Increasing Tenant's Real Estate Tax Share Isn't Fraud or Lease Violation

What Happened: A shopping center lease requires the anchor tenants, which are also partial owners, to pay a fixed part of the property’s real estate taxes, and allocates the remaining tax liability to the non-owner tenants proportionally on the basis of square footage leased. The problems began when one of the anchors, Sears, went out of business and the landlord allocated Sears’ tax liability among the non-anchor tenants, including a food store that paid the tax increase under protest. Later, when the store got evicted, nasty litigation ensued. One issue: Did the landlord commit fraud in increasing the store’s tax assessment to make up for the loss of Sears’ contribution?  

Ruling: The Kentucky court sided with the landlord on the fraud claim.

Reasoning: To prove fraud, the store had to show, among other things, that it relied on a false statement made by the landlord. The store didn’t point to anything false or misleading. Even if the assessment was somehow false or misleading, the store couldn’t show reliance because it paid the tax increase under protest. What the store really had was a breach of lease claim, the court continued. And that claim failed because the lease clearly said that the store’s share of real estate taxes would be computed by multiplying the total amount of taxes assessed against the shopping center minus the amounts contributed by the anchor stores.  

• Brenco, Inc. v. Lexington Joint Venture, 2019 Ky. App. Unpub. LEXIS 527