Fall 1987 - Capital University Law School - Contracts

Question I

LIMIT YOUR ANSWER TO 5 PAGES IN A BLUEBOOK

 

Daddy Bigbucks was interested in building a new downtown shopping center for Riverberg in order to attempt to revive Riverberg's downtown area, and bring some life back to the city.The fact that it might make some of his downtown property holdings more valuable was an added incentive to his otherwise civic minded intentions. Before beginning construction, however, Daddy attempted to find potential tenants for this proposed project.

Within a few months, Daddy was able to convince a major, up-scale department store chain, Partial-Field, to sign a letter indicating its intention to open a major department store in Daddy's planned center. As with most shopping centers, finding at least two major department store tenant's is crucial to the success of the shopping center and to the success of the smaller retail establishments that occupy the rest of the space in the center. The letter signed by Partial-Field provided, among other things:


This letter will confirm the various discussion held between Partial-Field and Daddy Bigbucks Inc. relative to the proposed lease of space in the Bigbuck's Downtown Shopping Plaza, to be located in downtown Riverberg. The objective of our discussions has been the execution and consumation, as soon as feasible, of a Lease Agreement between Partial-Field and Daddy Bigbucks, Inc., which, among other things, would provide for the various matters set below:

1. Partial-Field will lease a total of 20,000 square feet of retail sales space, and an additional 10,000 square feet of storage and office space from Daddy Bigbucks, located at the Northwest corner of the Downtown Shopping Plaza, as shown on the drawings accompanying this statement of intent, to be constructed by Daddy Bigbucks and completed by October 1, 1989. The term of this lease will run for five years, commencing on October 1, 1989 and ending on September 30, 1994. Rent will be $10 per square foot for the first two years and $12 per square foot, or $10 per square foot plus 2% of net monthly revenue, at the option of Daddy Bigbucks. The lesee will have an option to renew the lease for a another 10 years, at a reasonable rent to be agreed upon by the parties at the time of the renewal.

2. Bigbucks may publicize this letter of intent and use it in performing its duty to obtain additional tenants for space in the Downtown Shopping Plaza.

3. Consumation of this transaction will occur only after execution and delivery of a definitive agreement in form reasonably satisfactory to respective counsel for Partial-Field and Daddy Bigbucks and containing such usual and customary representations, warranties, covenants, and other terms as either of the parties and their respective counsel may deem reasonably required.

 

With this letter of intent, Daddy was able to convince other retail firms to enter into agreements to lease space in the shopping center, once construction was complete. Foremost among these firms was Cecil's, an already existing downtown department store that had long been interested in moving to a more modern facility and raze its existing structure to make way for a high rise office tower, which a local developer wished to build. Sale of this property would result in a $20,000,000 profit for Cecil's. There were, in addition, twenty other firms that signed lease agreements to rent space in the shopping center upon completion.

The agreement with Cecil's provided for allocating 10,000 square feet in the center for Cecil's' 5 story store. Cecil's space, acccording to the terms the lease, was to be located on the Southeast corner of the shopping center, with access to the street and to the 5 story parking facility to be attached to the shopping center. With the lease agreement finalized, Cecil's sold the property on which its current downtown store was located, and began planning for the move.

The lease agreements with the smaller stores in the shopping center were less detailed than the one with Cecil's and provided simply for the allocation of space to the stores in question, leaving the precise location of each store to be agreed upon, with rental payments depending on proximity to the two larger department stores, Cecil's and Partial-Field.

Shortly before construction on the project was complete, a large insurance firm, which had its offices in a nearby downtown office building, announced its intention to move all of its operations to a new location on the outskirts of one of Riverberg's suburbs. When news of this announcement reached Partial-Field, it's board of directors decided to back out of their letter of intent with Daddy Bigbucks and announced that Partial-Field would be building its store in the suburb, at the location of a new shopping center currently under construction there.

Shortly after this announcement was made, and two weeks ago, a representative of the "Discount Consumer Warehouse" (DCW) chain contacted Daddy and offered to lease the space that Partial-Field had intended to occupy, for $8 per square feet and with a 10 year lease renewable, by "Discount Consumer Warehouse" for a second 10 year period, at the same rent. The written offer from DCW indicated that it would would remain open for one month.

DADDY BIGBUCKS HAS SOUGHT YOUR FIRM'S ADVICE. AS A NEW ASSOCIATE WITH THE FIRM YOU SHOULD DRAFT A MEMO TO THE PARTNER IN CHARGE OF THE CASE, EXPLAINING DADDY BIGBUCK'S POTENTIAL RIGHTS AND LIABILITIES. YOU SHOULD PAY PARTICULAR ATTENTION TO THE REMEDIES THAT HE MIGHT OBTAIN AGAINST PARTIAL-FIELD OR THAT MIGHT BE ASSERTED AGAINST HIM BY CECIL'S OR ANY OF THE OTHER RETAIL MERCHANTS WHO SIGNED LEASE AGREEMENTS WITH DADDY.