Gross Sales Termination Clause, Cotenancy Requirements Provision, and Unlawful Detainer Res Judicata Application to Later Tenant Suit Explored in Trio of Unpublished California Decisions

Gross Sales Termination Clause, Cotenancy Requirements Provision, and Unlawful Detainer Res Judicata Application to Later Tenant Suit Explored in Trio of Unpublished California Decisions

In this Analysis, William M. Hensley discusses recent unpublished California Court of Appeal cases dealing with commercial and residential leases. Two cases involve commercial leases and focus on a gross sales benchmark termination clause and cotenancy requirement provision. The third case discusses what res judicata/collateral estoppel impact should be given to an unlawful detainer action outcome in a tenant's damages suit for the landlord's failure to make repairs. Mr. Hensley writes:

II. Gross Sales Benchmark Termination Provision Considered in Samii v. Codding Enterprises

     Samii v. Codding Enterprises [2011 Cal. App. Unpub. LEXIS 4377 (Cal. App. 1st Dist. June 10, 2011)] [enhanced version available to lexis.com subscribers] involved a situation where restaurant tenants in a Santa Rosa mall had their lease and possession terminated by a successor landlord when they failed to achieve a certain benchmark gross sales threshold giving either side the option to terminate the lease. As we shall see, the parity of this termination provision was an important reason that sustained landlord's right to dispossess tenants from the mall premises.

     Tenants, who had been operating a restaurant in the mall for about 24 years, were subject to a special lease rider that provided both mall owner and tenants the option to terminate the lease if tenants failed to achieve a specified gross sales benchmark threshold during a full lease year. A written notice of termination had to be given 15 days after tenants submitted its yearly gross receipts statement to landlord in order to validly exercise the termination right.

     Near the end of 2005, Simon purchased an interest as new mall owner and began to work on redeveloping the mall. Simon's representative examined recent sales record for tenants, determining that their revenues were far below a national chain restaurant's sales and had been declining 5-15% annually in recent years. The representative instructed owner's manager to obtain a gross receipts statement from tenants.

     For months, the manager tried to obtain the certified gross receipts statement but met resistance because tenants had previously submitted only monthly sales reports. When tenants and manager finally hooked up, tenants filled out a yearly report that was uncertified.

     Tenants' report showed that their restaurant fell short of the termination sales benchmark by almost $900,000. Four days later, owner Simon sent a notice of termination under which tenants confirmed delivery through a mail receipt sometime later. The termination notice ran from the date that tenants admitted receipt, although owner did contact tenants to let them know that they could stay if tenants were willing to relocate to a different part of the mall.

     Needless to say, tenants did not take landlord up on its offer. Tenants instead sued landlord for breach of lease and declaratory relief about the enforceability of the termination provision/termination notice. This, in turn, provoked an unlawful detainer action by owner, prompting a judicial consolidation of the two actions and bifurcation by which the unlawful detainer action was tried first. Owner won the unlawful detainer action in a bench trial, sustaining the sales benchmark termination provision as valid and finding that the notice of termination was a proper one. With that, the declaratory relief action outcome was subsumed in the unlawful detainer findings, resulting in a merits judgment and subsequent attorney's fees award in owner's favor. Tenants then appealed.

(footnotes omitted)

Access the full version of Lease Issues Explored in Three Unpublished California Decisions with your lexis.com ID. Additional fees may be incurred. (approx. 13 pages) 

If you do not have a lexis.com ID, you can purchase this commentary and additional Emerging Issues Analysis content at the LexisNexis Store.

....

Lexis.com subscribers can explore/search Real Estate Law resources on Lexis.com or access any of these Mathew Bender Real Estate Law publications:

Non-subscribers can purchase Property Law treatises/resources and Mathew Bender publications from the LexisNexis Bookstore

Non-subscribers can purchase Real Estate Law treatises/resources and Mathew Bender publications from the LexisNexis Bookstore

For more information about LexisNexis products and solutions connect with us through our corporate site.