Federated Retail Holdings, Inc. v. Cnty. of Ramsey

In Federated Retail Holdings, Inc. v. Cnty. of Ramsey, 820 N.W.2d 553, 560 (Minn. 2012), the question was whether a leasehold interest in a parcel adjacent to the property under petition constituted "real property" within the meaning of section 272.03 (and thus fell within this court's subject-matter jurisdiction). 820 N.W.2d at 559. The supreme court concluded that the phrase "belonging or appertaining to the land" "generally refers to covenants that run with the real property itself." Id. at 560. Accordingly, the supreme court concluded that "a covenant that satisfies the three criteria necessary to run with the land is a right or privilege that belongs or appertains to the real property of the tax parcel." Id. at 560. The particular interest at issue in Federated was the lease of "45,436 square feet of basement space that is physically attached to the tax parcel the Macy's department store at the Rosedale Center via an escalator," subject to the requirement that the space be used "solely for an integrated part of the operation of the Macy's department store." Id. at 556. More specifically, the lease gave Dayton's (Macy's predecessor in interest) "the exclusive right of possession of 45,436 square feet of administrative/retail space that is automatically renewable for 100 years for nominal rent." Id. at 561. In return Dayton's promised "to operate the basement space as a fashion oriented retail department store" and promised not to open a Dayton's department store at the then-new Mall of America. Id. at 561 (internal quotation omitted). The basement space--a separate parcel for tax purposes--was used by Macy's as administrative and retail space. Id. at 556. In concluding that the lease of the basement space constituted a covenant that ran with the land, the supreme court cited several factors. First, the court noted, "the requirements of the covenant relate specifically to the right of the owner of the department store parcel to use the leased basement space as a department store." Id. at 561. The court characterized this as "a physical requirement and a use restriction, consistent with a restriction that runs with the land." Id. at 561. Second, the court noted that the lease "also binds the Mall and its successors in interests by making them subject to the use restrictions for the duration of the lease." 820 N.W.2d at 561. The court cited cases from other jurisdictions that have also "concluded that restrictions on use of space are considered to run with the land." Id. at 561 n.7 (collecting cases). Finally, the court cited "the long-term and specified nature of the temporal restrictions in the lease," which to the court "also indicate that the covenant runs with the land." Id. at 561. To recall, the lease gave Dayton's the exclusive right of possession, automatically renewable for 100 years at "nominal" rent, provided that Dayton's used the basement space as a retail department store, and required Dayton's to so occupy the space "upon commencement of the lease." Id. at 561.