Agenda - Planning Commission - 03/02/2006

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Page 2--January 25, 2006 Lease--Lease requires diligence for obtaining permits After ongoing problems with development, restaurant break.~ lease Citation: 27th & Girard Limited Parmership v. McDonald's Corporation, 3rd U.S. Circuit Court of Appeals, Nos. 04-3839 & 04-3840 (2005) The 3rd U.S. Circuit has jurisdiction over Delaware, New Jersey, Pennsylvania, and the V~rgin Islands. PENNSYLVANIA (12/13/05) -- 27th & Girard Limited Partnership and Mc- Donald's Corporation entered into a 20-year lease to operate a restaurant. The lease required McDonald's to apply for the necessary building permits without reasonable delay. If McDonald's could not obtain all necessary per- mits within 365 days, it could ~erminate the lease by delivering written notice to Girard. Within weeks, McDonald's applied for the necessa.ry permits. After the permits were denied, McDonald's immediately appealed the decision to the Philadelphia Zoning Board of Adjustment. Pursuant to board roles, McDonald's had to post notice on each street frontage of the premises. However, one of the notices soon went missing. Even so, the board found the notice adequate and granted the permits. A neighborhood civic group sued, claiming that McDonald's provided in- adequate notice. Girard and McDonald's joined as co-defendants. When the court permitted limited construction, an appeal from the neighborhood group was still pending. By that time, 365 days had passed. Consequently, McDonald's terminated the lease agreement. Girard sued to enforce the lease. The court ruled in McDonald's favor. Girard appealed, claiming that it was unreasonable for McDonald's to liti- gate the posting issue once it knew that there was evidence of possible inad- equate notice in the July posting. Girard argued that McDonald's should have either produced evidence to the contrary or sought to reschedule the zoning board hearing so it could repost. DECISION: Alarmed. McDonald's did not breach its obligation under the lease to apply for all permits "without unreasonable delay." Girard signed off on McDonald's decision to litigate and was a named party in the litigation. If Girard thought litigating the issue was unreasonable, the lease agreement provided that it did not have to join as a party to the litigation. Without Girard as a named party, McDonald's would have been un- able to proceed and would have been forced to prepare for another hearing before the zoning board. To come before the court after an unsatisfactory ruling in the lower court and argue that the Litigation never shoutd have taken place would have allowed Girard to have it both ways. 2006 Ouinlan PuPlisi~ing Group. Any reproduction is prohibited. For more inJormation please call (617) 542-0048. 132