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by Ron Davis

Expansion plans of a California shopping center owner are stymied by a co-owner that prefers the status quo.

The shopping center is Sierra Oaks, located in the Sacramento area, and consists of seven separate buildings. The expansion plans would add space to one of those buildings to accommodate a proposed new tenant—Ross Dress for Less.

Opposing those plans is the owner of one of those seven buildings. That building houses a grocery store. And although the expansion would affect only one of the six buildings of the other owner, consent to such a project requires agreement of both parties.

The grocery-store owner therefore could nix plans of the owner of the other six buildings if those plans violate the terms of their ownership agreement. So in this case, failure to get an okay to add the 12,000 square feet of space to allow the leasing to Ross could mean those expansion plans must be scrapped.

And that’s what happened. The grounds for the rejection: “Expanding the tenant space would limit the ability to expand our store and obstruct rear-service circulation.”

A few months later, however, the grocery-store owner sold the building housing his business to another grocery company. But that company also refused to allow the expansion of the building intended for the Ross store.

A lawsuit resulted, with charges against both the former and current grocery-store owners of “unreasonably withholding consent” to allow the expansion plans. In response, the grocers pointed out that the building restrictions prohibit construction outside the building areas. So an owner who wants to build only within the building area on his parcel could do so without consent of the other owners.

The owner of the six buildings argued, however, that the original agreement between the owners specifically provides for expansion of a building. That means, he added, that expansion into the common areas is permitted.

A California appellate court, in its ruling denying the expansion of a building to accommodate Ross, explained, “The [owner of the six buildings] argues it is reasonable to interpret the original agreement as allowing expansion of a building anywhere on its own parcel as long as it obtains the other owners’ consent, which cannot be unreasonably withheld. We shall conclude that interpretation is unreasonable, and the agreement unambiguously prohibits the proposed expansion…. Here, the agreement is clear: Buildings are allowed in the building areas only, and the proposed expansion to build outside the building area violates the agreement.” (Sierra Oaks Madison Limited Partnership v. Ralphs Grocery Company, 2010 WL 415423 [Cal.App. 3 Dist.])

Decision: February 2010
Published: February 2010

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