It was a typical morning at a South Whidbey institution.

Every seat at the Smilin’ Dog is filled. People sip on their coffee. They chat, visit, trade the latest South End news and gossip.

This Friday morning’s big news hits the patrons hard. And from every corner of the Bayview eatery the same shreds of conversation are heard:

“Today is their last day — really?”

“Can you believe it?”

“No, I just heard — why?”

The rumors are true. The Smilin’ Dog closed its doors at

3 p.m. Friday. More than a dozen employees lost jobs in the sudden demise of the Bayview cafe.

To them and many others, it is a shock.

Unsuccessful lease negotiations are behind the sudden closing of the popular coffee house, said Marty Fernandez, co-owner of the Smilin’ Dog.

New lease terms would have made it impossible to keep the Smilin’ Dog financially healthy.

“We were not able to negotiate a lease that included Peggy and I in the picture, that could have sustained us through the term of the lease,” Fernandez said.

Goosefoot Community Fund is the landlord and owns the restaurant’s space in the Bayview Cash Store.

The Smilin’ Dog’s four-year lease was set to expire in April.

For five to six weeks, Goosefoot was in negotiations with Moe and Fernadez, said Linda Moore, CEO of Goosefoot.

“We tried to find reasonable economic terms, but we didn’t,” she said.

Moore said she could not discuss details of the negotiation or the lease.

“It’s our policy not to discuss specific gross sales or lease terms to protect our tenants,” she said.

However, Moore did say that Goosefoot now has 14 commercial tenants and that the economics of the Smilin’ Dog lease were 50 percent below all other tenants.

Moore said each lease has its own specific terms and expiration dates.

Goosefoot is a non-profit organization that promotes sustainable economic development and affordable housing. The organization has assets of $16 million, including Casey’s shopping center at Bayview.

“It’s not a matter of pushing people out,” Moore said. “The lease expired and the parties could not come to terms on the economics of a renewal of the lease.”

However, Moore said a new operator for the space is waiting in the wings. She said the new cafe will have a similar feel and atmosphere, but she would not discuss details or announce the name of the new tenant.

The new cafe will not keep the name Smilin’ Dog, however.

Fernandez said they will retain the ownership of the name.

Goosefoot doesn’t expect extensive renovations or a long vacancy of the space, Moore said.

“We expect it to be operational very soon,” she said.

“We don’t anticipate it to be closed longer than a week or two,” she said.

Moore would not comment on claims that Goosefoot was trying to assume more influence over the Smilin’ Dog, including events and the menu, as part of a new lease.

“Except for the economics, essentially it was the same lease they were operating under,” Moore said.

She said Goosefoot was saddened that common ground could not be found. “It’s a loss to all of us,” Moore said.

Fernandez said while negotiations had been going on for weeks, he did not expect to find himself out of business.

“I wouldn’t have guessed that we would not be continuing,” he said. “I have a 10-year-old daughter. I was not going anywhere.”

The cafe’s employees were also out of the job overnight.

“We’ll have to let them go,” Fernandez said.

The Smilin’ Dog has 10 to 12 staffers off-season and up to 24 in the summer time.

Goosefoot has arranged for the new cafe owner to contact current employees, who may be able to apply for jobs in the new operation.

The Smilin’ Dog would have celebrated its 10-year anniversary this April.

It was started by the Jonni and Dennis Reed. Fernandez and his wife Peg Moe took over the cafe five years ago and have since been a fixture in the community.

When the new owners took over they started building on the foundation laid by the Reeds with great success.

“We recognized what they had created and wanted to honor that,” Fernandez said.

To many, the Smilin’ Dog is meeting point and their living room away from home.

Many made their first contact with island life in the cafe. Others fear that a place were kids can play and have fun while the parents have a cup of coffee can’t be replaced.

“It was the first coffee house I came to when I came to the island seven years ago,” said Joseph Sanchez.

Sanchez gathered with some friends around a table, sipping on their favorite Smilin’ Dog specialties for the last time.

“It’s the place to go if you want to be introduced to the South Whidbey community,” Kathy Deane agreed.

The Smilin’ Dog is more than just a source for steamy coffee to many. The owners and waiters have become friends and advisors over the years.

“It means more than just a business. It’s about friends. Marty and Peg are great people,” Deane said.

For regulars, the Smilin’ Dog holds a lot of memories. At the center of those memories are always Peg and Marty.

“I remember them bringing out the accordion, singing Happy Birthday to people,” Emily Czerwonka recalled. Her friends remembered Peg dancing on the patio in front of the store.

Czerwonka said she enjoyed the music events and the bar at night.

Closing the Smilin’ Dog also means the end for the concerts and other cultural events held at the cafe.

The life jazz event planned for Wednesday night is now canceled. TCJC, a jazz quintet, was scheduled to perform at the Smilin’ Dog.

Many agree that a new cafe can move in, but the atmosphere can’t be recreated.

“I’ll miss them” said Julie Jane.

Marty Fernandez said that it is overwhelming to see the appreciation from the community.

“Peggy and I were able to integrate ourselves into the community at a level that we could have not imagined,” he said.

“It was the hardest work I have ever done, but it was the most fun I’ve ever had,” he said.

New challenges lay ahead for the family.

“We are excited about new opportunities — a chance to catch our breath,” he said.

At this point there are no plans to resurrect the Smilin’ Dog at another location on South Whidbey, Fernadez said.

Just because the Smilin’ Dog is now part of South End history, Fernandez and Moe will be still take the time chat with people out in town, in line at the ferry or on the street.

“We’ll be around,” he said.