With COVID-driven litigation ongoing across the nation, close analysis of commercial lease language is now more important than ever as many questions remain unanswered. The first wave of commercial lease disputes dealt in large part with whether commercial tenants were required to pay rent while forced to close due to the pandemic and related governmental orders. Now, new disputes are arising based on the lingering impacts of the pandemic and certain key clauses like co-tenancy, sales kickouts, operating covenants, casualty clauses and force majeure provisions are likely to play a crucial role.

For example, retail leases commonly contain co-tenancy clauses that allow tenants to reduce their rent or, in some cases, terminate the lease if key tenants or a certain number of tenants are not open and operating. These provisions are front and center given the government-mandated closures, curfews and social-distancing requirements that forced businesses to significantly alter and/or reduce their operations. As with every lease, it is important to read and understand the fine print. Some questions that we have seen arise with respect to co-tenancy clauses are:
Continue Reading Commercial Lease Disputes During the Ongoing Pandemic: The Second Wave

On June 3, 2020, the United States Bankruptcy Court for the Northern District of Illinois issued one of the first decisions to apply a force majeure clause to a commercial tenant’s rent obligations in the wake of a COVID-19 government-mandated shutdown. Pursuant to an Illinois executive order, restaurant operations were limited to curbside pickup.

The

The current COVID-19 pandemic has created myriad lease issues for retail tenants who have either closed stores or are contemplating doing so imminently, and are analyzing their ability to abate rent during the closure.  We wanted to share initial thoughts.

Top level conclusions:

  1. Potential arguments depend on lease language, the law of the applicable

In a pro-business and pro-arbitration decision, the United States Supreme Court on April 27 struck down as preempted by federal law the California rule that class arbitration waivers in consumer adhesion contracts are unconscionable and thus unenforceable.  The Court’s decision in AT&T Mobility LLC v. Concepcion, 563 U.S. ___ (2011), hinged on Section 2 of the Federal Arbitration Act (“FAA”), which provides that agreements to arbitrate are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  In a 5-4 decision, the divided Court, in an opinion authored by Justice Scalia, concluded that the FAA prohibits states from conditioning the enforceability of certain arbitration agreements on the availability of class arbitration procedures.  The majority reaffirmed its recent pro-arbitration leanings, while at the same time seeming to reject arbitration as an appropriate venue for class claims.

The named plaintiffs, Vincent and Liza Concepcion, alleged that they entered into an agreement with AT&T Mobility LLC to purchase mobile phone service that was advertised as including free phones.  The Concepcions sought to represent a class of AT&T Mobility customers and alleged that AT&T Mobility had engaged in false advertising by charging sales tax based on the value of the phones it advertised as free.Continue Reading Supreme Court Upholds Arbitration Agreement Waiving Customers’ Ability to Bring Class Actions

In a decision sure to affect the way retailers do business in California, the California Supreme Court has held that asking for and recording a customer’s zip code during a credit card transaction violates California law. Specifically, in Pineda v. Williams-Sonoma Stores, Inc. (Case No. S178241), the Court held that requesting such information violates the section 1747.08 of the Song-Beverly Credit Card Act of 1971 (the “Credit Card Act”), which, among other things, prohibits businesses from requesting and recording “personal identification information” during credit card transactions.

In the Pineda case, the plaintiff alleged that she was asked for her zip code while making a credit card purchase, which she provided, believing it was required to complete the transaction. She further alleged that the store recorded the zip code in its database together with her credit card number and name, and that the retailer used that information to search databases to find her previously undisclosed address.  (Because the trial court dismissed plaintiff’s claims based on the complaint itself, none of these allegations have been proven.)Continue Reading California Supreme Court Holds that Collecting and Recording Zip Codes During Credit Card Transactions Violates California Law

As previously reported, Simon Property Group, Inc. recently acquired Prime Outlets Acquisition Company, LLC. This gained the attention of the FTC, which determined that the merger would result in reduction or elimination of competition among outlet centers in southwest Ohio; Chicago, and Orlando. Now, as part of a settlement with the FTC, Simon will divest some of its property and modify certain tenant leases.
Continue Reading Simon Reaches Agreement with FTC over Prime Outlets Acquisition; Comments Due December 10

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

Case: Federal Trade Commission v. Whole Foods Market, Inc., No. 07-5276 (D.C. Cir. 11/21/08)

The One Sentence Summary: The Federal Trade Commission sought a preliminary injunction to block the merger of premium supermarket chains Whole Foods and Wild Oats; after the trial court denied the injunction and the merger took place, a sharply divided