland Office Props. Ltd. P'shp,465 N.W.2d 424,427 (Minn. App. 1991), review denied (Minn. Apr. 18, 1991).  Where the intention of the parties can be determined wholly from the language of a contract, the construction of the contract is a question of law for the court to resolve.  Wolfson v. City of St. Paul, 535 N.W.2d 384, 386 (Minn. 1995), review denied (Minn. Sept. 28, 1995).

Minnesota case law has long distinguished options to extend a lease from options to renew a lease.  See Tilleny v. Knoblauch, 73 Minn. 108, 113, 75 N.W. 1039, 1041 (1898) (stating that "[u]nder the ordinary form of lease there is a distinction between a stipulation to renew the lease for an additional term and a stipulation to extend the lease for an additional term").  "The legal distinction between an extension and a renewal of a lease is that an extension merely continues the original lease, while a renewal requires a new lease."  Med-Care Assocs., Inc. v. Noot, 329 N.W.2d 549, 551 (Minn. 1983) (citing Tilleny, 73 Minn. at 113, 75 N.W. at 1041). 

If any contractual term for the additional period must be negotiated or determined, the statute of frauds requires a new lease and the new period is a renewal.  If the lease is continued by the party holding the option merely on timely notice or on some other condition, no new lease is required, and the option is an extension.

 

Id.

 

            Pofabe argues that when the option provision is read together with the entirety of the lease, it provides for extension of the lease merely by notice to exercise the option and does not require execution of a new lease.  We disagree.  By the plain language of the renewal option, the parties are required to negotiate "fair market value" to determine the rent for the renewal period.  Because rent for the new period must be negotiated by the parties, under the holding of Med-Care the option is for renewal, not extension, and the option is exercised only when the parties enter into a new lease.  Moreover, Ra SM's notice of intent to renew requested an additional five-year renewal option, which also required negotiation. 

            Pofabe argues that even if the price term in the option was too indefinite to form a valid contract, there is at least a genuine issue of material fact about whether the parties engaged in the required negotiation and agreed that rent would continue at the current rate unless the parties had further discussions.  The district court, viewing the evidence in the light most favorable to Pofabe, as it was required to do on summary judgment, credited O'Brien's deposition testimony that there was some passing discussion concerning the rent for the renewal term, but concluded that Obrien's recollection of the discussion did not demonstrate that rent was negotiated such that the parties had entered into a new lease. 

            In its brief on appeal, Pofabe characterizes the district court's conclusion as a "finding" that Pofabe argues is "clearly erroneous."  We read the district court's conclusion on this matter not as a finding of fact but as a holding that even if O'Brien's testimony is credited, it is insufficient to raise a genuine issue of material fact regarding the negotiation of the price term, and we agree.  When a contractual term for the additional period must be negotiated, "the statue of frauds requires a new lease."  Med-Care, 329 N.W.2d at 551.  The statute of frauds provides:

Every contract for the leasing for a longer period than one year . . . shall be void unless the contract, or some note or memorandum thereof, expressing the consideration, is in writing and subscribed by the party by whom the lease . . . is to be made, or by the party's lawful agent thereunto authorized in writing . . . .

 

Minn. Stat. § 513.05 (2006).  O'Brien's testimony that the parties reached an oral agreement about the rent is insufficient, as a matter of law, to support a conclusion that the parties entered into a written agreement as required to exercise the renewal option.  The district court did not err in granting summary judgment based on the parties' failure to enter into a new lease.

Because we affirm summary judgment to Ra SM holding that the lease was not renewed, we do not reach Pofabe's argument that Mrugala is personally liable for damages for Ra SM's anticipatory repudiation of the contract under his guaranty of the original lease.

Affirmed.