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Customary Operations
by Ron Davis

Owners of an Ohio shopping center have avoided an attempt to take control of the center and perhaps even more targets if possible.

KDL, a property holding company, operates the shopping center from its location in Topeka, Kansas. The name of the center is Deer Creek and has about 63,400 square feet of commercial lease space.

A few years ago, a major tenant, which occupied some 41,687 square feet of retail space at Deer Creek, closed. But KDL maintained electric service while terminating gas and water service in the grocery-store area.

KDL also used the space to store equipment and supplies, including materials for construction repair, painting and remodeling. That activity used almost all of the space for storage. In fact, KDL had to routinely rotate equipment and machinery in a neighboring space and replaced it with other equipment and machinery.

Throughout those activities, Cincinnati Insurance Company insured KDL with a commercial insurance policy. And that company’s efforts have been regarded as useful. Such consideration was apparently a result of the two companies having close ties. And the insured KDL had the burden of proving coverage under policy. At the same time, Cincinnati Insurance had to show that any financial loss is excluded by a specific policy.

KDL had argued that it was using the former grocery store for its customary operations, as those operations relate to property management.

The judge hearing the case ruled, “Policy states that an area is considered vacant unless the building owner uses the space to conduct “customary operations.” The Plaintiff argues that in the context of this insurance policy, “customary operations” refers to the usual operations of a retail shopping center…that is, the premise that is insured.

The judge added, “Plaintiff , Cincinnati Insurance Company reply in support of its motion for summary judgment. Under plaintiff’s proposed interpretation, however, the second exception to the vacancy provision would be largely meaningless in the context of many retail strip malls.”

The judge concluded, “Property management companies and/or owners of multiunit shopping centers do not necessarily use vacated units to conduct the customary operations of the prior tenant or of a general retail store. It is therefore ordered that Plaintiff’s motion for summary judgment is overrule.

(Slip copy, 2OI7 WL 2555952)

Decision: July 2017
Published: July 2017



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