Contract Warning

10/28/2016 | Articles & Alerts

Contracting parties often rely on boilerplate language for their default clauses. The Pennsylvania Superior Court’s decision in Newman Development Group of Pottstown, LLC v. Genuardi’s Family Market, 98 A.3d 645 (2014), should change that. In this breach of contract case, the Court held that a landlord who was entitled to an award of future lost rents for a twenty-year lease term was not required to discount that award to present value.

Newman entered into a “build to suit” lease agreement with Safeway for a shopping center located in Chester County. Before Newman obtained the necessary approvals to construct the store, Safeway terminated the lease and Newman sued for anticipatory breach. Newman mitigated its losses by leasing the space to Michael’s and PetSmart, but at a lower rental rate and for only a ten-year term. Newman claimed that it was entitled to over $10 million in future rents from Safeway. This amount included the offset for rents collected from the substitute tenants for the first ten-year term. On appeal, Safeway contended that the award should have been discounted to present value. The Superior Court disagreed, holding that because the lease agreement did not explicitly provide for such a reduction, Safeway was out of luck.

This case brings home a valuable lesson, namely that default clauses must be negotiated like every other material term in a contract and at a minimum; the parties appreciate the ramifications in the event of breach.

Pam Tobin is a member of the Business & Commercial Litigation group. She can be reached at 610.941.2543 or by email to ptobin@kaplaw.com.