Daily Development for Friday, September 29, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

LANDLORD/TENANT; PREMISES; RELOCATION: Even where relocation clause contains no express restrictions, a landlord is not entitled to relocate tenant's fine jewelry business to site not reasonably comparable to existing site.

Kite v. Gus Kaplan, Inc., 747 So.2d 503 (La. 1999).

Landlord acquired a fully outfitted department store premises, and entered into a license/lease with tenant to operate a fine jewelry department in the space already equipped for this purpose including specially lined cases, burglar proofing of cases and access, numerous lockable drawers, high intensity lighting, etc. The department occupied a 400 square foot space facing the main entrance.

The lease was a percentage lease, and, allegedly because the tenant did not perform to landlord's expectations, landlord elected to invoke the relocation clause in the lease. The clause read as follows:

     "All of the mentioned store space, and reserve stock space is   located in the store of lessor, and may be changed from time to   time by lessor at its option and expense."

An earlier draft had contained language stating that any relocation would have to be approved by the tenant, and this language was deleted with the tenant's consent.

After about sixteen months of operation, and with a disastrous January gross of $529 (vs. average performance of over $10,000 with wide variations), landlord spoke to tenant about relocating. After concluding that tenant was "avoiding him" on this issue over a three week period, landlord gave tenant a 24 hour ultimatum. When tenant did not respond within 24 hours, landlord had new keys cut to the drawers and relocated tenant's property overnight to a smaller space in a poorer location without the fancy showcases. It had formerly been used for women's swimsuits and exercise wear. Landlord expressed a willingness to outfit the new space with security equipment required by insurance.

Tenant vacated the premises and sued the landlord for breach of the lease. The court found that the landlord did owe to tenant the duty to meet reasonable relocation specifications. This did not mean, said the court, that every felt lined display case had to be moved to the new location, or that such location had to have equal access to the entrance or be exactly 400 square feet:

     "The changing of space under this contract might take a variety of   forms, within reason, based on factors such as the location within   the store, the square footage, the furniture style or shape or   orientation of the showcases, and others. But the change may not   alter the general qualifications of the facility for the object of the   contract, namely, the operation of a fine jewelry department   whose size initially was to occupy 4oo square feet . . .  That   object dictates that the new facility, like the old, must be of   comparable lighting, locking drawers and locking theftproof   display cases and other amenities; in other words, the new facility   must be truly comparable, although not necessarily identical in   detail."

Although the tenant won the battle, the war was something of a draw. During the course of the litigation, it turned out that the tenant had been cheating on reporting the gross rents in order to undercut the landlord's percentage, and the court concluded that the tenant should receive nothing for the lost profits or liquidation losses resulting from the loss of the lease, although it did permit damages for the tenant's lost improvements and a small amount for emotional distress and other general damages (substantially reducing the court of appeal's award on these matters.)

Comment: This case has many special facts, and is a Louisiana decision to boot, so its strength as precedent is not as strong as one might like. But it does stand unequivocally for the proposition that the a landlord does not have unrestricted authority to relocate a tenant even under a clause that contains no restrictions. The result only makes sense, as location is central to value in most leases, and the virtually certain expectations of the parties at the time of contract is that there will be some rough equivalency between the space originally occupied and any relocation space. If the landlord does not intend this reading, the landlord should bargain for more express understandings stating specifically those types of facilities to which the landlord can relocate the tenant.

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