Latest Decisions on Management Fees

One of the latest is a long line of opinions on "Management Fees" holds that an Anchor tenant in a shopping center was not required, under the terms of it lease, to pay a management fee based on a percentage of the shopping center's gross revenue from all tenants, even though the Landlord claimed that it was permitted to do so under a provision requiring it to pay a pro-rata share of all expenses for the operation and maintenance of the exterior common areas.  Instead, the court held that the provision seemed to refer to direct out-of-pocket expenses rather than uncertain management costs. K's Merchandise Mart, Inc. v. Northgate Ltd. Partnership, 835 N.E.2d 965 (Ill App. 2005)

You may also want to look at these cases:

Sheplers, Inc. v. Kabuto Int'l Corp., 63 F. Supp. 2d 1306, 1313-14 (D. Kan. 1999) (finding “it impossible to believe that 100% of the property manager and her assistant's work is directly related to CAM”); McDonald's Corp. v. Goler, 560 N.W.2d 458, 461-62 (Neb. 1997) (“We find this argument to be without merit.  Regardless of whatever the industry standard might be, article 8 is plain and unambiguous. It authorizes Golwix to bill McDonald's only for those costs and expenses related to the common area.”); Johanneson's, Inc. v. Kraus-Anderson, Inc., No. C2-99-451, 1999 Minn. App. LEXIS 962, at *3 (Minn. Ct. App. Aug. 17, 1999) (holding that the trial court did not err by concluding that the 5% management fee was not an “expenditure,” but was an impermissible “overhead” charge); South Towne Centre, Inc. v. Burlington Coat Factory Warehouse of Dayton, Inc., No. 14953, 1995 WL 628024, at *8 (Ohio Ct. App. Oct. 25, 1995) (holding that the terms of the lease did not permit the landlord to pass along to the tenants additional, duplicative supervisory charges for work overseen by an outside contractor).

Recent Developments

• Co-Tenancy: a replacement that occupied a small space and sold (or offered) different items was not a "comparable substitute tenant" operating for a "first class retail purpose" as intended in the plaintiff's lease.  This is also one of the latest co-tenancy decisions that are becoming increasingly important as retailers are acquired, shut down, go out of business, etc.  Jo-Ann Stores, Inc. v. Property Operating Co.91 Conn. App. 179, 2005 WL 2036199 (Conn. App. 2005)

• Forfeiture: Another important reminder that a typical retail tenant's lease does not permit it to "deduct" rent when it believes it is being overcharged.  In this case, the court ruled that the tenant's lease was terminated when it failed to pay all of its CAM charges (it paid some) after demand by the landlord.  Milwaukee, LLC v. Frauchigers, LLC, 704 N.W.2d 424 (Wis. Ct of Appeals 2005).

• "Similarly Obligated":  The most recent decision interpreting this very important phrase is Dinnerware Plus Holdings, Inc v. Silverthorne Factory Stores, LLC, (2004 WL 2903590) which looked at a requirement in a merchants' provision that obligated the tenant to pay only "comparable or corresponding amounts."  Consistent with the few other published decisions, the court held that the tenant was obligated to pay no more than that paid by other tenants.

• "Right to Audit":  The landlord argued that the lease didn't permit audits and the tenant shouldn't be permitted to conduct an "audit" by means of discovery. The Court, in Oakland County Michigan (near Detroit) disagreed. Instead, it followed the well known decision in PV Properties, 549 A.2d 403 one step further. It found that a tenant has a right to discovery of the backup (not just an audit, as the court in PV Properties held) AND the landlord owed the tenant a "limited fiduciary duty" with respect to these charges. This important decision can be found here.

THE 2006 LEGAL PROGRAM

Each year the Legal Program at the National Conference of the NRTA gets bigger and better.  NRTA legal faculty includes attorneys in private practice as well as "in-house" counsel at some of the largest US retailers.  This year's courses will include programs on condemnation, leasing (big box and in-line), "CAM & The Law," Co-Tenancy, REA's and more!  MORE UPDATES SOON

 

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