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Cited for Breach of Lease
by Ron Davis

Guidelines that a Maryland court has devised will determine the amount the owner of a Rockville shopping center will get from a tenant’s breach of lease.

The shopping center, Wintergreen Plaza, had leased space to the tenant—a Circuit City retail store—under a long-term contract. The breach occurred when Circuit City decided to move to another Rockville shopping center that offered a larger space.

Because more than 10 years remained before the lease ends, the Wintergreen Plaza owner sued Circuit City, seeking continued payment of rent for the term of the lease.

Before the courts could decide on payment, however, the shopping center owner leased the building abandoned by Circuit City to the Food Lion supermarket chain. Food Lion then announced plans to tear down that building and, at its own expense, construct a larger one.

Circuit City saw the lease to Food Lion as a chance to end its rent obligation to the shopping center owner—or at least reduce that amount. But a Maryland appellate court ruled that Circuit City might yet have to pay for the breach of lease.

As to Circuit City’s obligation, if any, the court explained:

“The court will need to examine the efforts made by the shopping center’s owner to find a new tenant…and determine whether the arrangement with Food Lion was reasonable. If the court determines that the efforts and the arrangement with Food Lion were not reasonable, it may conclude that the owner breached its obligation to lessen the damages and that, from and after the time of that breach, it was entitled to no further payments from Circuit City. If the court concludes that the owner did exercise reasonable diligence and that the arrangement with Food Lion was reasonable, it will then have to determine, from that arrangement [the amount actually owed].” (Circuit City Stores, Inc. v. Rockville Pike Joint Venture, 829 A.2d 976)

Decision: August 2003
Published: February 2004



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