Sola Salon Didn't Breach Lease By Assigning Rights

It's not often that we come across a Tenth Circuit Court of Appeals case that is largely dedicated to the elements of a contract instead of precedent. Today's case, Sola Salon Studios v. Heller, is a rare exception.

Sola Salon owns salon studios throughout the country, but its operational structure is rather unusual. Sola does not employ beauticians or stylists, and instead contracts with those kinds of professionals to use space that Sola leases from someone else, and allows the professionals to operate their own independent salon studios.

The Tenth Circuit paraphrased Sola's motto as "the stylists are in business for themselves, but not by themselves."

The predominant component of the contractual relationship between Sola and its stylists is that Sola allowed the stylists to use retail space rented by Sola, (in this case, from defendant Cecilia Heller), and as consideration the stylists paid Sola rent on a weekly basis. Thus, Sola's contracts with its stylists entitle Sola to a meaningful and reliable revenue stream.

Sola leveraged this revenue stream by assigning as collateral its rights in these contracts to large banks, which in exchange loaned Sola substantial sums of money. Heller says that Sola was not allowed to make assignments of this fashion, because the lease prohibited Sola from assigning "any interest" in the lease. Sola responds that the lease did not prohibit assignment of rents resulting from contractual relationships with its stylists that were explicitly contemplated by the parties' lease.

Heller became unhappy with Sola's performance as a tenant, and suggested that Sola should pay substantially more operating expenses than it had been. Sola disagreed.

Sola sued and Heller countersued, each asserting claims arising out of the parties' performance of the lease agreement. Sola moved for judgment as a matter of law on Heller's anti-assignment counterclaim. The district court granted the motion, concluding that the anti-assignment provision only prohibited assignment of real property interests.

Heller appealed the district court's grant of summary judgment to Sola on the anti-assignment counterclaim, arguing:

1. The anti-assignment provision prohibited assignment of any interest described in the lease - not just real property interests.
2. Even if the provision only prohibited assignment of real property interests, the license agreements conveyed real property interests to the stylists.
3. Assuming there was a breach, whether it could reasonably have been cured in 15 days was an issue of fact that should have been left for the jury.

The Tenth Circuit disagreed with Heller's first two contentions, and concluded that Sola did not breach the lease by assigning its rights in the license agreements to a bank. Though the court noted that the dispute was not an easy one to resolve, the Tenth Circuit Court of Appeals ultimately concluded that Sola had the better argument.

Related Resources:

• Tenth Circuit Talks About the Ghosts of Escape Clauses Past (FindLaw's Tenth Circuit Blog)
• Does the Rooker-Feldman Doctrine Bar Your Foreclosure Appeal? (FindLaw's Tenth Circuit Blog)
• Quiet Riot: Landowner Loses Claim Due to Statute of Limitations (FindLaw's Tenth Circuit Blog)