The Gap, Inc. v. GK Development, Inc.
843 F.3d 744
8th Cir.2016Background
- Gap leased retail space at Columbia Mall (2001), with a five-year term and extension options; lease contained provisions for "Center Expenses," "Utilities," and "HVAC Maintenance."
- For roughly the first ten years, neither the landlord nor successor manager (GK) charged Gap for HVAC or common area maintenance (CAM)/Center Expenses.
- In 2011 GK began billing Gap for HVAC and CAM, claiming prior nonbilling was an "oversight;" Gap paid some invoices but stopped in 2013 and sought refunds.
- Gap sued in 2014 for declaratory relief and damages; GK counterclaimed that the lease required Gap to pay a proportionate share of Center Expenses, CAM, and HVAC costs.
- The district court held the lease unambiguous in Gap’s favor (no obligation to pay HVAC or CAM) and awarded damages to Gap; GK appealed.
Issues
| Issue | Gap's Argument | GK's Argument | Held |
|---|---|---|---|
| Whether Article 10(B) permits GK to directly charge Gap for HVAC | Article 10(B) was not relied on below; Gap argued not liable | GK contends Article 10(B) allows landlord to bill tenants for utilities including HVAC | Court: GK waived Article 10(B) argument on appeal; not considered on merits |
| Whether Article 5 requires Gap to pay Center Expenses (CAM/HVAC included) | "Initial Estimated Monthly Center Expenses: $ N/A" and course of performance show Gap owes nothing | Article 5’s plain text obligates tenant to pay Tenant’s Proportionate Share after initial 12 months | Lease ambiguous due to "N/A"; extrinsic evidence (10-year nonbilling, 2005 estoppel) supports Gap — affirmed for Gap |
| Whether extrinsic evidence can resolve ambiguity in Gap’s favor | Course of performance and estoppel certificate show parties intended no Center Expense obligation | GK offered no extrinsic evidence to the contrary (GK challenged some documents’ admissibility) | Court: Extrinsic evidence supports Gap; material fact favors Gap such that summary judgment for Gap affirmed |
| Whether Article 11(C) allows GK to recover HVAC maintenance/repair costs | Gap argued no HVAC obligation overall | GK argued Article 11(C) permits charging tenant for HVAC maintenance/repair where units serve multiple tenants | Court: Article 11(C) can obligate tenant for reasonable share of HVAC maintenance/repairs; district court judgment modified to preserve landlord’s rights under 11(C) but GK presented no evidence that past charges complied with 11(C) |
Key Cases Cited
- Busch Props., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 815 F.3d 1123 (8th Cir.) (standard: de novo review of contract interpretation and summary judgment)
- Savre v. Santoyo, 865 N.W.2d 419 (N.D. 2015) (lease interpretation follows parties’ mutual intent; plain language first)
- Olander v. State Farm Mut. Auto. Ins. Co., 317 F.3d 807 (8th Cir.) (when contract ambiguous, courts may consider extrinsic evidence)
- Kaler v. Kraemer, 603 N.W.2d 698 (N.D. 1999) (contract ambiguity makes intent a question of fact)
- Nat’l Bank of Harvey v. Int’l Harvester Co., 421 N.W.2d 799 (N.D. 1988) (course of performance informs ambiguous contract meaning)
- Weitz Co. v. Lloyd’s of London, 574 F.3d 885 (8th Cir.) (appellate courts may address new arguments when purely legal or encompassed by earlier arguments)