Real Estate Tip: Enforcing Shopping Center Reciprocal Easement Agreements in a Declining Market

Lord & Taylor signed a Reciprocal Easement Agreement, requiring its landlord to maintain a “first class high fashion regional shopping center.” The REA also required shared access and parking and required Lord & Taylor’s approval for any future alterations to the center’s “architectural design or appearance.” When the shopping center’s business declined and it started losing smaller tenants, the landlord sought to completely revamp the shopping center by demolishing the enclosed mall and constructing a mixed-use, town center model development with office buildings, apartment units, a hotel and even a school. Among other things, the design called for the destruction of internal roads and parking lots that would nearly eliminate the ability of foot traffic to reach the Lord & Taylor store.

Lord & Taylor sued the landlord asking the court to require the landlord to honor the terms of the REA by issuing an injunction to prevent the proposed new development. Despite clear violations of the REA, and the difficulty of determining what money damages might be appropriate, the court refused to enforce the REA with an injunction. The case was decided on March 4, 2015 by the US Court of Appeals for the 4th Circuit, Case #13-2548, Lord & Taylor, LLC v. White Flint, L.P.The court acknowledged the general preference for injunctive relief in REA cases, but said that courts may look at other factors. In particular, an injunction may not be appropriate if enforcement would be too difficult or would require on-going court supervision. The court also said that courts may consider the practical realities of the situation, referring to the difficulty of maintaining a first class regional mall in the absence of a sufficient number of tenants, including the absence of the other anchor tenant, Bloomingdales, whose free-standing store had already been demolished.

Whether you are a tenant or landlord in a retail center facing hard times, consult with experienced counsel as early as possible to seek alternatives to protracted litigation where the “usual result” may not materialize.

Today’s real estate tip is brought to you by Rick Smith, a LEED Accredited Professional and member of Bernstein Shur’s Real Estate Practice Group and Green Building Team. Stay tuned for more useful tips for real estate professionals.

For more information, contact Rick at rsmith@bernsteinshur.com or 207 228-7228 or at 603 665-8829.