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Move Out, Pay the Price
by Ron Davis

A decision to move from his rented space before expiration of his lease will cost a tenant of a California shopping center more than $200,000.

The shopping center is Lemon Grove Plaza in the southern California city of Oxnard, and the tenant operated a pizza restaurant there beginning in 1982. The terms of the lease between the two parties, however, eventually resulted in a lawsuit.

The lease terms consisted of a minimum monthly rent to be applied against a percentage rent based on six percent of sales. Initially, that arrangement worked flawlessly. But later, the tenant converted the restaurant to include delivery service. His sales soared, as did the rent based on sales percentage.

The tenant soon decided he needed more space. So he built a shopping center across the street from Lemon Grove Plaza and announced his intentions to move there–despite having 33 months remaining on his lease term.

The tenant then agreed to pay the minimum monthly rent to Lemon Grove Plaza, but balked at paying any of the percentage profits. The owners of Lemon Grove Plaza sued the tenant for breach of lease, and the tenant countersued for intentional interference with a “prospective economic advantage.”

A California court rejected the tenant’s argument and required him to pay the shopping center’s owner $197,074, plus attorney fees. The court calculated that amount by multiplying the 33 months remaining on the lease by the average amount of percentage rent that the tenant paid during his last 12 months of operation at Lemon Grove Plaza.

The tenant appealed, arguing that his lease contains no provision precluding him from discontinuing the pizza delivery operation at any time. He contended, therefore, that the shopping center is not entitled to percentage rent generated by the pizza delivery phase of his business.

A California appellate court, in upholding the lower court ruling, explained, “The shopping center’s owners have the better argument. An agreement of continued operation will be implied into a commercial lease containing percentage rent provisions in order for the lessor to receive that for which he bargained.” (Lemon Grove Plaza, Inc. v. Jonker, 2006 WL 1977487 [Cal.App. 2 Dist.])

Decision: July 2006
Published: August 2006



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