## Facts

- Oakwood Village LLC owned a shopping center and leased ground to Albertsons as an anchor tenant under a 1978 ground lease.
- The lease had a 25-year initial term with fixed monthly ground rent plus taxes and charges, and did not include percentage rent tied to sales.
- Oakwood promised not to lease other space in the center to another supermarket.
- Albertsons built and operated a supermarket on the site for more than 21 years.
- Albertsons later closed the store, continued paying all rent and charges, left the premises vacant, and opened a new store at a nearby competing center.
- Oakwood alleged Albertsons kept the premises dark to prevent Oakwood from re-leasing the anchor space and to restrict competition, causing vacancies and reduced center performance.
- Oakwood sought declaratory relief (including termination and re-leasing rights) and damages exceeding $1 million.
- The trial court dismissed for failure to state a claim under Utah R. Civ. P. 12(b)(6) and awarded defendants attorney fees under a prevailing-party lease clause.

## Issues

1. Whether a covenant of continuous operation inheres in every commercial ground lease as a matter of law, or could be implied from this lease’s terms.
2. Whether Albertsons breached the implied covenant of good faith and fair dealing by closing the store, leaving the premises dark, and operating a competing store while continuing to pay rent.
3. Whether dismissal under Rule 12(b)(6) was improper because the court considered materials attached to or incorporated in the pleadings, requiring conversion to summary judgment.

## Decision

- The Utah Supreme Court affirmed dismissal of Oakwood’s complaint.
- The court held the lease contained no express continuous-operation clause and no such covenant would be implied from the lease structure.
- The court held Albertsons did not breach the implied covenant of good faith and fair dealing by ceasing operations while continuing to perform express lease obligations, including payment of rent.
- The court held the Rule 12(b)(6) dismissal was procedurally proper because the court could consider the lease and documents integral to the claims without converting the motion.
- The court upheld the award of attorney fees to defendants under the lease’s prevailing-party provision.

## Legal Principles

- A covenant of continuous operation is not implied in every ground lease; implication depends on the contract’s language and structure.
- Courts will not imply a term that contradicts the contract’s express allocation of rights or adds a material obligation not bargained for.
- Fixed rent without percentage rent weighs against implying a tenant duty to operate continuously for the landlord’s benefit.
- Broad rights to assign or sublet, and rights to alter or remove improvements, are inconsistent with an implied duty that the tenant itself continuously operate a specific business.
- The implied covenant of good faith and fair dealing applies to every contract but cannot create new, independent duties or rewrite the parties’ bargain.
- A tenant’s compliance with express contractual duties generally defeats a claim that the implied covenant required additional performance not found in the contract.
- On a Rule 12(b)(6) motion, a court may consider documents attached to, incorporated in, or integral to the pleadings (such as the contract sued upon) without converting the motion to summary judgment when authenticity is not disputed.

## Conclusion

The court enforced the ground lease as written, refusing to imply a continuous-operation obligation or use the implied covenant of good faith and fair dealing to require continued retail operations or re-leasing efforts where the tenant paid fixed rent and the lease granted flexibility inconsistent with such duties.


Oakwood Village LLC v. Albertsons, Inc., 104 P.3d 1226 (Utah 2004)