by Ron Davis
Refusal to cooperate fully in construction of a new shopping center may end up costing the owners of leased Pennsylvania commercial property nearly a half million dollars.
The property, located in Allentown, currently houses a shopping center that has existed since the 1960s. More recently, the property owners agreed to lease a five-acre portion of the property to a group of developers. Those developers intended to demolish the center’s buildings and construct another shopping center, to include a home-improvement warehouse store.
The two parties later amended that lease to allow for a shopping center and a retail store of any kind, so long as that construction complied with local zoning laws. But disputes soon arose over the amended lease. The developers contended that in addition to the development plan, construction requires a land subdivision plan approved by local municipal authorities.
The property owners balked, demanding that the developers withdraw the amended lease and allow the original ground lease to control any further activities. In response, the developers pointed out that their lenders require a land subdivision to protect their investments.
The property owners rejected that argument and sued the developers for breach of the lease agreement, noting that Allentown’s zoning laws neither require nor prohibit the use of subdivision as an essential element of construction. Thus, they added, the developers breached the lease by repudiating its terms. The developers answered by countersuing.
A Pennsylvania court ruled in favor of the developers and awarded them $464,262 in damages. The property owners appealed.
A Pennsylvania appellate court upheld the award, explaining, “The developers did not repudiate the lease. They sought subdivision as a means to perform under the lease. That the property owners did not wish to subdivide was not a means of making the developers’ actions a repudiation of the lease. Indeed, the ground lease itself contains multiple references to giving notice to the other party if one party were to seek termination of the lease.... Rather than notify the developers that the property owners regarded seeking subdivision as default and providing the developers an opportunity to cure, the property owners simply sued. Consequently, the property owners, not the developers, terminated the lease.” (Greylock Arms, Inc. v. Kroiz, 2005 WL 1719697 [Pa. Cmwlth.])
Decision: July 2005
Published: August 2005