Anchors Away! (But Rents Go On)
by Ron Davis
The closing of major anchor stores at a shopping center is not grounds for other tenants to breach the terms of their leases by not paying rent. So ruled a New York court in a recent legal dispute between a White Plains shopping center and one of its tenants.
The shopping center–The Galleria of White Plains–had leased space in 1997 to the tenant for the operation of a fast-food restaurant in the center’s food court. At the time of the lease agreement, space was also provided for three anchor stores at the center, and J.C. Penney, Macy’s and Bunnies Children’s Department occupied those three spaces.
In January 2004, the fast-food restaurant tenant stopped paying rent. The owners of the shopping center, after efforts to collect the rent, sued the tenant.
In his defense, the tenant pointed out that from April 2001 to September 2003, the shopping center did not have three anchor stores in operation. As a result, he added, the flow of customer traffic declined, resulting in lost business for his restaurant and a reduction in revenue totaling $420,000. (In fact, in April 2001, J.C. Penney ceased operations at the shopping center and not until September 2003 did another tenant–Sears–occupy the space that Penney had leased.)
The owners of the shopping center responded that neither the tenant’s lease nor any oral statements on their part had guaranteed that the center would always have anchor stores in operation. The owners also rejected the tenant’s argument that the lease “implied” a certain level of his profitability based on the flow of traffic from the anchor stores and potential business arising from that flow.
The New York court, in ruling in favor of the shopping center’s owners, explained, “Had the tenant intended to protect himself from damage occasioned by the closure of an anchor store at the shopping center, he could have negotiated such a provision prior to execution of the lease. Indeed, commercial agreements may specifically address the issue raised here and allow for a tenant to terminate a lease upon notice and/or seek rent abatement when a shopping center’s anchor store vacates the premises. The lease implicated in this proceeding was the product of negotiations undertaken by sophisticated business entities, each represented by an attorney, and there is simply no basis for reading anything into the lease that is not expressly stated therein.... Having failed to negotiate the appropriate protective language, the tenant can be said to have willingly assumed the business risk associated with the closing of an anchor store.” (White Plains Galleria Limited Partnership v. Woodlawn Partners, SP982/04 NYS 2d)
Decision: August 2004
Published: October 2004