Daily Development for Monday, September 27, 1999

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


The term "opening date" in a lease can be ambiguous, and may refer to opening of center as well as opening of store, and where jury finds that parties intended that landlord open entire shopping center by stipulated date, rather than that tenant be able to open its own store by that date, and, although tenant may be precluded from recovering lost profits, it nevertheless can use evidence of expected business to show that it justifiably closed its store due to inadequate return and was entitled to damages in form of lost investment.

DeJong v. Sioux Center, Iowa 168 F. 3d 1115 (8th Cir. 1999)

The case is interesting in part because the defendant was a city, developing a shopping mall as part of a downtown redevelopment scheme. The mayor and other city representatives worked hard to convince the tenant to open a hardware store at the location. When the tenant balked at the September 1 scheduled commencement date, because one of the principles would have difficulty moving a family to town until the following year, the city officials insisted that it was vital to have that date to coordinate with the general opening of the mall. The tenant agreed to open September 1.

When tenant arrived at the site, however, on September 1, its own space was largely complete, but there were no doors on the entrances to the mall and no parking, and the balance of the mall had no floor at all and, of course, no tenants. Further, demolition that would have resulted in visibility of tenant's site had not yet occurred. Tenant hung plastic over the openings to the mall premises and attempted to operate the store. Were the existing conditions not problem enough, the tenant had to deal with continuing construction all about its premises before the mall ultimately opened nine months late.

By this time tenant had suffered operating losses over ten times those estimated by the True Value franchisor for the entire first year. Lacking adequate resources to absorb these losses, tenant was forced to close and liquidate inventory. It sued the City for its lost investment.

The City first argued that it had never committed to a specific mall opening date. The lease contained an item stating a "Rent Commencement Date" and another item on the next line stating an "Opening Date." Both items showed "approximately September 1," although the "rent commencement date also included the language "or sixty days after Landlord turns building over to Tenant." Common area charges and percentage rent did not commence until the "opening date."

The Eighth Circuit affirmed the holding that as a matter of law that the Lease was ambiguous as to whether the term "opening date" referred to the opening of the shopping center or of the opening of the store, which meant that the jury could rely on extrinsic evidence to interpret the lease. The jury found that "Opening Date" was intended by the parties to be the date on which the Landlord was to have opened the shopping center.

The court also found that there was sufficient evidence to support the jury's finding that the Landlord's breach of the promised opening date was the proximate cause of Tenant's losses, because the evidence presented on the condition of the shopping center was sufficient to show that customers were either unaware that the Tenant's store was open or preferred to shop in more convenient and inviting surroundings rather than at a shopping center that looked like a construction site.

Specifically, the court also found that the "New Business Rule," which precludes recovery of anticipated profits of new commercial enterprises because they are too speculative. did not apply in this case because Tenant was claiming not the amount of lost profits or sales, but rather the amount of the investment that was lost due to the unrealized sales caused by the Landlord's breach of its promise to open the shopping center by a certain date.

Comment 1: Aside from the great joy of seeing a small tenant prevail against the City in such a case (albeit only after ruinously expensive litigation)the case is useful because it deals with a relatively common dispute and provides rare appellate level discussion on some of the issues.

Comment 2: Note, for instance, that the court does not even question the notion that the reference to "commencement date" in the lease terms section constituted a binding promise on the part of the landlord to have the overall mall completed by that date, and not just a trigger for the commencement of certain economic terms. Although there was extrinsic evidence suggesting that this was a correct interpretation, the court does not show why the lease was ambiguous in this respect, assuming that "commencement date" indeed referred to the opening of the mall.

Comment 3:  Note also the fact that although the evidence rules precluded proof of lost profits from a new business, the court permitted exactly the same proof as the first step in a causal chain showing that the failure to open the rest of the mall led to reduced revenue for tenant and hence justified tenant's closing its store and suffering its damages. To know that the tenant suffered losses, it was necessary to know what returns the tenant expected with the mall open. If consideration of this question is speculative for the one purpose, how is it less so for the other purpose?

Comment 4: It is not that uncommon for unsophisticated mall tenants to fail to take into account the ruinous impact that continued construction activities can have on their business. Not only should they be certain that initial construction is over before they are obligated to begin their lease, but also should establish protection against business interference caused by construction related to renovation or locating or relocating other tenants.

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