Traditionally, retail tenants have sought to include provisions in their leases explicitly giving them the right to audit landlords’ books, particularly with regard to common area maintenance (CAM) charges. However, case law suggests that a retailer may not be out of luck if its lease is silent as to audit rights. Tenants should also be aware that even where audit rights are set out in a lease, landlords often insert restrictive clauses that seek to limit tenants’ rights to recover overcharges in court.
Continue Reading The Effect of CAM Audit Clauses in Retail Leases

As shopping center occupancy rates have decreased, enforcing co-tenancy rights has taken center stage for retailers. The key to enforcing rights under a co-tenancy provision is to rely on the plain language of the lease.

For example, in the past year, courts in Michigan and Georgia have ruled in favor of Rainbow, USA in co-tenancy disputes based on the precise language of co-tenancy provisions in the leases. In both cases, the court relied on the plain language of Rainbow’s leases to hold that Rainbow was entitled to pay reduced rent based on the landlord’s failure to meet co-tenancy requirements under the lease.


Continue Reading Co-Tenancy Disputes With Landlords Are Decided Based on the Plain Language of the Lease

Like any charge under a retail lease, insurance charges can be the source of disputes between retail tenants and their landlords.  Special concerns arise when the landlord chooses to self-insure against certain risks.  It is not uncommon for a large landlord to self-insure at least a portion of its insurance obligations or for a landlord

Retail leases typically contain provisions allowing the landlord to charge the tenant a pro rata share of taxes paid by the landlord. The particular wording of the lease governs what the landlord can and cannot charge a tenant. Looking for ways to cut costs, more tenants are monitoring the taxes passed through by landlords and challenging certain charges.


Continue Reading Taxes May Not Be a Straight Pass-Through Under Retail Leases

As retailers continue to close underperforming stores and look for other ways to cut costs in a weak economy, they are closely monitoring and enforcing co-tenancy provisions in retail leases.

The language of the lease is critical in co-tenancy disputes.  Issues that arise include:

  • What conditions trigger a tenant’s co-tenancy rights? Closure of anchor stores? Closure of stores occupying a certain percentage of the leasable space in the mall?


Continue Reading Retailers Look To Cut Costs By Enforcing Co-Tenancy Provisions

In this troubled economy, co-tenancy provisions are playing a critical role in retail leases. The Wall Street Journal recently reported that retail tenants with co-tenancy rights in their leases are “eking out critical savings” to counter the drop in sales.[1] Vendors are offering services that track store closings at shopping centers for purposes of

Case: Reliastar Life Insurance Co. of NY v. Home Depot, U.S.A., Inc., 570 F.3d 513 (7th Cir. 2009) (applying New York law)

The One Sentence Summary: A federal court applying New York law holds that a tenant’s execution of an estoppel certificate creates no warranties about present or future conditions not known by the tenant at the time of execution; and court holds that constructive eviction relieves a tenant of the obligation to pay rent even where the tenant signed a “hell or high water” clause.

What They Were Fighting About: Home Depot entered into a lease providing that the landlord was responsible for the “building pad.” When the original landlord assigned the lease to a subsequent landlord, Home Depot signed an estoppel certificate providing: “Tenant has fully inspected the Premises and found the same to be as required by the Lease, in good order and repair, and all conditions under the Lease to be performed by the landlord have been satisfied; including but not limited to payment to Tenant of any landlord contributions for Tenant improvements and completion by landlord of the construction of any leasehold improvements to be constructed by landlord; . . . As of this date, the Mortgagor, as landlord, is not in default under any of the terms, conditions, provisions or agreements of the Lease and Tenant has no offsets, claims or defenses against the Mortgagor, as landlord with respect to the lease.”

At the time of the assignment, Home Depot also signed a Recognition Agreement including the following “hell or high water” clause: “Tenant agrees that notwithstanding anything in the Lease or this Agreement contained to the contrary, until Mortgagee notify [sic] tenant that the Assignment has been released, Tenant shall be unconditionally and absolutely obligated to pay to Mortgagee in accordance with the Assignment all rents, purchases payments and other payments of whatever kind described in the Lease without any reduction, set off, abatement, or diminution whatever.”

Two years after the assignment, Home Depot detected cracks in its store walls resulting from a defective building pad. Home Depot vacated the premises, stopped paying rent and claimed constructive eviction. The landlord/assignee filed suit against Home Depot for all moneys owed under the lease.
Continue Reading Tenant Entitled to Claim Constructive Eviction Despite No Breach Statement in Estoppel Certificate and “Hell or High Water” Clause

Case: El Centro Mall, LLC v. Payless Shoesource, Inc., Cal. Court of Appeal, Fourth District, Division Three, No. G040038 (May 21, 2009)

The One Sentence Summary: In an action by landlord El Centro Mall seeking liquidated damages of $98,000 based on defendant Payless Shoesource’s closure of its store before expiration of the lease term, Payless failed to show that the liquidated damages did not represent a reasonable estimate of the actual damages a mall landlord would suffer as a result of a “national tenant” like Payless ceasing operation, and thus failed to rebut the presumption of validity of the lease’s liquidated damages provision.


What They Were Fighting About: Defendant Payless Shoesource, Inc. (“Payless”) leased space in plaintiff El Centro Mall, LLC’s (“ECM”) shopping center pursuant to a lease that expired December 31, 2005. The lease provided that Payless was to pay base rent, monthly percentage rent based on a percentage of Payless’ gross sales, and additional rent, which included all other costs such as common area maintenance and taxes. The lease required Payless to continuously operate and conduct business on the premises, and further provided that if Payless failed to continuously operate, the landlord was entitled to collect as liquidated damages (in addition to the base, percentage and additional rents) an additional charge of the greater of ten cents per square foot or $100 for each day of non-operation. The liquidated damages represented “the minimum damages which Landlord is deemed to have suffered, including damages as a result of Landlord’s failure to receive Percentage Rental, if any, under this Lease . . . .”

After closing its store in March 2005, Payless continued to pay the monthly base rent and additional rent through the end of the lease term (no percentage rent was owed), but refused to pay the liquidated damage amount. By stipulation, the trial court decided the case on briefs and stipulated facts, including alternative damage calculations depending on whether liquidated damages were recoverable. The trial court found that Payless did not overcome the presumption of validity of the liquidated damages clause and awarded plaintiff $90,226.80, which was the full amount of liquidated damages less a credit from reconciliation of CAM charges and taxes.
Continue Reading Landlord Entitled To Liquidated Damages Based On Loss Of Synergy, Goodwill And Patronage Resulting From Closure Of “National Tenant’s” Store

The Summary: In today’s financial climate, it is hard to keep up with the changes happening in shopping centers across the country. Retail space in shopping centers is staying vacant for several months or longer. Landlords are converting retail space to non-retail use or closing entire wings or floors of shopping centers. Landlords are even