Editor’s Note: Legal Corner contains case summaries and analysis of recent court decisions that impact retail leasing and lease administration. These summaries focus on the leasing issues covered in each case and do not include detailed discussions or analysis of the procedural and peripheral issues in the cases.
Lost Profits Doctrine Prevents A Double Dip
Lord & Taylor, LLC v. White Flint, L.P., 849 F.3d 567 ($th Cir. 2017).
In 1975, a national department store entered into a lease with Landlord for a portion of a Maryland shopping center for use as an anchor department store. In exchange, Landlord was required to construct a “first class” mall and maintain that shopping center until 2024. The mall closed in 2015, leaving Tenant as the only remaining business. Landlord then moved forward with a redevelopment plan to transform the mall into a mixed-used development. Tenant objected to the redevelopment plan and brought a breach of contract claim against Landlord, leading to Tenant being awarded $31 million in damages by the court. It was unclear from the verdict in that action whether the $31 million accounted for Tenant’s estimate of lost profits or Tenant’s estimated renovation costs arising from renovations necessitated by the redevelopment plan. On appeal, both parties challenged the amount of damages awarded to Tenant. Landlord argued that under the lost profit theory, the damages award should have been reduced to account for the future economic benefits to Tenant anticipated once the redeveloped project was completed. On appeal, the court disagreed, reasoning that any reduction to Tenant’s damages based on future benefits must be proved with reasonable certainty. Here, the court determined that Landlord had failed to show whether and to what extent Tenant would actually benefit from the redevelopment. Tenant argued that it was entitled to additional damages to account for property rights (easements and use restrictions) that would be lost by Tenant as a result of Landlord’s redevelopment and that those rights were separate and distinct from Tenant’s lost profits arising from the redevelopment. Accordingly, Tenant asserted that it should be separately compensated for the loss of those ancillary rights. The court rejected that argument, explaining that under Maryland law loss of profits is the governing factor in calculating damages stemming from a violation of a restrictive use covenant. The court explained that, in the context of commercial properties, easements and use restrictions protect the income-producing capacity of a property. As such, Tenant’s damages for the loss of its easements and use restrictions could only be measured in terms of lost profits, which had previously been awarded to Tenant by the lower court. As a result, to allow Tenant to recover for both lost profits damages and loss of its ancillary property rights would result in an impermissible double recovery by Tenant.