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Supreme Court Rules That Term In Commercial Lease Means Only What It Means, Nothing More

In Tufail v. Midwest Hospitality, Inc., the Wisconsin Supreme Court ruled that a landlord’s representation that no ordinances prevented a building from being used as a Church’s Chicken restaurant was not a misrepresentation despite the fact that operating a fast-food restaurant with a drive-through at the rented location required a special-use permit. 

Tufail concerns a commercial lease for property in Milwaukee.  Paragraph 5 of the lease provided that tenant may occupy the premises for any lawful purposes, including “the retail sales, consumption, and delivery of food and beverages which shall include, but not be limited to, Chicken products, Fish products . . . and any other items sold by any Church’s Chicken store.”  Paragraph 5 did not contain or use the words “fast-food” or identify use as a “fast-food restaurant” as one of the permitted uses.  Paragraph 33 provides that landlord represents and warrants that “no existing restrictions, building and zoning ordinances, or other laws or requirements of any governmental authority prevent the use of the Premises for the purposes set forth in Paragraph 5 . . .”  Tenant leased the premises in order to operate a Church’s Chicken (a fast-food restaurant).    

After signing the lease, tenant learned that because Church’s Chicken is fast-food restaurant, zoning ordinances required a special use permit in order to operate a fast-food restaurant on the premises, including a fast-food restaurant with a drive-through.  Tenant applied for and obtained a special use permit; however, the permit was only granted for one year and, in addition to other restrictions, required the restaurant to close at 9 p.m. every evening.  Tenant determined that the conditions in the special use permit made profitable operation of the business impossible and stopped paying rent.  Tenant and landlord subsequently brought claims against one another, tenant primarily asserting false representation and landlord primarily alleging breach of contract.    Tenant asserted that because a special use permit was required to operate a fast-food restaurant with a drive-through, landlord had made a false representation in the lease when it had represented that there were no existing restrictions preventing use of the premises for any of the purposes in paragraph 5.  A key element of tenant’s position in light of the reference to “Church’s Chicken” in paragraph 5 was that nearly all Church’s Chicken restaurants have a drive-through.     

Following a three-day bench trial, the circuit court ruled in landlord’s favor, ruling that the lease “unambiguously failed” to set forth operation of a fast-food restaurant with a drive-through as a permitted use and that, consistent with the lease, after obtaining a special use permit, tenant was ultimately able to operate a Church’s Chicken restaurant on the premises.  It also found that although the vast majority of Church’s Chicken restaurants operate with a drive-through, not all do.  Finally, even if it was found that the lease implicitly set forth use as a fast-food restaurant with a drive-through as one of the permitted use, given that tenant did obtain a special use permit allowing the operation of a fast-food restaurant with a drive-through (albeit with restrictions), that use was ultimately not prevented.  Thus, there was no evidence that any of landlord’s representations and warranties were untrue. 

The Court of Appeals reversed the trial court.  The Court implicitly ruled that the landlord had represented that nothing restricted the use of the premises as a fast-food restaurant because a Church’s Chicken is a fast-food restaurant –no additional or express words allowing operation of a fast-food restaurant were necessary to establish that landlord was warranting that nothing restricted operation of a fast-food restaurant.  Because zoning ordinances did in fact restrict operation of a fast-food restaurant, the landlord made a misrepresentation when he stated that they did not. 

The Supreme Court reversed the Court of Appeals and affirmed the circuit court.  The Supreme Court ruled that the reference to “Church’s Chicken” and the product descriptions in paragraph 5 do not constitute a representation that tenant could operate a Church’s Chicken fast-food restaurant with a drive-through; all the landlord warranted was that tenant would not be prevented from using the property for the purposes set forth in paragraph 5.  Given that the lease did not specifically refer to using the premises as a fast-food restaurant with a drive-through and that any of the functions set forth in paragraph 5 could be performed at a sit-down restaurant, the zoning ordinances did not bar or prevent any of the uses set forth in paragraph 5.  Moreover, the fact that tenant had obtained a special use permit to operate a fast-food restaurant with a drive-through expressly refuted the contention that tenant had been prevented from using the property for any use set forth in paragraph 5.  Thus, landlord’s representations and warranties were true and accurate. 

Justice Prosser was the lone dissenter.  The dissent would have affirmed the Court of Appeals, reasoning that the only reasonable meaning of the words “Church’s Chicken” in the lease meant use as a fast-food restaurant and the landlord’s warranty that no ordinances prevented the operation of a Church’s Chicken at the premises was false because the Milwaukee zoning code required a fast-food restaurant, with or without a drive-through, to have a special use permit.  Accordingly, the landlord’s representation that no ordinances prevented the operation of a Church’s Chicken on the premises was false.  The fact that tenant obtained a special use permit permitting the operation of a Church’s Chicken at the premises was irrelevant.  Despite the fact that a special use permit might be obtained, the relevant fact was that the zoning code did not permit operation of a fast food restaurant or a Church’s Chicken at the premises, rendering landlord’s warranties to the contrary false.        

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