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Lease Theatrics
by Ron Davis

A “letter of intent” can go a long way toward resolving any questions about the terms and meaning of a shopping center lease. Consider, for example, how such a letter from a tenant inadvertently aided the owners of a Los Angeles shopping center.

The owners had leased space there to the tenant, an antiques retailer, and the question eventually arose over the amount of space the tenant was allowed to use for his business. The tenant claimed that the two parties had agreed that the leased space included not only the retail store, but also an adjacent movie theater that had previously gone out of business. After the signing of the lease, the tenant refurbished the store as well as the lobby and snack bar area of the theater and began operations.

When the tenant later stated his interest in using the remainder of the theater, the real-estate agent handling the matter said he could not commit to such a request. He explained that other tenants used the theater’s former seating area for storage and renting it would require evicting them.

The tenant responded with his letter of intent, claiming that the shopping center’s owners had agreed to lease the entire theater to him. In that letter, the tenant also stated that a lease add-on would include a “cage area” of the theater, but would be separate from the previous lease and would not include the theater’s lobby and snack bar. Those two areas, the letter stated, were already part of the original lease.

The shopping center’s owners replied to the letter by expressing their opposition to leasing the theater on the terms outlined by the tenant. The owners then decided to evict the tenant on grounds that he had breached the lease agreement.

The tenant sued, and a California jury decided in favor of the shopping center’s owners. The tenant appealed, arguing that the lease with the center included the entire theater.

A California appellate court upheld the jury verdict, explaining, “The tenant’s claim that the lease included the theater was eviscerated by the letter of intent. That letter revealed that, even after the tenant commenced possession of the store, he sought to enter into a second lease for the theater. The letter of intent offered to lease the ‘cage area’ of the theater and promised to vacate that area if the parties did not reach an agreement for the lease of the theater. Thus, regardless of what was later said, the evidence demonstrated that the tenant did not believe the operative lease included the theater.” (Chosen Few Information Systems, LLC v. M&N Rug Enterprises, LLC, 2007 WL 1196553 [Cal.App. 2 Dist.])

Decision: April 2007
Published: April 2007



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