On August 14, 2015, a jury in federal court awarded Lord & Taylor $31 million in damages relating to a dispute with its landlord, White Flint LP, over the proposed redevelopment of the White Flint Mall (Mall) in Montgomery County, Maryland. The jury believed that White Flint breached an agreement to operate the mall as a first class retail shopping center.

In 1975, White Flint approached Lord & Taylor and Bloomingdale's to become retail anchor tenants at the Mall. The parties entered into a reciprocal easement agreement (REA), under which:

The REA was a restrictive covenant that ran with the land, creating rights in real property in favor of Lord & Taylor. The REA expires in 2042, but Lord & Taylor had the option to extend it until 2057.

The Mall opened in 1977 and was a successful regional shopping destination for many years. Following the economic downturn in 2008, the Mall experienced significant declines in business. Beginning in 2009, White Flint began offering only short-term leases to prospective Mall tenants and spent around $14 million to buy out the leases of long-term tenants.

In 2010, Montgomery County issued a Sector Plan aimed at redeveloping nearly 430 acres surrounding the Washington metropolitan area subway, including the Mall site. The County planned to spend about $1 billion on the public works project and expected to generate up to $7 billion in tax revenue over the next three decades.

In November 2011, White Flint submitted its sketch plan to redevelop the Mall into a mixed-use project with a town center, residential apartments, parks, schools, hotels and high-rise office buildings. Under the Sketch Plan, the Lord & Taylor store would remain, but the enclosed mall, internal roads and parking spaces would be demolished. Montgomery County approved the Sketch Plan in October 2012 as an essential component of the broader Sector Plan.

Economic conditions became so bad at the Mall that Bloomingdale's decided not to renew its lease in 2012. Approximately 75% of the Mall was vacant by 2013 and the Bloomingdale's site was demolished. Many of the remaining short-term tenants closed their businesses. The Mall permanently closed on January 4, 2015, leaving only Lord & Taylor in operation. Lord & Taylor expected only 300,000 customers in 2015, down from around 1.2 million customers in 2014. Sales in 2015 were also down 50% from 2014.

After lease modification negotiations soured, Lord & Taylor filed for a permanent injunction to halt the redevelopment project in July 2013. The district court held that an injunction would be infeasible given the already advanced stage of the project. On January 28, 2015, in Lord & Taylor, LLC v. White Flint L.P., the US Court of Appeals for the Fourth Circuit affirmed the district court's decision and held that any violation of Lord & Taylor's property rights under the REA could be remedied with money damages, leading to the current case (780 F.3d 211 (4th Cir. 2015)).

Lord & Taylor sought damages of $35 million to rebuild the store elsewhere and an estimated $31 million in lost profits.

Lord & Taylor argued that White Flint intentionally violated the terms of the REA to reap the economic benefits of the redeveloped site. Lord & Taylor claimed that White Flint:

Lord & Taylor asserted that its business was negatively affected because White Flint:

White Flint argued that:

At the trial, industry experts testified that between the mid-1950s and 2005, nearly 1,500 malls were built in the US, but 500 to 1,000 needed to be redeveloped or face financial failure. The experts noted that some large malls continue to successfully operate.

The jury awarded Lord & Taylor $31 million for White Flint's breach of the REA. White Flint has plans to appeal the verdict and has noted that such a large verdict may affect the economic viability of the redevelopment project moving forward.

This case highlights the troubles faced by many shopping mall owners and their tenants. To attract anchor tenants, shopping mall owners typically grant long lease terms, lower rents and landlord operating covenants as concessions. Shifts in consumer trends towards e-commerce, competition from other malls and the emerging popularity of mixed-use town centers has made it increasingly difficult for owners and tenants to uphold their agreements.

Mixed-use town centers have also deemphasized the importance of strong anchor tenants because owners can incorporate a broader tenant mix. This reduces the negotiating leverage of anchor tenants and the need for owners to grant concessions.

Owners and tenants should incorporate flexibility into long-term retail leases at shopping malls to accommodate for future shifts in consumer trends. Retail leases should also include negotiated provisions regarding what happens if the shopping mall fails financially. Owners planning redevelopment projects should consult all relevant leases and encumbrances on the property to determine if tenant or other third party consents are required.

For more information on retail leases in shopping centers, see: