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Fee Foe Loses Appeal
by Ron Davis
A controversial fee that a Massachusetts shopping center owner imposed on a tenant for “management” services has gained approval after a lengthy legal battle.
The shopping center is The Westfield Shops in Westfield, and the management fee represents 5 percent of gross rents that the tenant pays. That 5 percent is added to an operations-costs fee of 15 percent of gross rents.
The center’s owner collected both fees from the tenant for several years until the tenant finally concluded that the management fee represents a breach of contract. The tenant pointed out that such a fee is “redundant,” since the center’s owner arbitrarily added it to the operations-costs fee.
In fact, the shopping center owner added the management fee shortly after purchasing the facility in 1999. Once the shopping center changed hands, the owner contracted with a management company to “manage, operate, lease, and maintain the shopping center.” The owner then assessed the management fee.
The tenant sued, and a Massachusetts court agreed that the management fee is “both unreasonable and excessive.” The judge then ordered the center’s owner to pay damages to the tenant of $11,592.62.
In that ruling, however, the judge admitted that the terms of the lease between the center and the tenant permit the imposition of a management fee. That’s because the lease states that the cost of personnel to operate the common area facilities (a management fee) is a common-area expense. And all common-area expenses are shared by the tenants of the center.
The center’s owner appealed that damage award to the tenant. And a Massachusetts appellate judge reversed the lower court, explaining, “The evidence in this case established that the management company actually managed and maintained the property and that the tenants were provided with actual goods and services for their management fee.... There is no basis in the record for the lower court’s finding that a management fee of 5 percent of gross rents was excessive or unconscionable. The evidence indicated that the rent percentage charged was the industry standard among property management companies.” (Choice Health Douglas Investment Group, Inc. v. Devcon Enterprises, Inc., 2007 WL 2409841 [Mass.App.Div.])
Decision: August 2007
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