Leasing Mall Space to Medical Clinic Violates Landlord’s Duty to Operate Retail Establishment

What Happened: A shopping center lease gave a fabric and crafting suppliers tenant the right to pay a lower substitute rent if the landlord violated its obligation to run the center as a “first-class retail project.” The problem began when the landlord leased space in the center to an addiction counseling provider “solely for the purpose of conducting the business of a medical addiction treatment clinic.” You’re in breach, the tenant notified the landlord, and we reserve our right to pay the substitute rent and terminate the lease early for as long as the clinic remains in the space. It then went to court seeking a declaration affirming that the landlord was, in fact, in breach of the “first-class retail project” clause.

Ruling: The Washington state court issued the declaratory judgment in the tenant’s favor.

Reasoning: As even the landlord acknowledged, the medical clinic wasn’t a retail operation. But the landlord insisted that the phrase “first-class retail project” was ambiguous and cited another case from Connecticut finding that the exact same language could be read as having more than one meaning. The court didn’t buy it, noting that the lease in this case had something that the lease in the Connecticut case did not—namely, language specifically stating that the shopping center premises would be “used and occupied only for normal retail uses.” To find the “first-class retail project” ambiguous would be tantamount to ignoring that crucial language, the court concluded.

• Jo-Ann Stores, LLC v. Sound Props., LLC, 2021 U.S. Dist. LEXIS 106644, 2021 WL 2313428