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Successor Claim Fails
by Ron Davis

The rent that a California shopping center tenant must pay will increase by an amount much greater than the tenant argues is justified.

The shopping center is Woodbridge Plaza in Irvine, and the tenant—California National Bank—occupies space there under a lease that seemed clear and concise regarding rent payments when it was first negotiated. The lease terms simply called for the rental amount to increase every three years, but not to exceed rent paid by a competitor bank or “successor.”

When the lease term expired, however, a competitor bank, Bank of Irvine, that operated at Woodbridge Plaza had ceased operations, and that bank’s premises had been divided into spaces for six new tenants. So with no competitor bank to use for guidelines as to rent, California National Bank offered to renew the lease—but at the much lesser rate than the six new tenants paid.

The shopping center’s owners rejected that offer. But they told the tenant bank that if it would continue paying at the original rental rate, they would adjust that rate once they determined the new amount. Then when they failed to adjust that rent amount, the bank sued.

A California court ruled in favor of the center’s owners, finding that the term “successor” in the lease means “a successor-in-interest who has assumed the rights and obligations” of Bank of Irvine and not merely “another tenant occupying the space formerly occupied” by that bank. Added the judge, “There is no evidence of a successor as thus defined, and the current tenants in the Bank of Irvine space do not fall within that definition.”

The bank tenant appealed that ruling, arguing that because Bank of Irvine no longer occupies the premises, California National’s new rent can be no more than that of the combined rent of the six tenants now leasing the floor space occupied by Bank of Irvine.

A California appellate court disagreed with the tenant’s argument, explaining, “The interpretation that the new rent has to be calculated based on a blended rate for all six tenants now occupying the former Bank of Irvine space is not reasonable or correct given the circumstances under which the lease was executed. Unless the parties anticipated use by a financial institution there would be no point in typing California National’s rent to rent for those premises. Because rent for bank premises differs from that for other shopping center space, there would be no reason to limit California National’s rent to that for retail tenants merely because those tenants occupied the former Bank of Irvine’s premises. There is nothing special about that space other than the fact it was being used by a bank.” (California National Bank v. Woodbridge Plaza, 2008 WL 2224118 [Cal.App. 4 Dist.])

Decision: June 2008
Published: June 2008



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