Market Street Associates Ltd. Partnership v. Frey

Facts

In 1968, J.C. Penney entered into a sale and leaseback agreement with General Electric Pension Trust. Penney sold the property to the pension trust with a 25 year lease back to Penney. Under Paragraph 34 of the lease, the lessee was entitled to “request Lessor to finance the costs and expenses of construction for additional Improvements upon the premises” provided the costs are at least $250,000. In turn, the pension trust agreed “to give reasonable consideration to providing the financing of such additional Improvements and Lessor and Lessee shall negotiate in good faith concerning the construction of such Improvements and the financing…” Furthermore, in the event negotiations failed, Paragraph 34 provided for lessee to repurchase the property at roughly the same price Penney sold it to the pension trust plus 6 percent a year for each year following the sale.

In 1987, Penney assigned its lease for a shopping center in Milwaukee, WI to Market Street. In 1988, Market Street received an inquiry from a drugstore chain to open a store in the shopping center. Market Street was unable to obtain financing from a bank for the necessary improvements without a mortgage on the shopping center. Market Street then decided to attempt to purchase the shopping center from the pension trust. Market Street’s general partner, Orenstein, attempted to contact Erb of the pension trust via phone but was unsuccessful. Orenstein sent Erb a letter in June 1988 expressing interest in purchasing the shopping center. Erb’s associate called Orenstein and indicated an interest in selling the property for $3 million. On July 28, 1988, Orenstein sent another letter requesting $2 million in funding for improvements on the shopping center. On August 16, 1988, Orenstein sent a follow-up letter because he had not received a response, however, the next day Orenstein received a letter from Erb dated August 10 denying the financing request because it did not meet the pension trust’s investment criteria.  On August 22, Ornstein responded in a letter that Market Street would find financing elsewhere. However, on September 27, 1988, Orenstein sent Erb a letter stating that Market Street was exercising its option to purchase the property pursuant to Paragraph 34 of the lease. The pension trust refused to sell.