Court Upholds Shopping Center Lease Arbitration Award

February 23, 2016

Facts: Under its agreement with a previous owner of the shopping center where it rented space, a tenant had been permitted to use its rent payments to “pay down” a wraparound mortgage that arose from some bankruptcy claims. After the center was purchased, the tenant was required to pay full rent to the new owner. The tenant objected, and the dispute went to arbitration. An arbitrator determined that the lease gave the owner the right to collect rent from the tenant, and didn’t require it to follow the previous payment arrangement. The tenant appealed.

Facts: Under its agreement with a previous owner of the shopping center where it rented space, a tenant had been permitted to use its rent payments to “pay down” a wraparound mortgage that arose from some bankruptcy claims. After the center was purchased, the tenant was required to pay full rent to the new owner. The tenant objected, and the dispute went to arbitration. An arbitrator determined that the lease gave the owner the right to collect rent from the tenant, and didn’t require it to follow the previous payment arrangement. The tenant appealed. It requested that the decision be vacated or modified.

Decision: A New York appeals court upheld the arbitrator’s decision.  

Reasoning: The appeals court agreed with the arbitrator that the lease controlled the situation, so the new owner could choose to collect rent. The appeals court pointed out that, moreover, it was authorized to modify the decision only for “computational errors and mistakes in description,” and couldn’t reverse “substantive rulings.” The tenant claimed that the new owner’s calculation of annual rent, which the arbitrator accepted, was incorrect. But there was no evidence to support a mistake, the appeals court determined.

  • Madison Realty Capital, L.P. v. Scarborough-St. James Corp., January 2016

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