RESUSCITATING A DEAD MALL DEEMED INFEASIBLE BY THE FOURTH CIRCUIT

Last month, the United States Court of Appeals for the Fourth Circuit declined to overturn a district court ruling in favor of the owners of White Flint Mall. Lord & Taylor filed suit in 2013 to compel the owners to abandon efforts to redevelop the mall and resume operations in compliance with a reciprocal easement agreement from 1977 (the “REA”). The full decision in Lord & Taylor, LLC v. White Flint, L.P. is available here.

White Flint Mall opened in 1977 with Lord & Taylor and Bloomingdale’s as long-term anchor tenants. The owners of the mall at that time and the anchor tenants established certain restrictive covenants, as set forth in the REA, under which the owners agreed to maintain a “first class” mall in accordance with detailed requirements about the design and layout of the mall and its operations. The REA remained effective until the expiration of Lord & Taylor’s lease in 2042 or later if extended by Lord & Taylor’s exercise of an option to renew.

In 2011, the mall owners released redevelopment plans for the mall in connection with a massive public-private effort to redevelop the area surrounding the White Flint metro station. In 2013, Bloomingdale’s closed the other anchor space, and its store was demolished. Many other stores had been operating under short-term leases and were closing. It was not mentioned in the decision, but Dave and Buster’s also lost a court battle after the mall owners terminated its lease on the grounds that Dave and Buster’s had violated a radius restriction. By the time the Lord & Taylor decision was issued, the mall was entirely vacant except for Lord & Taylor. It was far from being the “first class high fashion regional [s]hopping [c]enter” the REA required.

The Fourth Circuit’s decision did not discuss Maryland’s strict interpretation of restrictive covenants, as most recently articulated by the Maryland Court of Appeals in Dumbarton Oaks Improvement Association, Inc. v. Druid Ridge Cemetery Company In that case, the Court of Appeals identified a narrow exception for circumstances so changed that it would be impossible, rather than merely impractical or improbable or amounting to a bad business decision, to comply with restrictive covenants.

Instead, the Fourth Circuit couched its decision in terms of the feasibility of undoing what had already been done, restoring the mall to its glory days, and ensuring compliance with the REAs well into the future. It was clear to the Fourth Circuit that simply ordering the mall owners to abandon the redevelopment efforts and do nothing more would not have satisfied the REA given that the mall was vacant and partially demolished. Full compliance under the REA would be infeasible based on the complexity and reach of the REA, the size of the property involved (45 acres), the potential for more conflict that may be created with new tenants, and the period of time remaining (more than 25 years).

This case is a “win” for redevelopment efforts in White Flint.  From a practice standpoint, it highlights some concerns about restrictive covenants and representing clients who rely on them for operations. If Lord & Taylor had acted sooner, such as when the mall owners began pursuing approval of its redevelopment plans, the court may have been more amenable to ordering the mall owners to abandon the redevelopment efforts.  Indeed, Lord & Taylor’s poor sense of timing in filing suit after the mall owners obtained public approval for their plans and began demolishing the mall suggests that Lord & Taylor was seeking something other than bringing back White Flint Mall.

In addition, this case highlights an issue in enforcing complicated and long-term restrictions: the more complicated the restrictions are and the longer the term of their effectiveness, the greater the risk that enforcement issues could arise in time. In light of this decision, in creating and enforcing restrictive covenants, at least in the context of long-term shopping center REAs, parties may wish to prioritize their needs, such as maintaining access and visibility, and avoid elaborate covenants regarding items that are not essential or at least important to their operations.

Gwendolyn Allen is the editor of Ground Rules and an associate at Reno & Cavanaugh PLLC. 

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One comment

  1. Denick, Bernard · · Reply

    Sent from my BlackBerry 10 smartphone.

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