MIAMI, FL– April 14, 2021- Following the legalization of medical marijuana in Florida, the City of Miami Beach zoned four small areas of the city for the operation of dispensaries. One such area is a three-block stretch of Alton Road, between 13th and 16th Streets. In late 2018, OHR Beach Corporation, a well-established Miami Beach landlord with substantial holdings in that stretch, leased one of its properties to Liberty Health Sciences, Inc., a publicly-traded Canadian medical marijuana company with over thirty dispensaries in Florida. Knowing that any tenant operating a dispensary would be subject to substantial regulatory and zoning risks, OHR negotiated with Liberty and came up with a way to divide the risk amongst themselves. The lease provided Liberty with three months to obtain all necessary permits or to otherwise satisfy itself of its ability to do so, during which it was free to terminate the lease at will. But after the period expired, Liberty would be obligated to pay rent for the full five-year term of the lease regardless of whether it could obtain or maintain any permits required to operate.
Just five months after the lease was signed, the City of Miami Beach passed a new ordinance that increased the separation requirement between dispensaries from 500 feet to 1,200 feet. By that point, Liberty did not have any permits, and another dispensary already existed within 1,200 feet of the property. When Liberty realized that it would not be able to operate a dispensary in the property (or, at least, not without a costly fight with the City), it breached the lease by unilaterally terminating and refusing to pay rent.
OHR turned to the attorneys at Bast Amron LLP to enforce its rights under the lease, and Jeffrey P. Bast, Jeremy J. Hart, and Peter J. Klock, II brought an action against Liberty for breach of contract, seeking an award of unpaid rent as damages and attorneys’ fees. Liberty vigorously defended the lawsuit, claiming that the doctrines of failure of consideration, impossibility, and frustration of purpose applied to relieve its obligations because the change in zoning rendered it impossible to operate a dispensary on the premises. Liberty also claimed that OHR had failed to mitigate its damages, as nearly half of the property remained vacant more than a year-and-a-half after Liberty’s breach.
In a trial conducted over Zoom, Bast Amron attorneys Jeremy Hart and Peter Klock presented evidence and argument demonstrating that the doctrines relied upon by Liberty were inapplicable, as the lease itself and the parties’ negotiations established that the parties had foreseen and allocated the risks that ultimately came to fruition. Therefore, Hart and Klock argued, Liberty’s inability to obtain permits after the permit period had expired had no effect on its rent obligation. In an effort to limit OHR’s damages notwithstanding the breach, Liberty presented the expert testimony of Mr. Jeremy Larkin, co-chairman of commercial real estate brokerage NAI Miami, who opined that OHR had failed to use commercially reasonable efforts to re-let the premises and discounted the effects of the Covid-19 pandemic, which struck less than one year after Liberty’s breach. Testifying on behalf of OHR, Alex D’Alba, a senior associate at commercial real estate firm Marcus & Millichap, opined that OHR’s use of its tried and true marketing methods was commercially reasonable, as those methods led to half the property being re-let within only three months of the breach, and had historically resulted in occupancy rates above ninety percent in OHR’s holdings. Further, Mr. D’Alba testified, the typical timeframe within which a landlord could reasonably be expected to re-let a property was about one year for commercial space of the type at issue, and the pandemic caused a dramatic decline in demand within that one-year period which left OHR partly unsuccessful in re-letting the space.
After considering the evidence presented and the argument of counsel, Judge Reemberto Diaz of the Eleventh Judicial Circuit of Florida entered final judgment in favor of OHR, awarding the full measure of unpaid rents owed to OHR as well as the attorneys’ fees incurred in litigating the matter.