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Battle in Lebanon
by Ron Davis

The decision by Wal-Mart Stores, Inc., to move from a location at a Tennessee shopping center has proved costly.

The shopping center is The Center of Lebanon, in Lebanon, and Wal-Martís decision to move breaches a provision of the lease agreement between the two parties. That provision requires Wal-Mart to continue as a tenant until the lease expires in 2005.

But Wal-Martís plans for the property changed a few years ago. Company officials apparently determined at that time to replace the Wal-Mart store at The Center of Lebanon with a Budís Discount City store and open a new Wal-Mart Supercenter at a nearby location.

The owners of The Center of Lebanon soon learned of those plans and sued Wal-Mart. Wal-Mart nevertheless continued with its plans, ceasing operations at The Center of Lebanon and permitting the Budís store to begin operations in its space.

Although Wal-Mart continued to pay the $272,000 annual base rent to the shopping centerís owners, however, the Budís store never generated sufficient gross receipts to allow them to collect any percentage rent. And the percentage rent that Wal-Mart had paid in the past often amounted to several hundred thousand dollars a year, to include a Medco Drugs store that operated within the space leased to Wal-Mart.

Wal-Mart responded that it had overpaid percentage rent for several years and demanded reimbursement of that amount.

A Tennessee court found that Wal-Mart must pay the shopping center owners the present value of lost future percentage rent for the duration of the lease term. That payment, the judge calculated, is $2.6 million.

When Wal-Mart appealed that finding, the shopping centerís owners then argued that Wal-Mart should also pay for the "diminution of market value of the entire shopping center" resulting from the breach of lease.

And the Tennessee Court of Appeals agreed that "the proper measure of damages is in fact the diminution of value" and modified the damage award to $4.7 million.

Wal-Mart subsequently appealed to the Tennessee Supreme Court, which also ruled that "the appropriate award of damages for Wal-Martís breach [should be based on] the diminution in value standard." The justices explained, "The [lower] courtís award of lost future percentage rent accounted for only one part of the diminution in value measure of damages. An additional assessment is required to determine the loss in value of the shopping center as a whole." (BVT Lebanon Shopping Center vs. Wal-Mart, 48 S.W.3d 132 [Tenn.2001])

Decision: August 2001
Published: September 2001



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