RETAILLAW is your guide to changes
and developments
in the law of retail.

Best Buy versus DDR Decisions

Tenant Can Only be Required to Buy Actual Insurance:

The United States' largest retailer of consumer electronics, Best Buy, has been in litigation with Developers Diversified Realty (DDR) and its subsidiary owners over whether the landlords can pass on charges for "Captive" and other so-called insurance expenses that aren't actually premiums from third party commercial carriers. After many years of litigation (disclosure: Robert Machson was co-counsel to Best Buy throughout), the US District Court for the District of Minnesota granted summary judgment in Best Buy's favor, 636 F.Supp.2d 869, holding that the leases unambiguously required the tenant to pay only "commercial" insurance, not the costs "attendant" to insurance.

Tenant Need Not Pay for Anything That's Not In Lease:

Not surprisingly, because of the length and complexity of this litigation, there are a number of offshoot decisions that may have a significant impact on landlord tenant law. Among these, are the court's decision that a tenant need not pay for any services for which it is not obligated under the lease to pay, notwithstanding the landlord's argument that the service provided some value to the tenant. 715 F.Supp.2d 871.

Voluntary Payment Doctrine:

The court also reaffirmed and clarified the voluntary payment doctrine, which generally holds that a payment made with full knowledge of the facts may not be recovered even though there was no legal obligation to make the payment. Best Buy successfully argued (i) that the leases provided for recovery of overpayments after audit and (ii) the threat of summary eviction meant payments had been made under "duress." 2010 WL 4628548

Decisions that Affect Your Business

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)

Charges for management fees may be permitted where not duplicative of other charges and where landlord can show that "actual" goods and services were provided. Choice Health v. Devcon Enter., 2007 WL 2409841 (Mass. App. 2007). But see Cafeteria Operators, L.P. v. Coronado-Santa Fe Assoc., 952 P.2d 435 (NM Ct. of Appeals 1997) (fees not permitted when pure "profit").

Repairs:

Another in a long line of cases that have interpreted "repair and replace" language narrowly comes from the Housing Court of Hartford Conn., which held that the oft-used phrase "involve some degree of 'continuity' [and] do not encompass replacement or reconstruction." Polo/West Hartford v . Loring Realty Advisors, 2009 WL 1290999 (Sup. Ct. housing Session, 5/4/2009).

Robert Machson regularly speaks on legal topics relevant to retailers at the national convention of the National Retail Tenants Association.


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