Overview Leases arguably represent the backbone of commercial real estate. Without the benefit of rents being paid over a period of time, the property would be unable to provide the revenue necessary to motivate the capital necessary to acquire property or construct improvements on the property. While leases provide an important general role, the inner workings of leases provide many features that affect the nature of the rent and the length of the time period at stake. Moreover, one of the critical defining legal components of leases – the right to use and possess another person’s property – is the subject of intense scrutiny in most commercial leases. This week, we will explore the purposes and operation of leases within the bundle of rights concept as well as common features of leases that frequently present important business considerations. We will also explore the economic role that leases commonly perform within the business arrangements associated with any real estate project. Objectives Identify the purpose and operation of leases. Recognize the economic features of leases Explore common features of leases. PLEASE Answer 2 questions 250 words each: QUESTION 1: A is a carpenter and has completed the framing of eight homes for G, the general (prime) contractor. Prior to A’s work, B had leveled and graded the property; C had put in the foundation; D had staked out the driveways and homes, and E had partially installed the plumbing fixtures. The tasks were completed on the following dates: November, 22, 2012; August 1, 2012; September 15, 2012; August 15, 2012; August 30, 2012. All parties properly served a preliminary notice. A construction mortgage was filed, August 1, 2012. No one has been paid, and A, B, C, D, and E have all field liens by December 1, 2012. Who has priority, the mortgage company or the lienors? What order of priority exists among the lienors? What happens if there is not enough money to pay the lienors? What is the fairest result? Why? QUESTION 2:Walgreens has operated a pharmacy in the Southgate Mall in Milwaukee since its opening in 1951. The current lease, signed in 1971 and carrying a 30year, sixmonth term, contains, as had the only previous lease, a clause in which the landlord, Sara Creek, promises not to lease space in the mall to anyone else who wants to operate a pharmacy or a store containing a pharmacy. However, Sara Creek has lost its anchor tenant in the shopping center in the shopping center and signed a lease agreement with PharMor, a “deep discount” chain, rather than, like Walgreens, just a “discount” chain. PharMor’s store would occupy 100,000 square feet, of 12,000 would be occupied by a pharmacy the same size as Walgreens’. The entrance to the two stores would be within a couple hundred feet of each other. Walgreens filed suit for an injunction halting the opening of PharMor. Sara Creek indicates that without another tenant in the space, Walgreens’ sales will decline dramatically. Sara Creek argues that without PharMor, Walgreens’ sales will drop $2,000,000 and that with the PharMor, Walgreens will lose only $1,000,000 in sales. What do you think of Sara Creek’s economic argument? Should those economic issues have a place in deciding whether to enforce restrictive covenants? Should Walgreens be permitted to terminate the lease if no injunction is granted?
Walgreen Co. v. Sara Creek Property Co. B.V. 966 F.2d 273 (7th Cir. 1992)