On Aug. 19, 2014, the Superior Court of Pennsylvania reached a decision as to the proper measure of damages for a tenant's breach of a shopping center lease. The court's decision has important implications for practitioners negotiating damages clauses, in particular when drafting language imposing a duty to mitigate or discounting lost rent damages to present value.

Newman Development Group of Pottstown LLC (the landlord) sued Genuardi's Family Market Inc. and Safeway Inc. (the tenant) for an anticipatory breach of a lease for property in Chester County, Pa.'s Town Square Plaza. The parties had entered into a 20-year lease in April 2000, but the lease included specific deadlines for building permits that proved impractical in light of opposition to the project, according to the opinion in Newman Development Group of Pottstown v. Genuardi's Family Market, No. 744 EDA 2010 (decided Aug. 19, 2014). Consequently, the parties agreed to hold the lease in escrow pursuant to an escrow agreement that gave each party the right to terminate the lease if the landlord was unable to fulfill a co-tenancy condition requiring a sale or lease to Target or Lowe's within one year from the date landlord acquired the property. The landlord had yet to acquire the property, as its purchase was conditioned on certain approvals and rezoning of the property.

Shortly thereafter, in December 2000, Genuardi's Family Market assigned the lease to Safeway. Safeway continued to negotiate with the landlord and discuss the project, with the understanding that final approvals for the development would likely not occur until March 2002. Nonetheless, on Feb. 13, 2002, Safeway informed the landlord that it was terminating the lease pursuant to provisions contained in the escrowed lease permitting the tenant to terminate in the event the landlord fails to obtain building permits by a certain date (long since passed). The landlord refused to accept the termination, arguing that the escrow agreement superseded the lease and that the tenant had no right to terminate under the terms of the lease, as modified presently. The landlord then proceeded to sue the tenant for an anticipatory breach of the lease.