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Rent-Reduction Rights and Wrongs
by Ron Davis

An eight-year-long dispute over rent that a tenant owes a Minnesota shopping center owner finally has an end in sight.

The shopping center is Maplewood Mall in the Minneapolis-St. Paul area, and the dispute evolved from the wording of a lease provision that governs competition. The tenant, a wireless-communications firm, had in 1999 agreed, at the urging of the centerís owner, to move from the space it occupied to other space at the center. In return for compliance, the tenant asked for a noncompete clause in the lease, and the centerís owner granted the request.

But that clause seemed to give the tenant only a rent reduction if the centerís owner should lease to another wireless-communications firm. In fact, the centerís owner did later lease space to another wireless firmóand eventually to a total of 11 such firms. Upon learning of the first competitor, the tenant notified the centerís owner of the rent-reduction clause and began paying rent at a 75-percent rate. And the centerís owner accepted that reduced amount.

Later, however, the tenant discovered that another competitor was beginning operations at the center. The tenant countered with another communication to the centerís owner. But this time the message was sent by fax, and the agreement between the two parties required the tenant to send such communication by registered or certified mail. Nevertheless, the tenant unilaterally reduced the rent due by another 25 percent. And later the tenant sent a third such noticeóbut by regular mail and not by registered or certified mailóand reduced the rent payment by another 25 percent.

In February 2005, the tenant stopped paying rent altogether, demanding an accurate accounting of previous ďrent overpayments.Ē The centerís owner reacted by serving the tenant with a notice of default for nonpayment of rent. The tenant then sued, claiming breach of contract and fraud.

A Minnesota court ruled in favor of the centerís owner, requiring the tenant to pay $162,632.59 for past-due rental payments, interest, attorney fees and costs. The tenant appealed.

A Minnesota appellate court ruled that the tenant erred by not complying with the terms of the notice agreement. Explained the judge, ďIf the tenant is entitled to a separate rent reduction each time a competing tenant enters the shopping center, such reduction is contingent upon the tenant providing proper notice each time a competing tenant rents space. There is simply no evidence supporting the argument that these rent reductions should be granted even without notice.Ē

But the appellate court pointed to the third notice that the tenant sent and asked the lower court to interpret the lease to determine if the tenant is entitled to multiple rent reductions, adding, ďAnd if the court determines that the tenant is entitled to such reductions, then the judgment must be reduced to reflect a credit from the date of the notice to the date of the eviction action.Ē (Northfield Telecommunications, Inc. v. Maplewood Mall Associates, Ltd., 2008 WL 853537 [Minn.App.])

Decision: April 2008
Published: April 2008



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