Box stores won a victory in Palm Beach Gardens, Florida, recently. With the assistance of Henderson Franklin’s Summer Associate Kristen Schalter, we wanted to share the facts and impact of the Sears, Roebuck & Co. v. Forbes/Cohen Fla. Props., L.P. (Fla. App., 2017) case for those involved in commercial leasing.
Background
On July 12, Sears Roebuck (“Sears”) prevailed over the City of Palm Beach Gardens (“The City”) and the owner of the Gardens Mall (“Forbes”) in a commercial sublease dispute involving a violation of the store’s substantive due process rights under the Florida and U.S. Constitutions and unconstitutional impairment of contract.
The Sublease
In 1987, Sears Roebuck entered into a thirty-year lease with Forbes. Sears desired to sublease part of its store in the mall to Dicks Sporting Goods in 2011. Forbes later sent a letter to Sears stating that Sears could not sublease to Dick’s Sporting Goods because Sears had no right to sublease, the sports store lacked signage rights, and Dick’s Sporting Goods “did not belong” at the mall.
Resolution 20-2012
Unbeknownst to Sears, Forbes requested the City enact a resolution granting mall owner (Forbes’) approval over subleases and store modifications. Forbes contributed to the drafting process. The City passed Resolution 20-2012 (“Resolution”) which contained no criteria or grounds for approving or denying of any of the listed modifications or proposed subleases and heard no testimony regarding the Resolution.
Holding
Florida’s 4th District Court of Appeals ultimately agreed with Sears, finding that Resolution 20-2012 unconstitutionally impaired Sears’ right to contract with Dick’s Sporting Goods because it gave unilateral approval to the City and Forbes without specific criteria, which allowed Forbes to arbitrarily deny Sears’ sublease. Most importantly, the court stated the Resolution lacked a legitimate interest for a public purpose and no rational basis. To the court, the existing City Planned Unit Development already accomplished the public purpose of the Resolution.
Accordingly, the court held that Sears had a right to sublease to Dick’s Sporting Goods, that the City had deprived Sears of substantive due process, and awarded Sears reasonable fees and costs as the prevailing party.
Future Action
At trial, Sears conceded that the sublease to Dick’s Sporting Goods would require municipal approval through waivers because the plans for signage did not comply with the City’s zoning standards. However, Sears noted regular industry practice involved working with municipalities obtain approvals and waivers for signage. It will be interesting to observe whether or not the City grants the waivers for the signage now that it has lost to Sears at trial, especially since Sears’ lease is up in 2018.
Take-Away
Always be sure to determine if governing ordinances provide sufficient criteria for unilateral decision-making, otherwise there may be a lurking claim that the decision is arbitrary and the ordinance could be unconstitutional.
Photo Courtesy of Wikimedia Commons