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Co-Tenancy Provision Dispute
by Ron Davis

Recovery from the loss of two major tenants has proven unusually problematic for the owners of a West Virginia shopping center.

The owners of the shopping center, One-Gateway Associates, LLC, ran into problems that began when the primary anchor tenant, a Walmart Supercenter, did not renew its lease. Walmart and the shopping center’s owners did, however, come to an agreement that became the basis of a subsequent dispute.

The gist of that dispute involved another tenant, Shoe Show, which leased space at the shopping center. That lease agreement was for a five-year period with an option for three additional five-year extensions.

Also, the agreement added a clause in the event that either Walmart or Cato, another major tenant, ceased to conduct business in the shopping center. In such a case, that clause stated that the center’s owners must replace, within 30 days of closing for business, a major tenant occupying at least 90 percent of the leased premises currently occupied by Walmart or Cato. Otherwise, the clause added, the tenant will have the right to terminate the lease on 30 days written notice to the center’s owners; in the alternative, a different formula will be used to calculate rent payments.

Cato did later cease operations at the shopping center. But it was months before Shoe Show personnel discovered the Cato closing. And when discovery was made, Shoe Show sued One-Gateway. In response, One-Gateway contended that, among other charges, the claims by Shoe Show are “barred by the statute of limitations”.

In response, Shoe Show contended that, “there is no dispute that One-Gateway breached” provisions (of the lease). Therefore, Shoe Show, explained, it is entitled to $228,882.57, “which represents the amount Shoe Show overpaid in rent and other charges pursuant to the lease.”

At the subsequent trial, One-Gateway argued that Shoe Show had actual knowledge of Cato’s closing based on information found in the year-end reconciliation statements of One-Gateway. However, the trial judge concluded that such statements are “inconsistent and ambiguous” as verification of Caro’s closing.

One-Gateway then argued that Shoe Show must have known of Cato’s closing because the local store manager of Shoe Show was aware of that closing. And as a general rule of law, “A principal is chargeable with and bound by the knowledge of or notice to his agent received while the agent is acting as such within the scope of his authority.” And that includes “reference to a matter over which his authority extends.”

The judge ruled,“The record before the court establishes that plaintiff’s agent possessed actual knowledge of Cato’s closing at or near the time it closed.” However, the judge added, “The record is more opaque as to whether the knowledge received was in reference to a matter over which the authority extended.”

(Shoe Show. Inc. v. One-Gateway Associates. LLC. 2015 WL 56748J6.

Decision: December, 2015
Published: December, 2015



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