Waseca Hy-Vee

Hy-Vee in Waseca has been ordered to pay a nearly $300,000 judgement to its landlord in rental dispute. (Dana Melius/Waseca County News)

Waseca’s Hy-Vee will be paying nearly $300,000 to its landlord, 1200 State LLC.

A judgment handed down by Waseca County District Court Judge Carol Hanks on Tuesday ordered the grocery store pay $296,605 in unpaid rent, maintenance fees and interest, as well as attorney fees, which had not been calculated.

A jury decided against Hy-Vee on April 26, siding with the landlords after Hy-Vee reportedly stopped paying rent.

1200 State had sued Hy-Vee, 1230 N. State St., for a declaratory judgment, saying the grocery store had violated its contract with the landlord, broken implied covenant of good faith and fair dealing and accumulated unjust enrichment.

According to the summons, Hy-Vee was responsible for paying a portion of the maintenance expenses for the common area within the mall, which included maintenance, insurance, management fees, parking lot fees, professional fees and security. The landlord said Hy-Vee was responsible for $41,930 in those common area costs for the last three quarters of 2016.

William Skolnick, 1200 State’s attorney, said the landlord purchased the property in foreclosure and proceeded with a program of catching up on deferred maintenance. 1200 State also secured an additional tenant, Bomgaars, for a long-vacant spot formerly occupied by Walmart.

“They really turned it into a much better shopping center,” Skolnick said. “And rather than work with the landlord, Hy-Vee took the opposite approach.”

When time came to pay the maintenance fees, in March 2017, Hy-Vee allegedly didn’t pay, instead returning a letter containing $3,699 and objecting to some of the expenses.

The letter said they weren’t responsible to pay for inspection, removing old section of fencing and disposal of materials, putting in a lock box at another store or the site’s containing wall. The letter also contained objections to association dues, thermostat invoices, property insurance, landscaping and preparation for city council meetings.

After being informed that they were in default, a letter from Hy-Vee attorneys claimed that the landowners were in violation of a number of parts of the lease, including improperly collecting real estate taxes, changing Hy-Vee’s share of common area expenses and failing to provide Hy-Vee with audit records.

The store withheld rent payments beginning in May 2017 as a result of the dispute. All rent and maintenance due accumulated interest at 12 percent under the terms of the lease, Skolnick said.

“We believe the jury’s verdict and the court’s judgment show the landlord is entitled to charge management fees and common area maintenance costs that the lease provides for and that the withholding of rent by Hy-Vee was not justified,” he said.

Hy-Vee released a statement in opposition to the court's decision late Friday.

“We are extremely disappointed by the verdict and believe we received a poor jury decision that ignored the law," the grocery chain said. "We will weigh our options in Waseca. As always, our employees and customers will remain at the forefront of any future decisions.”

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