Get it in Writing
by Ron Davis
Lack of a firm and binding commitment has doomed chances that an Ohio shopping center owner will get a major prospective tenant as a new lessee.
The shopping center is Kingsgate Mall, located in the Mansfield area. And the commitment to lease space at the center was made by Big Lots, Inc., which wanted to relocate one of its stores there from a nearby site.
Negotiations began in earnest, with an exchange of letters of intent between the two parties showing mutual interest in finalizing a lease agreement. But Big Lots’ letter of intent stated that “no commitment by Big Lots shall be considered binding until all of the terms are reduced to a written lease, which has been reviewed and approved by our Legal Department and signed by an officer of the Company.”
Talks continued, however, and Big Lots’ real estate committee subsequently approved the leasing of space at Kingsgate Mall. In reliance on that approval, the shopping center owners began modifying the premises designated to Big Lots to meet that company’s specifications.
The two parties never finalized and executed a written lease agreement. That’s because Big Lots’ existing landlord at the location from which it had intended to move made an offer that the company couldn’t refuse.
When the shopping center owners got that news of the rejection, they sued, claiming, among other charges, breach of contract and breach of good faith and fair dealing. The owners also pointed out that they had spent considerable time, money, and resources modifying the potential Big Lots space. Big Lots simply responded that it had never made a legal commitment in the form of a signed and executed lease.
An Ohio court concluded that without a written final lease demonstrating that the parties agreed on all terms of the proposed lease, Big Lots had not breached a contract. Explained the judge, “Reliance on Big Lots’ oral assurances that it agreed to lease the subject premises was unreasonable in the face of Big Lots’ repeatedly expressed intent not to be bound until the parties executed a written lease agreement.”
The shopping center owners appealed that ruling.
An Ohio appellate court agreed that Big Lots had clearly promised orally to lease the site at Kingsgate Mall once Big Lots’ real estate committee approved the deal. “But,” added the judges, “we nonetheless conclude no reasonable reliance can exist on such a promise under the circumstances present here.” (Mansfield Square, Ltd. v. Big Lots, Inc., 2008 WL 5159930 [Ohio App. 10 Dist.])
Decision: December 2008
Published: December 2008