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You Negotiate And Sign A Coin Laundry Lease,
But The Landlord, Who Doesn't Sign,
Signs A Lease With A Competitor!
Can You Sue To Enforce The Lease Or For Interference?
You negotiate with a landlord of a shopping center under
construction for approximately seven months! Finally, after a
major investment of time and energy, you conclude negotiations
for a lease of the coin laundry location within the shopping
center. The lease, provided to you by the landlord, sets forth
an initial term of 10 years. You sign the lease as president of
your corporation through which you will conduct the business, and
a personal guaranty. You return the documents to the landlord by
mail.
About one month later, when your mailbox does not produce a
counter signed copy of the lease from the landlord, you call the
landlord's secretary for a progress report. She informs you, in
a syrupy sweet voice, that a lease has been executed by the
landlord, but not with you! She advises that the landlord signed
a lease for the coin laundry location with a competitor at a
slightly higher rental.
Emotionally devastated by the information, and after
consuming three or four "boiler makers" at a neighborhood tavern,
you decide that the landlord needs to be sued to either enforce
the lease or compensate you for anticipated loss of profit and
emotional distress.
Any chance for success?
Bed, Bath & Beyond of La Jolla, Inc., on somewhat similar
facts, apparently thought there would be a chance of success.
Bed, Bath & Beyond had negotiated with La Jolla Village Square
Venture Partners for a lease of retail space in a shopping center
from May 1992 through January 1993. During February 1993, La
Jolla's attorneys presented Bed, Bath & Beyond with the lease and
a guaranty to be signed by its parent corporation. The documents
were signed and returned to La Jolla. During late March 1993, a
representative of La Jolla contacted Bed, Bath & Beyond and
informed the company that La Jolla had not executed the lease and
instead planned to lease the property to Linen 'N Things.
Bed, Bath & Beyond filed an action against La Jolla and
Linens 'N Things asserting various causes of action, including
specific performance, breach of contract and fraud against the
landlord and causes of action for interference with contractual
relations and prospective economic advantage against Linens 'N
Things.
The trial court essentially granted summary judgment against
Bed, Bath & Beyond, and in favor of La Jolla and Linen 'N Things.
Bed, Bath & Beyond thereafter appealed to the California Court of
Appeal.
The proposed La Jolla lease provided for a term of 10 years.
The California Civil Code requires that an agreement to lease
real property for a term longer than one year must be in writing
and signed by "the party to be charged." Since the landlord, as
the "party to be charged" did not sign the 10 year lease, the
agreement was invalid and therefore unenforceable.
Thus, as to enforcing the lease by specific performance, the
court concluded:
"Whether viewed as an oral agreement or
written agreement, plaintiff's alleged lease
agreement is unenforceable because it is
undisputed that La Jolla, the lessor and
"party to be charged" never signed the draft
instrument the plaintiff signed."
The plaintiff argued that the lease was not subject to the
statute of frauds because, under certain circumstances, the
agreement could have been performed within one year from the date
of its making. Plaintiff argued that the tenant could terminate
the lease before the rental term commenced if the landlord failed
to begin certain work on the property and the landlord had the
right to terminate the lease before commencement of the rental
term if the landlord was unable to obtain certain permits. The
court, nonetheless, held an agreement to lease real property for
a period in excess of one year must be in writing and signed by
the party to be charged "regardless whether such agreement
provides that it may be canceled or terminated within one year of
the date of its making and prior to the commencement of the lease
term."
The Court of Appeal also affirmed the trial court's decision
that the plaintiff could not pursue a cause of action against
Linen 'N Things for intentional interference with the contractual
relationship between Bed, Bath & Beyond and La Jolla for the
simple reason that such a cause of action requires: "an
underlying enforceable contract. Where there is no existing
enforceable contract, only a claim for interference with
prospective advantage may be pleaded."
The Court of Appeal also dispensed with plaintiff's cause of
action for interference with prospective economic advantage.
The Court notes that:
"the only active interference alleged .
. . was that Linen 'N Things offered La Jolla
more money per square foot to rent the
subject retail space. Linen 'N Things also
presented evidence that it did not act with
the intention of illegally restraining trade,
but only with the intent of competing with
plaintiff for attractive retail space."
The Court of Appeal thus concludes:
"California law has long recognized a
`competition privilege' which protects one
from liability for inducing a third person
not to enter into a prospective contractual
relation with a business competitor. The
privilege applies where `"(a) the relation
[between the competitor and third person]
concerns a matter involved in the competition
between the actor and the competitor, and (b)
the actor does not employ improper means, and
(c) the actor does not intend thereby to
create or continue an illegal restraint of
competition, and (d) the actor's purpose is
at least in part to advance his interest in
his competition with the other." . . . .'
[citation]. In short, the competition
privilege furthers free enterprise by
protecting the right to compete fairly in the
marketplace. One may compete for an
advantageous economic relationship with a
third party as long as one does not act
improperly or illegally."
The moral of the story? Don't deliver a lease for execution
by mule and go on a cruise. Use a messenger service. Make an
appointment to personally deliver the lease to the landlord. See
if you can obtain the landlord's signature on the spot! If not,
call the next day to inquire as to when you can expect to receive
the executed lease. In short, if you snooze, you may lose.
[This column is intended to provide general information only and
is not intended to provide specific legal advice; if you have a
specific question regarding the law, you should contact an
attorney of your choice. Suggestions for topics to be discussed
in this column are welcome.]
Reprinted from New Era Magazine
Myles M. Mattenson © 1997-2002
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