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by Ron Davis

Plans of a California shopping center tenant to convert his leased premises from a restaurant into an unauthorized bar have bombed.

The shopping center is located in Fullerton, and the tenant had assumed the lease of a restaurateur who offered an Asian-Indian cuisine to customers. That restaurant was unsuccessful, however. And the center’s owners allowed the new tenant to operate a “Euro-Asian restaurant” in the vacated premises.

The tenant began remodeling, during which the center’s property manager visited the restaurant to check on work progress. And he found that rather than refreshing the premises for a restaurant operation, the tenant was building a bar.

The property manager pointed out to the tenant that his lease permits a restaurant with alcohol service, but the lease does not permit simply a bar. Months later, the restaurant premises remained closed. The shopping center’s owners then demanded that the tenant comply with the terms of the lease or forfeit any rights to operate a business in the leased space.

The tenant failed to respond to that demand, and the center’s owners sued, seeking compensation for the rental value of the leased premises. The tenant replied, however, that he did not breach the lease. He explained that the lease allowed him six months to remodel before reopening. But, he added, he was unable to reopen because Fullerton city officials had delayed in approving his application for a business license. Moreover, he said, the shopping center’s owners had accepted some rental payments, and by doing so they had waived their claim to any breach of the lease.

A California court disagreed with the tenant’s explanations and required that he pay the shopping center’s owners $160,567.90 “in rental value.” Plus, the court declared the lease forfeited.

The tenant appealed that ruling, arguing that there was no breach of lease. That lease, he explained, allowed him a grace period before he had to reopen the restaurant space.

A California appellate court agreed with the lower court, noting “The license that the tenant applied for was to operate a bar or nightclub, uses not permitted under the lease. This evidence supports an implied finding of an inability to obtain a license, which, even if true, would not vitiate the failure to operate the restaurant. So the license defense does not compel a finding of no breach.” (Inland Western Fullerton Metrocenter LLC v. Astavakra, 2009 WL 1816906 [Cal.App. 4 Dist.])

Decision: July 2009
Published: August 2009

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