When Caribou Shutters Stores, Who Pays The Rent?

When Caribou Shutters Stores, Who Pays The Rent?

When Caribou Coffee abandons dozens of leased spaces, who’s left holding the bag?

Only when a member of his maintenance crew spotted a “We’re closing” sign on Caribou Coffee’s door did Bruce Bermel, owner of the mixed-use Boulevard Commons complex in Minneapolis, learn of his longtime tenant’s plan to go dark—with 40 months remaining on its lease.

The location was among 80 that the Brooklyn Center-based coffee chain recently shuttered. Such mass closures are not uncommon—Best Buy, Super-valu—but who pays the rent?

While leases typically leave exiting tenants on the hook, Bermel’s case attests that such situations can quickly turn adversarial.

Exiting tenants may negotiate a lump-sum payment to free them from lease obligations, or continue to pay monthly rent on a shuttered space, but landlords are more inclined to strike a deal if it allows them to dictate the tenant mix or charge higher rent. “A landlord’s control of the use of the space is critical to the success of the whole retail center,” says Tom Mayerle, who has represented landlords and tenants during his 35-year career at Minneapolis-based Faegre Baker Daniels, and now through his own practice.

Some leases contain “operating covenants,” which require tenants to remain open for the duration of their lease. Caribou, for example, “doesn’t have the right to go dark” in his building, Bermel says. He could take the dispute to court, although “it would be most beneficial to work cooperatively with them to find a new tenant.” (Caribou declined to comment.)

Bermel is still weighing his options. “At this point, we’re asking them to please pay the rent. They have possession of the space—the ball is in their court.”