The Leasing Hotline

NOTICE OF OPTION TO EXTEND

A notice provision in the state's Code of Civil Procedure did not apply to the notice provision in an option clause contained in a lease. Gans v. Smull, B163064, Cal. Ct. App., 2d App. Dist., Div.One, August 29, 2003.

L.C. Smull, Robert H. Cowgill and S-C Development (S-C) and plaintiff's predecessor in interest entered into a 25-year lease in 1977. The lease was assigned to Martin Gans and Stars Drive-In, Inc. (Gans) in 1998. The lease provided that if Gans wished to exercise the lease option to extend, it was required to notify S-C in writing 60 days prior to the date of expiration of the lease. The original lease expired on July 31, 2002. The 60th day prior to the expiration date of the lease was Saturday, June 1, 2002. Gans attempted to exercise the option to extend by letter sent via regular mail on Monday, June 3, 2002. S-C admitted it received service of the letter on Tuesday, June 4, 2002, and had notified Gans by letter dated June 13, 2002, that the attempt to exercise the option was untimely and that S-C wished to terminate the lease as of July 31, 2002. Gans sued for breach of contract, arguing that pursuant to section 12a of the California Code of Civil Procedure (the Code), its mailing of the option on Monday, June 3, 2002, was timely because the 60th day prior to the expiration of the lease fell on a Saturday. The trial court disagreed, and the plaintiffs appealed. The appellate court affirmed. It held that section 12a of the Code did not apply in this case because this case was a contractual matter rather than “an act provided by law” as specified in the Code. It considered that the legislature did not intend that section 12a of the Code apply to acts governed solely by contractual provisions. It reasoned that other sections of the Code did specify their application toward contracts as well as acts required by law, and, therefore, if the legislature intended that section 12a apply to contracts it would have so specified.

REJECTION OF LEASE

A debtor-tenant is responsible for all rent due under its lease prior to the rejection of its lease due to bankruptcy. Ha-Lo Industries v. Center Point Property, No. 02-4331, 7th Cir., September 3, 2003.

Ha-Lo, rented an office building from CenterPoint for a period of 15 years, commencing April 1, 2001. On July 30, 2001, Ha-Lo filed a voluntary Chapter 11 petition for reorganization and sought authority from the bankruptcy court to reject the lease under '365(a) of the Bankruptcy Code, effective upon 30-days written notice to CenterPoint. The bankruptcy court granted Ha-Lo authorization to reject the lease on September 6, 2003, but Ha-Lo did not send written notice until October 3, 2001, and notified CenterPoint that it would vacate the premises effective November 2, 2001. On November 1, 2001, Ha-Lo paid CenterPoint prorated rent for the 3 days it intended to occupy the building. CenterPoint accepted the check as partial payment but demanded the balance of the November, 2001 rent under the terms of the parties' lease. CenterPoint filed an administrative rent claim against Ha-Lo in the bankruptcy court. The bankruptcy court ordered Ha-Lo to pay the balance of the November, 2001, rent. It considered that '365(a) required Ha-Lo to be responsible for all the rent obligations under the lease as they became due until the lease was rejected. It reasoned that because Ha-Lo had rejected the lease as of November 2, 2001, and did not vacate the premises until November 4, 2001, it was responsible for the entire November, 2001 rent under the parties' lease, which required that rent was due on the first of each month. It noted that Ha-Lo was not entitled to prorated rent for the month of November, 2001. The terms of the parties' lease were unambiguous regarding proration. Even though other provisions of the parties' lease contemplated situations where prorated rent would be appropriate, the voluntary bankruptcy of Ha-Lo was not among them.

JURY FINDINGS UPHELD

An appellate court will not substitute its judgment for that of a jury where submission of questions to the jury was proper and where there is sufficient evidence to support the jury's findings. Samuel v. KTVU Partnership, No. 08-02-00010-CV, Tex.Ct. App., Eighth Dist., El Paso, August 15, 2003.

Robert Samuel and KTVU entered into a 20-year lease agreement wherein KTVU leased an office building with the intent to operate a television station at that location. The lease provided that Samuel was responsible for providing space in front of the building for satellite dishes and two microwave dishes on the roof. Samuel was also required to maintain the roof and was required to install a new roof by April 1, 1994. On September 10, 1997, KTVU filed a lawsuit against Samuel, alleging breach of contract under the lease and sought: 1) a declaratory judgment that under the lease it was permitted to install additional satellite dishes as needed; and 2) damages because Samuel failed to install a new roof properly or care for the existing roof. After a jury trial, the jury found that at the time the lease was signed, both parties did not intend that the tenant was limited to the number of satellite dishes stated in the lease and assessed damages at $50,000 for Samuel's failure to comply with the roof-related provisions of the lease. Samuel appealed both issues. With regard to the issue of the number of satellite dishes, Samuel argued that the lease was not ambiguous, and, if it was, the trial court never entered such a ruling. Therefore, Samuel argued that the submission of that question to the jury was improper. The appellate court disagreed and upheld the jury findings. It noted it would not disturb a jury finding if evidence existed to support that finding, even if it disagreed with the jury's conclusion. It held that the lease was ambiguous on its face because it only specified the number of satellites to be installed at the initiation of the lease. It was silent on the issue of additional satellites. Moreover, it was established during the trial that prior to signing the lease, the parties discussed the necessity of satellite dishes to run a television station and that the constantly changing technology would cause the structure and size of the satellite dishes to change over the course of the 20-year lease. The appellate court further ruled it was not required of the trial court to make an express finding of ambiguity in the lease. It considered that the interpretation of a contract is a fact question for the jury, and the decision of the trial court to submit a question regarding the interpretation of the contract to the jury was sufficient to infer that the trial court believed the lease to be ambiguous. With regard to the installation of the new roof, the appellate court held that the facts established during the trial were sufficient to support a jury finding that Samuel failed to maintain and install a new roof as provided in the lease, and the sum of $50,000 was also supported by the evidence at trial.

NOTICE OF OPTION TO EXTEND

A notice provision in the state's Code of Civil Procedure did not apply to the notice provision in an option clause contained in a lease. Gans v. Smull, B163064, Cal. Ct. App., 2d App. Dist., Div.One, August 29, 2003.

L.C. Smull, Robert H. Cowgill and S-C Development (S-C) and plaintiff's predecessor in interest entered into a 25-year lease in 1977. The lease was assigned to Martin Gans and Stars Drive-In, Inc. (Gans) in 1998. The lease provided that if Gans wished to exercise the lease option to extend, it was required to notify S-C in writing 60 days prior to the date of expiration of the lease. The original lease expired on July 31, 2002. The 60th day prior to the expiration date of the lease was Saturday, June 1, 2002. Gans attempted to exercise the option to extend by letter sent via regular mail on Monday, June 3, 2002. S-C admitted it received service of the letter on Tuesday, June 4, 2002, and had notified Gans by letter dated June 13, 2002, that the attempt to exercise the option was untimely and that S-C wished to terminate the lease as of July 31, 2002. Gans sued for breach of contract, arguing that pursuant to section 12a of the California Code of Civil Procedure (the Code), its mailing of the option on Monday, June 3, 2002, was timely because the 60th day prior to the expiration of the lease fell on a Saturday. The trial court disagreed, and the plaintiffs appealed. The appellate court affirmed. It held that section 12a of the Code did not apply in this case because this case was a contractual matter rather than “an act provided by law” as specified in the Code. It considered that the legislature did not intend that section 12a of the Code apply to acts governed solely by contractual provisions. It reasoned that other sections of the Code did specify their application toward contracts as well as acts required by law, and, therefore, if the legislature intended that section 12a apply to contracts it would have so specified.

REJECTION OF LEASE

A debtor-tenant is responsible for all rent due under its lease prior to the rejection of its lease due to bankruptcy. Ha-Lo Industries v. Center Point Property, No. 02-4331, 7th Cir., September 3, 2003.

Ha-Lo, rented an office building from CenterPoint for a period of 15 years, commencing April 1, 2001. On July 30, 2001, Ha-Lo filed a voluntary Chapter 11 petition for reorganization and sought authority from the bankruptcy court to reject the lease under '365(a) of the Bankruptcy Code, effective upon 30-days written notice to CenterPoint. The bankruptcy court granted Ha-Lo authorization to reject the lease on September 6, 2003, but Ha-Lo did not send written notice until October 3, 2001, and notified CenterPoint that it would vacate the premises effective November 2, 2001. On November 1, 2001, Ha-Lo paid CenterPoint prorated rent for the 3 days it intended to occupy the building. CenterPoint accepted the check as partial payment but demanded the balance of the November, 2001 rent under the terms of the parties' lease. CenterPoint filed an administrative rent claim against Ha-Lo in the bankruptcy court. The bankruptcy court ordered Ha-Lo to pay the balance of the November, 2001, rent. It considered that '365(a) required Ha-Lo to be responsible for all the rent obligations under the lease as they became due until the lease was rejected. It reasoned that because Ha-Lo had rejected the lease as of November 2, 2001, and did not vacate the premises until November 4, 2001, it was responsible for the entire November, 2001 rent under the parties' lease, which required that rent was due on the first of each month. It noted that Ha-Lo was not entitled to prorated rent for the month of November, 2001. The terms of the parties' lease were unambiguous regarding proration. Even though other provisions of the parties' lease contemplated situations where prorated rent would be appropriate, the voluntary bankruptcy of Ha-Lo was not among them.