There's a little puzzle question in the comments here, right at the end

I'm back, but catching up on things, so I've been slow restarting the DD's. But I came across this case in the course of another project and thought that it was sufficiently provocative to start things off.

Pat

Daily Development for Wednesday, July 10, 2002

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

LANDLORD/TENANT; COMMERCIAL; DUTIES OF LANDLORD; IMPLIED CONTINUOUS OPERATION: Percentage lease in a shopping center does not, in and of itself, create an implied obligation of the part of the landlord to maximize the potential of the center by aggressively maintaining tenancy, but does establish a "basic assumption" that the landlord will keep the center open for business.

Papa Gino's, Inc. v. Assembly Square Mall, 1998 Mass. Super LEXIS 698 (Mass. Super. Ct. 10/22/98)

Shopping center percentage lease tenant alleged that landlord had violated its implied obligations under the lease when it permitted an anchor tenant to vacate and failed to recruit other tenants for the center. Landlord apparently let a substantial portion of the center lapse into inactivity as part of a plan to renovate the center - a renovation it was actively carrying out. Tenant argued that implicit in the percentage rent arrangement was the assumption that the landlord would exercise its best efforts to maximize the traffic in the mall.

The court acknowledged that some Massachusetts authority has recognized the possibility that in some percentage lease situations, the tenant might have an implied duty of continuous operation so as to maximize the possibility that percentage rent will flow to the landlord, bit it noted that no Massachusetts court has ever found such an implied duty, and in any event on the facts here there was no basis to believe that the parties intended to impose any kind of duty of "special effort" on the landlord here. The court did say that there was a "basic assumption" of the parties as o the "continued operation of the plaintiff's shopping center, not a continued presence of the two anchor stores. (Whatever that means.)

Comment 1: Although the editor would be very cautious in this area, and clearly tenants ought to think about getting some representations from the landlord, the fact is that such provisions, unlike tenant continuous operation clauses, appear somewhat rarely in shopping center leases. It is more likely that the parties both have some expectation that the landlord will operate a "going center," although not necessarily with any stipulated tenants. The editor is sympathetic to the tenant who's unable to realize upon the promise of operating in the context of an active shopping center. Maybe the tenant takes the risk that the center will not prove attractive to new tenants, but doesn't the tenant have a reasonable expectation that landlord will at least make an effort?

Comment 2: One area in which landlord's lack of effort to develop the center's business might be an issue is on the question of duty to mitigate when the tenant leaves and the landlord has such a mitigation duty at common law or otherwise. If the landlord, for whatever reason is permitting the center to run down in its attractiveness, and is devoting no energy to creating an environment that would be profitable for a new tenant, how can it argue that, in the context of a shopping center, it is making reasonable efforts to mitigate the damage caused by the vacating tenant?

Comment 3: Another argument for the tenant, which does not go so far as a continuous operation duty giving rise to damages, is a claim for frustration of purpose. Where existing tenants vacate and the landlord, possibly planning a major overhaul, elects not to operate the mall fully, and the tenant is unable to generate percentage rents, can't the tenant at least argue that the fundamental purpose of the lease between the landlord and tenant is frustrated?

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

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