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Shopping Center VS Greedy Contractor
by Ron Davis

A dispute over payment for improvements to a Florida shopping center has ended with mixed results for the center’s owners.

The shopping center is located in Pensacola, and the dispute arose after the contractor for the improvements completed the project and sought compensation. That project, however, was confined to a building that a Montgomery Ward department store leased at the time. So when Montgomery Ward went bankrupt and vacated the premises, the contractor turned to the center’s owners for the balance owed for the project—nearly $184,000.

The center’s owners had no intention of paying the contractor. They pointed out that the lease between them and Montgomery Ward was specific about such debts that arose. That lease stated that they were not subject to any liens for labor or materials furnished to Montgomery Ward.

Meantime, the center’s owners leased the building previously occupied by Montgomery Ward to another tenant—and at a substantially higher rental rate. The contractor eventually received only $67,000 from Montgomery Ward’s bankruptcy settlement.

The contractor sued the center’s owners, charging that the outcome of the improvements project had “unjustly enriched” them. Specifically, the contractor contended that the proper measure of damages should be the increase in the value of the center property and not the amount owed under the construction contract.

A Florida court ruled, however, that the shopping center’s owners could not be held subject to the contract between Montgomery Ward as tenant and the contractor. That’s because, the court explained, the lease between the center’s owners and the tenant did not require the tenant to make the improvements and because the improvements “did not constitute the pith of the lease.”

The contractor appealed that ruling, and a Florida appellate court awarded the contractor $116,680, plus interest of $98,846.

But the contractor wanted more—much more. To be exact, the contractor wanted $2 million, based on the argument that the award should have been premised on the increase in the lease value of the center property following the improvements project.

A Florida appellate court wasn’t buying that argument, explaining, “It would be inequitable to recover such a windfall when there was no [initial] expectation of such a recovery….” The contractor appealed that ruling.

A district appellate court agreed that the contractor’s argument was unsound: “Under the circumstances here,” the court noted, “it would be inequitable to award the value of the increase in rental value when it would not have received such value had the contract been performed by Montgomery Ward.”

(14th & Heinberg, LLC v. Terhaar and Conley General Contractors, Inc., 2010 WL 3464416 [Fla.App. 1 Dist.])

Decision: September 2010
Published: October 2010



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