Playing the Percentages
by Ron Davis
"Build it and they will come" may have been good advice in the movies, but not so good for the developers of a certain Oregon shopping center.
The shopping center is Crossroads Plaza, in Bend, and the developers who built the center a couple of years ago obviously believed that they would have no problem enticing tenants to lease space there when construction ended. But after they opened for business, new tenants did not exactly line up to sign on.
So when one tenant who did lease space there and began operations of a delicatessen never saw occupancy of the center reach 40 percent that first year, he began seeking a way to move out.
The tenant thought he found an escape in the wording of his lease. A provision read, "Tenant shall have the right to terminate this lease in the event occupancy in Crossroads Plaza falls beneath 40 percent of the leasable ground floor area for more than 90 consecutive days."
But the developers denied that the provision permitted the tenant to terminate the lease. The developers argued that the provision instead required occupancy at the center to rise above 40 percent before it could "fall beneath" that level. And because occupancy had not risen to 40 percent when the tenant sought to terminate the lease, they reasoned, he had no authority to vacate the premises.
In response, the tenant claimed that the provision either unambiguously referred to any period of 90 consecutive days below 40 percent occupancy or that the lease was ambiguous. And he added that under state law if the lease is ambiguous, the courts have to interpret it in whose favor the provision was made--that is, the tenant.
The Oregon courts agreed with the tenant, explaining, The disputed provision is ambiguous because the 40 percent occupancy level to which it refers can refer to an actual occupancy level or to both actual and projected occupancy levels.... Because the provision is ambiguous and there is no evidence that bears on the ambiguity, it must be construed in favor of the tenant, the party in ‘whose favor the provision was made.’" (Crossroads Plaza, L.L.C. v. Oren, 31 P.3d 508 [Or.App. 2001])
Decision: September 2001
Published: November 2001