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Center Gets F for Fraud
by Ron Davis

A miscalculation of the square footage that a tenant occupies at a California shopping center has added up to big problems for the center’s owners.

The shopping center is Octagon Plaza in Valencia, and the tenant, who operates a teaching supplies business, discovered the miscalculation more than two years after signing her lease.

When she first occupied the premises, she understood that she was getting 2,624 square feet of floor space, and attached to her lease is a diagram of the shopping center space that represents the size as such. Her rent of $3,804 a month was based on that figure.

Plus, she paid an additional amount of 23 percent of the common-area operating expenses. That calculation was figured by taking the size of her leased premises and dividing it by the overall size of Octagon Plaza’s floor space. Thus, her floor space determined the amount she paid for the operation of the shopping center.

When the tenant first leased the space, she tried to confirm the size of her unit. She said when she approached the center’s owners, they acted as if offended by her inquiries. And she added that they responded that measuring her floor area would be unreasonably costly because of the unit’s unusual angles.

She said they also insisted that they had intimate knowledge of every detail of the shopping center and that she could rely of their representations regarding the size of her leased space and the size of the shopping center. She said their repeated assurances persuaded her to rely on their honesty and accuracy.

But later, she obtained a copy of the shopping center’s application for earthquake insurance. That application disclosed that the correct size of the shopping center was nearly a thousand square feet smaller than the tenant was told. Moreover, the space she occupied was 186 square feet smaller than she was told. That meant the center’s owners were overcharging her for rent and operating expenses.

As a result of the misrepresentations, she would have paid excess rent of more than $90,000 over the term of the lease. She consequently sued the center’s owners.

In their defense, the center’s owners pointed out that a provision of the lease between the two parties declares that “any statement of size” in the lease used to calculate rent “is an approximation which the parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less.”

A California court ruled, however, that the provision cited by the center’s owners “does not insulate them from liability for fraud or establish that the tenant’s reliance on the alleged misrepresentations was unjustifiable as a matter of law….We conclude that the terms of the lease--including the provision cited by the center’s owners--do not bar the tenant from asserting her fraud claim or showing that the misrepresentations reasonably induced her to accept the lease…. The net result is that the center’s owners pulled a ‘bait and switch’ on the tenant.” (McClain v. Octagon Plaza, 2008 WL 257231 [Cal.App. 2 Dist.])

Decision: January 2008
Published: February 2008



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