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Center Burned by Shorting Circuit(City)
by Ron Davis

Unforeseen conditions of a renovation contract have allowed a tenant of an Indiana shopping center to exact a heavy penalty against the center’s owner.

The shopping center, located in Indianapolis, had leased space to the tenant—Circuit City Stores, Inc.—for the operation of one of its chain outlets. The renovation contract was an agreement by the center’s owner to allow Circuit City to adapt the leased premises to its particular needs.

A key provision of that agreement was that the center’s owner would pay an improvement allowance within 30 days after the renovations were “substantially completed.” As proof that the renovations were substantially completed, Circuit City consented to provide the center’s owner with a certificate of occupancy issued by local government. Plus, either Circuit City’s architect or construction supervisor had to furnish a certificate of substantial completion.

Circuit City complied with the certificate issued by its architect. But at that time the city of Indianapolis did not issue such certificates.

Despite the inability to fulfill its obligations, Circuit City opened its store and began operations. When the center’s owner failed to pay the improvement allowance within 30 days, however, Circuit City refused to pay the first month’s rent and billed the center’s owners for $40,199 in “default interest.”

The center’s owner responded by suing Circuit City, pointing out that it had in fact paid the improvement allowance even though Circuit City had not satisfied the requirements of the renovation agreement.

An Indiana court ruled in favor of the center’s owner and ordered Circuit City to pay the disputed rent. Circuit City appealed.

An Indiana appellate court overturned the lower court ruling, explaining, “The parties do not dispute that it was impossible for Circuit City to obtain a certificate of occupancy. We find no designated evidence to suggest that Circuit City knew it would be impossible to obtain a certificate of occupancy [from the city of Indianapolis]. Therefore, Circuit City’s application for a certificate of occupancy was complete when Circuit City submitted to the shopping center’s owner all of the other required documents called for in the renovation contract.” (Circuit City Stores v. American Nat. Ins., 779 N.E.2d 62 [Ind.App.2002])

Decision: December 2002
Published: April 2003



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