Law360 (November 20, 2020, 5:38 PM EST) -- Wawa used the COVID-19 pandemic as an excuse to delay rent payments and ultimately break a $7.2 million lease on a proposed location in Ocean County, New Jersey, a landlord claimed Thursday in federal court.
Prospect Real Estate LLC says it spent "substantial sums" in the regulatory approval process, which it had expected to recoup over the course of the 20-year rental agreement for a planned Lakewood store. But Wawa Inc. disrupted that plan when it terminated the lease a year after it was contractually permitted to do so.
First Wawa halted Prospect's pursuit of final permits from the state's transportation regulator, citing the freeze on lease agreement obligations prompted by the pandemic in the spring, according to the complaint. Then the convenience store terminated the lease altogether Nov. 3, citing an environmental provision attached to a due diligence period that ended a year ago, the complaint said.
That excuse was "pretextual and improper" and expensive for the landlord, according to the complaint.
"As a direct result of its actions, Wawa has breached the contract with Prospect, causing Prospect to suffer economic loss," it claimed.
Prospect wants the court to find that Wawa breached the lease and is liable for all related damages, including but not limited to rent and attorney fees and costs.
According to the complaint, Prospect and Wawa forged the lease agreement in May 2019 for a planned store on U.S. Route 9. Under the terms, Wawa would pay Prospect nearly $7.2 million in rent over 20 years, the complaint said.
The agreement included a 180-day due diligence period in which Wawa could terminate the deal at any time. During that period, Prospect arranged for an environmental site assessment, according to the complaint.
Wawa rejected the initial environmental report Prospect provided because it wasn't conducted by one of the convenience store's approved vendors, according to the complaint. Prospect then commissioned another report, this time by an approved vendor, and showed it to Wawa in February, the complaint said.
"Wawa did not express any concerns or identify any issue" with the report, Prospect claimed.
Also during the due diligence period, Prospect pursued the required municipal, county and regional land use approvals and state agency permits for the construction, according to the complaint.
In May, the parties amended the agreement to toll all obligations as part of a "tenant stand-still" period, the complaint said. The stand-still period would end 90 days after it was established or 90 days after a government mandated "shelter at home" order was issued, whichever was later, according to the complaint.
In July, Prospect contacted Wawa about finalizing draft access permits issued by the New Jersey Department of Transportation because the draft permits were set to expire, the complaint said. Wawa responded with a cease-and-desist letter, claiming Prospect had violated the stand-still period, according to the complaint.
Prospect said Wawa used the cease-and-desist letter as pretext for delaying its first rent payment, and that the stand-still provision didn't prevent it from pursuing approvals because none of the government virus restrictions barred it from doing so. There were no executive orders issued that would have affected the landlord's ability to pursue land use approvals and permits, the complaint said.
Prospect instructed its engineer to get a six-month extension for the draft access permits instead of finalizing them, and sent Wawa a letter informing the convenience store it did not violate the stand-still agreement, according to the complaint.
Then, on Nov. 3, Wawa notified Prospect that it deemed the stand-still period expired and was exercising its right to terminate the lease, per Section 10(b) of the lease agreement, the complaint said. Section 10(b) outlines the rights and obligations of the parties with respect to environmental site assessments during the due diligence period, according to the lease agreement, which was attached to the complaint.
Prospect asserted claims of breach of contract, breach of covenant of good faith and fair dealing, and unjust enrichment.
Representatives for the parties didn't immediately respond to a request for comment.
Prospect is represented by Eric I. Abraham of Hill Wallack LLP.
Counsel for Wawa could not be determined Friday.
The case is Prospect Real Estate LLC v. Wawa Inc., case number 3:20-cv-16585, in the U.S. District Court for the District of New Jersey.
--Editing by Adam LoBelia.
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