- Posts by Joseph WestPrincipal
He has practiced in the areas of real estate, business and banking law in Oregon for more than 30 years. Joe’s real estate practice includes representation of owners, developers, tenants and lenders in a wide variety of matters ...
Two recent court decisions confirm that retail tenants cannot ignore continuous operation covenants as both ruled the retailers’ stores must remain open for business.
Starbucks Blocked from Closing Teavana Stores
In an epic battle between mega-shopping center owner Simon Property Group and seemingly ubiquitous retail tenant Starbucks, Simon has won a crucial battle. Last summer, Starbucks announced publicly that it was closing hundreds of its Teavana stores, most of which are located in shopping malls around the country. Simon, reportedly the largest shopping center operator in the United States, responded by filing suit against Starbucks in Indiana to block the closure of Teavana stores located in Simon malls. With the battle lines drawn, an Indiana judge ruled in favor of Simon and issued a preliminary injunction prohibiting Starbucks from closing 77 of its stores in Simon malls.
Is a commercial lease for cannabis operations void as an illegal contract under federal law?
While a cannabis operation may be properly licensed and permitted under state marijuana laws, the federal Controlled Substances Act makes it unlawful to lease property knowing it will be used for the illegal production or distribution of controlled substances. An Arizona-based cannabis business was confronted with this very issue after an attempt by its landlord to revoke the operator's lease. Find out what the court decided in the latest post on GSB's Cannabis Business Blog.
Spring Training has begun! The boys of summer have reported to camp and pre-season games are underway. While major league teams are preparing for the coming baseball season in sunny Arizona and Florida, the Chicago Cubs baseball club has started its season in federal court in Illinois. The Cubs are renovating historic Wrigley Field, which includes adding a large video board and signs in the outfield. The new video board and signs happen to block the view of the field for neighbors beyond right field who have rooftop businesses that provide patrons with food, drinks and views of Wrigley Field events. The rooftop businesses have sued the Cubs to stop construction. They have also sued the City of Chicago and the City’s Landmark Commission for approving the renovation to the ballpark in the first place.
In their suit against the Cubs, the rooftop businesses have alleged that the Cubs are violating the Sherman Antitrust Act by strategically constructing the video board and signs in locations that block the views of the rooftop businesses, while not blocking views from other rooftops that the Cubs own or control. The rooftop businesses have also alleged that the Cubs’ renovations violate a 2004 settlement agreement between the Cubs and the rooftop owners, which provided that the rooftop owners would pay the Cubs a royalty based on gross revenues in return for unobstructed views of the field.
Last month, the rooftop businesses sought a temporary restraining order against the Cubs to halt construction of the video board and signs. After considering arguments from both sides, the federal judge threw the rooftop businesses a curve and denied their request for a TRO. The judge ruled that the rooftop businesses failed to satisfy their burden of proving immediate and irreparable harm from the construction, because the businesses did not provide evidence of potential loss of income.
The ruling is not a home run for the Cubs, however. A further hearing is scheduled for March 23 to determine whether the rooftop businesses are entitled to a preliminary injunction to halt construction. With opening day in Wrigley Field scheduled for April 5, and with renovations reportedly behind schedule, the Cubs will be hoping to turn a double play and prevail again so the renovation can be completed.
A buyer of real estate can often benefit from retaining a real estate lawyer to help with the purchase. However, as a recent Oregon Court of Appeal case demonstrates, channels of communication between attorney and buyer must be kept open, or the buyer may be at risk.
In Atkeson v. T & K Lands, LLC, et al., the plaintiff purchased a four-acre lot that was advertised as a potential home site with a stream, bridges, gazebo, and nature trail. The buyer agreed to purchase the lot “as-is,” but before purchasing, he retained an attorney to research its legal status. The plaintiff went on to purchase the property, but after closing, discovered several problems, including (1) the lot was within a wetland inventory and required a wetland delineation, and as a result, was potentially unbuildable, (2) the bridges and gazebo on the lot were built without required permits, (3) some improvements violated a 50-foot setback from the stream, and (4) the nature trails were improperly located in wetland areas. Further, the City declared the improvements on the property to be nuisances and ordered the plaintiff to remove them as well as undertake other corrective measures. When the plaintiff learned of the extent of the problems with the lot, he sued the seller to rescind the purchase, claiming he was the victim of a mutual mistake and innocent and intentional misrepresentations by the seller.
During pretrial discovery, the seller took the deposition of the plaintiff’s attorney. In the deposition, the attorney testified that before the sale he had known about the various problems with the lot and had told the plaintiff about those problems. The plaintiff disputed this. Based on the attorney’s deposition, however, the seller moved for summary judgment on the plaintiff’s claim for rescission, in part claiming that the attorney’s knowledge of the problems with the lot could be imputed to the plaintiff. In other words, the seller claimed that since the plaintiff’s attorney knew of the problems with the lot prior to closing, the buyer is deemed to have had knowledge of those problems before closing, and, therefore, the plaintiff could not bring a claim based on mutual mistake or misrepresentation.
The Oregon Court of Appeals agreed with the seller. It concluded that the attorney’s “knowledge about difficulties with the lot properly is imputed to plaintiff and that, on this record, that imputed knowledge defeats plaintiff’s rescission claim as a matter of law.” It didn’t matter whether the attorney actually told the plaintiff of the problems because, as a matter of law, the plaintiff was deemed to know everything the attorney knew about the lot. As a result, the buyer had no claim against the seller and was stuck with a very problematic lot.
I previously wrote in this blog about an Oregon Supreme Court case that held certain terms of a letter of intent for the purchase of a shopping center to be binding on the parties, while other terms in the letter of intent were not binding. See Letters of Intent: Binding, Nonbinding or A Little of Both, posted December 29, 2010. Recently, the 9th Circuit had occasion to review a similar issue involving a letter of intent for a ground lease transaction. In First National Mortgage Company v. Federal Realty Investment Trust, 631 F. 3d 1058 (9th Cir. 2011), the 9th Circuit upheld a jury verdict that found a letter of intent for a ground lease to be a binding contract, even though the letter stated it was subject to the parties signing a formal agreement. The First National case is a reminder to all parties negotiating a purchase and sale, lease or other real estate transaction that unless a letter of intent unambiguously states it is intended to be non-binding, some or all of the terms of the letter could be found to be binding and enforceable.
In the First National case, Federal Realty and First National had in engaged in negotiations that included an exchange of several proposals concerning a ground lease transaction. Each of the proposal letters exchanged between the parties had detailed language stating that they were not binding. Ultimately, the parties signed a one page document titled “Final Proposal,” which included a “put” and a “call” option for a ten-year ground lease. The “Final Proposal” did not, however, include the same detailed language stating it was nonbinding as the earlier proposals. It did state that “the above terms are hereby accepted by the parties subject only to approval of the terms and conditions of a formal agreement.” No formal agreement was ever signed by the parties.
I attended the ICSC (International Conference of Shopping Centers) Law Conference last month in Orlando, Florida, along with my GSB partner, Rob Spitzer. Fortunately, Hurricane Sandy stayed off the coast of Florida during our stay, and the conference was a great success. Unfortunately, Sandy continued north, took a sharp left turn, and introduced itself to the East Coast. Perhaps it was a coincidence, but several of the presentations at the ICSC Law Conference included a discussion of damage and destruction provisions found in retail leases.
Damage and destruction provisions in retail leases are often overlooked by the parties at the time the lease is negotiated. Frequently appearing towards the end of a lengthy lease document, the damage and destruction provisions are often considered to be less important than the key business terms of the lease, such as the commencement date, base rent, rent escalations, common area maintenance expenses, parking and restrictions on assignment and subletting. However, because a disaster like Hurricane Sandy, or any other event which causes damage or destruction to a shopping center, will be a significant disruption to the tenant’s business and the parties’ relationship, it is important the damage and destruction provisions be considered at the outset of the lease negotiations.
The typical retail lease will require the landlord to restore the leased premises in the event of damage or destruction. The landlord will often condition that obligation on the receipt of insurance proceeds or provide for a right to terminate the lease if the damage is substantial or the lease is near the end of the term. However, there are several other issues that the lease should address, including (1) whether the tenant is entitled to rent abatement pending restoration, and if so, whether additional rent (pro rata share of CAM charges) is abated in addition to base rent; (2) whether the tenant will have additional time after the landlord restores the leased premises to complete tenant improvements and stock inventory before rent re-commences; and (3) whether the tenant should have a right to terminate the lease if the damage is near the end of the term or if the landlord has not restored the premises within a specified period of time. Related to these issues are the insurance provisions of the lease, which should be drafted to work in concert with the damage and destruction provisions, so that adequate insurance proceeds are available to the landlord to restore the property and to the tenant to restore the tenant’s property.
While events such as Hurricane Sandy are infrequent, parties to a lease should not wait until such an event occurs to review the damage and destruction provisions of their lease.
In Oregon, most real estate transactions are closed in escrow with a title company acting as escrow agent. In a typical transaction, a purchase and sale agreement is executed by seller and buyer, then submitted to the title company to establish an escrow, and then (assuming all conditions to closing are satisfied or waived), closing documents are prepared and the parties close the transaction in escrow in accordance with instructions provided by the seller and buyer. Oregon courts have generally viewed the escrow agent in these transactions as a neutral third party, with no obligation to either seller or buyer other than to carry out the instructions provided. However, as a recent Oregon case confirms, an escrow agent can assume an obligation to the parties when it steps outside its “neutral” status and acts beyond the scope of its normal duties as an escrow.
Land use planning laws in Great Britain may not be on your radar screen. But some interesting things -- besides the 2012 Summer Olympics -- are happening over there that may just make their way to Oregon. Last July, Britain’s Planning Minister proposed that Parliament adopt a new “National Planning Policy Framework” that would make significant changes to Britain’s land use planning laws. Depending on your particular political viewpoint, the changes would either (a) remove burdensome planning rules that are stifling real estate development and hampering Britain’s economy, or (ii) remove important environmental protection rules that preserve Britain’s countryside and other natural and historic resources.
The proposed changes included a general policy statement that “[p]lanning must operate to encourage growth and not act as an impediment.” The most controversial change proposed that Britain’s planning system be based on a presumption that development should be allowed, and a requirement that local authorities be flexible, not delay projects, and approve proposed developments where local plans do not specifically address whether the development should be permitted or not. The language was strong:
A recent New York case illustrates the importance of having a carefully drafted co-tenancy clause in a commercial lease. In Staples the Office Superstore East, Inc. v. Flushing Town Center III, L.P., a shopping center Landlord had entered into a Lease with Staples, the large office supply store, for Staples to open a new store. The Lease included a co-tenancy provision that granted Staples certain rights and remedies, including the right to terminate the Lease, in the event certain co-tenancy requirements were not met. One of those requirements was that “Home Depot (or a national retailer having not less than 100 stores and occupying not less than 100,000 square feet)” be open for business in a specified area of the shopping center. The Landlord subsequently leased the specified area to BJ’s Wholesale Club instead of Home Depot. Staples claimed this was a violation of the co-tenancy provision, triggering the termination rights that Staples had negotiated into the Lease. After the parties exchanged several threatening letters over the dispute without resolution, Staples filed suit seeking a declaratory judgment that the co-tenancy requirement was not satisfied by the Landlord and that therefore Staples could terminate the Lease.
Is an arbitration clause in a commercial lease a good idea? This question came up several times in the recent ICSC (International Conference of Shopping Centers) law conference that I attended last month with my GSB law partner, Rob Spitzer. There are pros and cons to including an arbitration clause in a commercial lease. Here are some things to consider.
We regularly update clients about changes in real estate law and on industry trends. This includes briefing clients on legislative proposals in the federal tax, housing and other legal areas affecting their businesses. Staying current enables you to anticipate and prevent legal problems as well as capitalize on new developments.