Carve Out Right for Minor Project Redesign

Although a development project may go as planned, it’s not unusual for problems to arise so that the project has to be redesigned. With every redesign comes an upset tenant that may feel like you’re pushing the envelope by including or doing away with aspects of the center that attracted it in the first place. You might be able to get away with small changes without ruffling any tenant feathers. But how far can you go before prompting a lawsuit?

It depends on the particular circumstances of each redesign. If the changes an owner is making are minor or insignificant, like changing the brick pattern for a walkway in front of a tenant’s space, then the owner shouldn’t be too concerned about a lawsuit. But if the changes are major, especially if they change the entire character of the development after the tenant has moved in, the owner could be on the hook for damage to the tenant’s business.

In a Florida case from a few years ago that is still a good example of this situation, a tenant leased space in a proposed development there. This development was designed as a place where people could walk around and shop, with easy access to retail stores. The tenant selected a building based on these representations, and deleted any language in the lease that would have allowed it to relocate. The developer then sold the property to a buyer who completely redesigned the project, replacing the retail building that held the tenant’s space with townhouses. The tenant refused to accept space in a different commercial space and sued, asking the court to require the new owner to rebuild the development as originally designed.

After the trial court dismissed the lawsuit, it was reinstated by a Florida appeals court. The court refused to order the new owner to rebuild the project, because that would require the demolition of 11 townhouses worth $5 million. Instead, it ruled that a jury must decide if the project redesign would hurt the tenant’s business and award appropriate damages if so. The court indicated that there may be evidence to support this conclusion: Although the original project was designed to attract shoppers and strollers, the new project had the atmosphere of a “gated community” [Craven v. TRG-Boynton Beach, Ltd., April 2006].

So what should you do to minimize any liability for damages? Include language in the lease that allows you to make minor changes to the property, including those to the exact number and dimensions of roads, sidewalks, and even buildings. Because any substantial changes that can affect the ability of a tenant to do business could expose you to a lawsuit, it’s advisable for you to talk to your attorney about liability protections that can be included in the lease, and also before making any big changes to your development.