The Leasing Hotline

The tenant appealed, and the appellate court affirmed the legal findings of the trial court. However, the appellate court reversed on the calculation of damages, holding that the guarantor and tenant were entitled to an offset for excess rent and excess construction costs. The appellate court held that the trial court erroneously awarded the landlord the full construction costs, even though the landlord elected to construct a larger, more expensive building than the one that would have been built by the tenant and because the amount of rent received by the landlord from the building actually constructed was higher than the amount that the landlord would have received from the tenant.

BREACH OF GROUND LEASE

A tenant and guarantor may be found liable for breach of a ground lease if the tenant fails to pay construction costs, even where the lease does not specifically provide for construction costs. Highlands Ranch University Park, LLC v. Uno of Highlands Ranch, Inc., Court of Appeals No.: 03CA0724, Court of Appeals of Colorado, Division Five, Jan. 27, 2005.

The landlord and tenant entered into a ground lease in June 2000, whereby the tenant agreed to construct a building on the leased site and lease the premises. In addition, the parent company of the tenant (the guarantor) guaranteed the tenant's obligations under the lease, with a maximum of 2 years of all rent, monies and charges payable under the lease from the time of any default. In December 2000, the tenant advised the landlord that it would not perform under the lease, and the tenant executed an estoppel certificate confirming that even though the tenant was not in possession of the premises, the lease was in full force and effect. The landlord commenced an action for damages, inter alia, and the trial court held that the tenant was liable under the lease. It further held that the guarantor was liable for 2 years worth of costs, including construction costs, even though the guaranty did not specifically provide for construction costs. The only limitation in the agreement regarding the guarantor's liability was a limitation on time.

The tenant appealed, and the appellate court affirmed the legal findings of the trial court. However, the appellate court reversed on the calculation of damages, holding that the guarantor and tenant were entitled to an offset for excess rent and excess construction costs. The appellate court held that the trial court erroneously awarded the landlord the full construction costs, even though the landlord elected to construct a larger, more expensive building than the one that would have been built by the tenant and because the amount of rent received by the landlord from the building actually constructed was higher than the amount that the landlord would have received from the tenant.