Articles Posted in Commercial Leasing

The recent news from KLX Aerospace Solutions, the world’s leading distributor and service provider of aerospace fasteners and consumables, of its build-to-suit lease for its new global headquarters and distribution hub totaling more than 500,000 square-feet in Medley drew a great deal of attention in the aviation and real estate industries.

The lease represents the relocation and expansion of the company’s local facilities, and it helps to solidify South Florida’s stature as one of the world’s fastest-growing logistics, trade and air transport hubs.

klx1The company will add 100 jobs to its existing 600 as it expands from its existing Doral headquarters (see photo) to the newly built facility.  The building will be located at the intersection of NW 107 Street and 97 Avenue between Florida’s Turnpike and I-75 in Countyline Corporate Park.  It will include two floors of office space with the ability to expand as well as a state-of-the-art storage and distribution area.  KLX is one of many major players in the aviation industry with a presence in the Miami and Doral area, including Lockheed Martin and World Fuel Services.

Our firm’s other real estate attorneys and I congratulate KLX and all of the professionals who played a role in making this major aviation sector real estate deal come to fruition.  Click here to read the company’s press release on the new lease.

I am proud to be participating in the International Council of Shopping Centers (ICSC) RECon event, which will be taking place at the Las Vegas Convention Center & Westgate Hotel May 22-25, 2016.  This four-day educational program is the largest retail real estate exhibition and conference in the world, with more than 36,000 industry executives, retailers, financial companies, and product and service suppliers in attendance each year.

On Tuesday, May 24, I will be presenting the session titled “The Economics of a Lease: Developers and Retailers Perspectives,” which will cover the strategies and tactics of negotiating monetary provisions, including minimum and percentage rent clauses, security deposits, operating costs, real estate taxes and T/I payments.  icsclogo2015Participants will be led through an analysis of key elements of each of the lease provisions.  The session is scheduled to take place from 9 to 10:30 a.m.  Click here for additional program details.

Founded in 1957, ICSC is the global trade association of the shopping center industry with more than 60,000 members in the U.S., Canada and over 90 other countries.

 

I am proud to be participating in the International Council of Shopping Centers (ICSC) University of Shopping Centers event, which will be taking place on the campus of the Wharton School at the University of Pennsylvania on March 7-9, 2016.  This three-day educational program will enable attendees to gain a higher level of knowledge of the retail real estate industry by learning directly from experienced professionals.

On Tuesday, March 8, I will lead the course titled “Economics of a Lease: Developers and Retailers Perspectives,” which will cover the strategies and tactics of negotiating monetary provisions, including minimum and percentage rent clauses, security deposits, operating costs, real estate taxes and merchants/marketing fund payments. The course is scheduled to take place from 2 to 5 p.m. Please click here for additional program details.icsclogo2015

Founded in 1957, ICSC is the global trade association of the shopping center industry with more than 60,000 members in the U.S., Canada and over 90 other countries.

A report in the latest issue of the International Council of Shopping Centers’ magazine Shopping Centers Today chronicles how major shopping mall operators across the country effectively filled what was an unusually large glut of empty store space in the first half of 2015.

The report includes data from the most recent quarterly financial disclosures from such industry giants as General Growth Properties, CBL & Associates Properties, Macerich, and Taubman Centers. All of the companies reported that they made strong progress in re-leasing their vacant stores, many of which stem from closures by retailers that also took place during the first half of the year.

Click here to read the complete article in the magazine’s website.

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A ruling filed on July 22 by the Second District Court of Appeal overturned the circuit court’s summary judgment in favor of a landlord for the eviction of its tenant that operated a restaurant and a separate nightclub from its two spaces at the property. The ruling adds clarity to the burdens that must be met for summary judgments granting commercial evictions.

In the case of Atria Group v. One Progress Plaza, II, Atria Group took possession of the two suites in April 2010, and One Progress Plaza filed for eviction in September 2013 alleging that Atria had committed numerous nonmonetary violations including damage to the property, illegal activity, disregard of building rules and other lease requirements, unsanitary conditions, and failure to clean the premises.

Atria promptly filed its answer and affirmative defenses, as well as a request for mediation and a counterclaim. It denied the majority of the allegations regarding the claimed breaches, and it argued that One Progress Plaza failed to give the requisite notice of breach and opportunity to cure, and the eviction would cause an inequitable forfeiture based on Atria’s $2 million investment into the promotion and renovation of the premises and its payment of $25,000 per month in rent since 2010.

In pursuit of its motion for summary judgment, the landlord filed an affidavit which outlined the alleged violations of the lease. The circuit court granted summary judgment for eviction in favor of the landlord, and the tenant appealed.

2dca.jpgThe appellate panel’s opinion notes that the lease agreement between the parties provides an important caveat for the establishment of material defaults and breaches of the lease:

“(3) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee . . . where such failure shall continue for a period of ten (10) days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee’s default is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commences such cure within said 30-day period and thereafter diligently prosecutes such cure to completion.”

The appellate ruling concludes that the circuit court erred in granting the summary judgment for eviction because the landlord’s property manager acknowledged in his deposition that most of the alleged defaults or violations of the lease had, in fact, been corrected, and the affidavits provided by both parties raise issues of material fact about the occurrence of the alleged defaults and Atria’s curative acts within the terms of the lease. The panel also found that One Progress Plaza failed to establish that the alleged violations of the lease were material, given that Atria was remedying any problems as they arose, and the landlord failed to refute all of the tenant’s affirmative defenses or to establish that they were legally insufficient.

The court was also swayed by Atria’s assertions that eviction would cause an inequitable forfeiture based on its $2 million investment into the promotion and renovation of the premises and its continuous payment of the rent since 2010. It found that the tenant may be able to prove that it would be inequitable to terminate the lease in light of its significant investment in the property.

The appellate court’s opinion reiterates the stringent nature of the burdens that typically must be met for summary judgments for commercial evictions. In reversing the summary judgment for eviction, the appellate court remanded the case back to the circuit court for further proceedings, and its findings as to the validity of the tenant’s assertions and affirmative defenses should prove to be very influential in the case.

A recent opinion by the Fourth District Court of Appeal serves as a reminder to commercial tenants of the challenges of proving lost profit damages in landlord-tenant disputes.

In the case of Victoriana Building, LLC v. Ft. Lauderdale Surgical Center, LLC, the landlord appealed the circuit court’s final judgment in the tenant’s favor regarding the landlord’s breach of the lease, and the tenant cross-appealed the lower court’s decision not to award it damages for alleged lost business value or out-of-pocket expenses.

The appellate panel affirmed the circuit court’s findings in favor of the tenant and guarantor on the liability issues, and it also reversed the denial of the tenant’s out-of-pocket expenses claim. However, the court affirmed the lower court’s denial of the tenant’s lost business value claim.

On the liability issues, the appellate court concluded that the trial court properly determined that “the landlord first breached the lease by failing to provide code-compliant means of fire egress, and that the tenant therefore was excused from any further obligation under the lease.” Because the lease required the tenant to prepare the premises for the tenant’s specific use, and because the landlord breached its obligations under the lease, the appellate court found the landlord liable for all of the tenant’s out-of-pocket expenses to build out the space. 4dca.jpg These expenses totaled more than $975,000. Property owners should take note that a landlord can be liable for a tenant’s construction costs if it fails to perform its obligations under a lease.

As to the tenant’s lost business value claim, the appellate court found as follows with respect to the ruling by the trial court:

[T]he court properly determined that the tenant’s proof was speculative and therefore insufficient. “Lost profits are typically proven by one of two methods: (1) the before and after theory; or (2) the yardstick test.” (citation omitted). “The yardstick test is generally used when a business has not been established long enough to compile an earnings record that would sufficiently demonstrate lost profits and compares the profits of businesses that are closely comparable to the plaintiff’s.” (citation and quotation marks omitted). Here, the tenant’s expert consultant, in analyzing the viability of the tenant’s proposed facility, did not evaluate any comparable facility’s profitability as a “yardstick,” and the tenant’s expert CPA acknowledged that his report, which was based on the consultant’s report and forecast, was only “as good or as bad as [the consultant’s] forecast.” Thus, the tenant’s proof was insufficient.

Just as landlords should be aware of their potential liability for failure to perform their lease obligations, tenants also should be aware that an award of any damages other than out-of-pocket expenses will require additional proof. This appellate opinion illustrates that businesses which are seeking lost profit damages must understand the nature of the expert analysis and testimony that the courts will require in order to support their claims.

Our firm’s other real estate attorneys and I write regularly in this blog about important legal and business issues for the real estate industry in Florida, and we encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

A recent ruling by the First District Court of Appeal (Amelia Island Restaurant II, Inc. v. Omni Amelia Island, LLC) protected a commercial real estate tenant’s right to maintain its exclusivity provision through each of its lease extension options as stated in the terms of its lease.

Amelia Island Restaurant II operated a restaurant (pictured below) in the Shops at Amelia Island Plantation in Nassau County. In 2012, the restaurant and landlord entered into litigation over its eligibility to renew the lease and whether the lease’s exclusivity provision preventing another full-service restaurant from operating in the Shops remained in effect.

The trial court ruled that the restaurant could renew its lease for another five years, but the landlord prevailed on the exclusivity issue. Both parties subsequently appealed.

The appellate panel affirmed the trial court’s ruling to allow the eatery to renew its lease, and it also reversed the lower court’s ruling on the exclusivity issue. The appellate court found that under the terms of the lease, the restaurant had an option to renew for a third five-year term in 2013 if it was not in default as of either the date that it gave the landlord written notice to exercise the option or on the last day of the first-option term. plaeamelia.jpg Both parties agreed that the restaurant was not in default on May 1, 2013, which was the last day of the option term, but they disagreed whether it was in default seven months earlier on September 25, 2012, which was the date it provided notice to renew the lease.

The landlord argued that the restaurant was effectively barred from renewing as of the September date because it owed interest on earlier past-due rent payments and a $50 processing fee. The trial court found, however, that the restaurant was not in default, and the appellate court affirmed the ruling, stating that the lower court’s finding “is supported by competent, substantial evidence – particularly the letter from Omni’s attorney just after delivery of the renewal notice stating that the Restaurant could exercise the option after addressing other (non-interest and non-processing fee) issues.”
The appellate court also concluded that Florida law does not require the invalidation of the lease’s exclusivity provision. The opinion reads:

“In sum, all of the evidence adduced at trial about the length of the Lease’s restrictive covenant, as originally negotiated by the parties, supports the conclusion that the exclusivity provision continues serving what the trial court considered to be an “[u]nquestionably” legitimate business purpose.

Finally, the trial settled any textual ambiguity concerning the length of the Lease’s exclusivity provision. The unrebutted testimony of witnesses representing both of the original contracting parties was that they intended the exclusivity provision to be effective throughout both the Lease and Option Terms, twenty years maximum.”

This major appellate win for the restaurant tenant highlights the approach that the Florida courts will take in interpreting exclusivity provisions that are renewable under the option terms for commercial real estate leases. Our firm’s other real estate attorneys and I write regularly in this blog about important legal and business issues for the real estate industry in Florida, and we encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

A ruling last week by the Fourth District Court of Appeal serves as a telling reminder for commercial real estate tenants of the standards that must be met in order to justify their early termination of commercial leases based on the theory of constructive eviction.

In the case of Griffin Industries, LLC v. Dixie Southland Corporation, tenant Griffin leased a warehouse space in Davie, Florida, from landlord Dixie Southland for a five-year term, and it was one and a half years into its lease when a dispute ensued. Griffin decided to purchase a property that would suit its needs in Pompano Beach, and three weeks after this acquisition the Town of Davie posted a “Courtesy Correction Notice” directing that it “discontinue pumping water into the street, remove exterior pipe & cap-off” within six days or face potential fines.

Griffin e-mailed the notice to Dixie, and in response the landlord removed and capped off the offending pipe in compliance with the municipal notice. It implemented a plan to pump excess water through PVC pipes onto different portions of the property, and the local building department re-inspected the property and closed its file.

Griffin continued to inquire with Dixie about its remedy for the drainage, and Dixie enlisted a contractor to design and implement a permanent onsite drainage system. However, this did not seem to satisfy Griffin, and its attorney wrote to Dixie to indicate that he had visited the property and witnessed illegal discharges which were still occurring. As a result, the attorney’s letter indicated that Griffin would be terminating its lease in June 2009, which is when it vacated the property and ceased its monthly payments.

Dixie, which subsequently leased the property to another tenant for a three-year term for $4,000 less per month than it had been receiving from Griffin, sued Griffin, which counterclaimed for breach of the lease and also raised several affirmative defenses. The trial court entered judgment in favor of Dixie and awarded damages for unpaid rent and sales tax through June 2010.

4dca.jpgGriffin filed an appeal seeking a reversal of the trial court’s ruling because it contended that it was legally entitled to terminate the lease because Dixie “created and refused to correct unpermitted storm water and drainage systems, that Dixie breached the Lease by failing to ‘keep and maintain in good condition’ the storm water and drainage systems, that Dixie constructively evicted Griffin by failing to correct illegal storm water and drainage systems, and fraudulently induced Griffin to enter into the Lease by falsely representing that ‘the property had all the permits.'” The tenant also contended that, alternatively, the amount of damages awarded should be reduced to reflect rent through an earlier date than that ordered by the trial court pursuant to a clause in the addendum to the lease.

In its unanimous opinion, the appellate panel found:

“A tenant is not entitled to terminate a lease based on a theory of constructive eviction unless the premises are unsafe, unfit, or unsuitable for occupancy for the purposes for which they were leased [citation omitted]. Other than the events that transpired during the thirty-four days between the issuance of the Courtesy Notice and Griffin’s Termination Letter, the record is devoid of evidence of complaints on the part of Griffin with the storm water drainage system on the Property. There is no evidence of any interference with Griffin’s operations or of any safety, fitness, or suitability issues prior to the issuance of the Courtesy Notice.

“To the extent there may have been an illegal condition on the Property when Griffin sent the Termination Letter, the Town of Davie already had inspected the Property and closed its file; no fines had been imposed; there was no pending Courtesy Notice or other form of governmental citation wherein the possibility of fines being imposed existed; and Dixie had engaged and entered into a written contract with an engineering firm to design an onsite drainage system for the Property. None of these facts were in dispute. Thus, any issues Griffin may have had relating to the storm water drainage system either had been, or were, in the process of being addressed by Dixie prior to the Termination Letter.”

The appellate court also found that Griffin is liable for the rent plus sales and property taxes and insurance not paid by the new tenant for the remaining term of the lease.

The Fourth DCA’s ruling in this case should serve to remind commercial real estate tenants of the strict standards that must be met to justify a lease termination based on a theory of constructive eviction. Our firm’s other real estate attorneys and I write regularly in this blog about important business and legal issues for commercial real estate tenants and landlords, and we encourage Florida real estate industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

For the last several years, the state legislature has considered the possibility of rolling back Florida’s tax on commercial real estate lease payments, and the issue is back on the legislative agenda for 2015 with the introduction of a bill last week in the Florida Senate. I was very pleased to have had the opportunity to participate in last week’s International Council of Shopping Centers Florida Legislative Conference in Tallahassee, and our meetings with the lawmakers and their representatives proved to be very productive in persuading them to keep this measure in mind.

Because Florida is the only state that imposes a sales tax on the sums that businesses pay to rent commercial space, this tax has a negative effect on the efforts of economic development councils and government to attract major employers and promote the growth of industries in the state. For the retail industry in Florida, this tax has been particularly onerous. The industry is struggling to compete with online retailers, and the tax makes it especially difficult because most of the online sellers have their facilities in states that do not impose such a tax.

As Gov. Scott has noted in previous years, the sales tax on commercial rent costs Florida businesses $1.4 billion per year. Its reduction “will make it more affordable for businesses to lease space, so they can keep more of the money they earn and create more jobs,” said Gov. Scott. “Florida is the only state that imposes this tax, and we must keep working to make Florida the best place in the world to start and grow a business.”

Flalegislature.jpgOur firm’s other real estate attorneys and I are pleased that this issue is once again being considered by the Florida legislature, and we will monitor its progress during this year’s session and post a final update on its outcome in the coming months. We write regularly in this blog about important legal and business issues for the commercial and residential real estate industries in Florida, and we encourage industry followers to enter their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

In a deal that was more than two years in the making, I recently represented the owner and developer of 220 Alhambra Circle in the sale of the office tower to Mercantil Commercebank for $75 million. Mercantil has been the largest tenant in the building for more than 15 years.

The bank has acquired one of the premier class A office towers in the Coral Gables market (pictured below), which has been one of the largest bright spots in the South Florida office market. Recent reports in Globe Street (www.globest.com) and The Real Deal (www.therealdeal.com) chronicle how the Coral Gables office market continued its momentum during the fourth quarter of 2014. The reports note that two new tenants recently inked leases at The Alhambra, which is the 14-story office tower that is interconnected with the Hyatt Hotel.

220Alhambra.jpgFiduciary Trust International of the South, a division of Franklin Templeton Investments, signed a lease for 12,500 square feet at the property, where it is relocating from its current space in downtown Miami. Pipeline Workspaces, a shared office space provider, signed a lease for 14,000 square feet at 95 Merrick Way, which is also part of the same complex.

According to statistics gathered by CBRE, the Coral Gables office submarket continues to lead the way in terms of office market absorption. Tenants leased about 195,000 square feet of office space in Coral Gables during the first three quarters of 2014, which is substantially more than any other submarket in Miami-Dade County.