The Leasing Hotline

Subrogation Waiver in Premises Liability

A subrogation waiver in a premises liability matter between an insured (landlord) and the tenant may bar an insurer's claim of subrogation. Fireman's Fund Insurance Company v. Sizzler USA Real Property, Inc., and Aguiluz v. Sky Sushi et al, 169 Cal. App. 4th 415, 86 Cal. Rptr, 3d 715 (Cal.Ct.App. 2nd Dist. 2008).

The landlord owned a shopping center, and the defendant was a tenant in the center. As part of the lease agreement, the tenant was entitled to nonexclusive use of the parking area of the shopping center. The landlord and tenant were each successor parties to two identical leases between the prior landlord and tenant (a Sizzler corporation). The leases provided that the tenant was obligated to maintain liability insurance of $1 million and to have the landlord named as an additional insured on each policy. The lease further provided the tenant the right to assign or sublet, provided that the tenant remained liable for the performance of all the obligations under the leases. Thereafter, the tenant sublet the premises to a nightclub known as Sky Sushi. After the nightclub began operating, a patron, of the nightclub, Aguiluz, was attacked and stabbed in the premises parking area. According to Aguiluz, the nightclub guards had given the impression they would protect him. Aguiluz then commenced an action on account of his injuries, naming the landlord as one of the defendants. The landlord sought indemnification from the tenant, and the tenant directed the landlord to its insurer, Federal. The tenant's insurer, however, provided coverage only up to $750,000 after a self-insured retention of $250,000, and the insurance had failed to name the landlord as an additional insured. The landlord then turned to its own insurer, Fireman's Fund. The latter asked Federal to tender a defense. Federal initially declined and advised Fireman's Fund it would defend the landlord, under reservation of rights and that the litigation costs were excluded. Eventually, the lawsuit with Aguiluz was settled for $300,000, plus an additional $84,101 in defense costs. Thereafter, Fireman's Fund commenced this action against the tenant to recover what it had paid and also for attorney fees under certain provisions of the leases that allowed fees to the prevailing party in an action to recover damages by reason of a default under the lease. The tenant argued that subrogation was barred by the waiver in the leases. Fireman's Fund maintained that the tenant's failure to obtain proper liability insurance constituted nonperformance of a condition precedent to the subrogation waiver and a failure of consideration for it. It also argued that the tenant had violated two other lease obligations, proscribing nuisance on the premises and requiring acquisition of certain permits. Those violations had given rise to the Aguiluz litigation. Furthermore, the tenant had been responsible under the lease to indemnify the landlord. The tenant's failure to perform also excused the subrogation waiver. The trial court held in favor of the tenant, holding that the subrogation waiver remained in operation as a part of a mutual release, as long as the risk in question was covered by insurance. The appellate court affirmed. It held that the lease did not state that the waiver was premised on the tenant's procurement of full insurance. It further considered that although the the tenant may have committed a partial breach, that did not constitute a failure of consideration for the entire lease. The appellate court also rejected Fireman Fund's argument that to disallow the subrogation would defeat the parties' intent and expectations that the tenant was responsible for its own nuisance and its consequences. The appellate court rejected this argument, holding that the tenant did not, as a matter of law, breach the lease obligation because it did obtain all permits in a timely fashion.

Alleged Oral Promise To Lease Premises

Oral discussions and letters of intent are insufficient to maintain a promissory estoppel claim between two sophisticated business entities. Mansfield Square, Ltd. v. Big Lots, Inc., No. 08AP-387, Court of Appeals of Ohio, Tenth Appellate District, Franklin County, Dec. 9, 2008.

The landlord owned several shopping centers and in August, 1998 entered into a 10-year lease agreement with Office Depot. In 2003, Office Depot advised the landlord that it intended to vacate the leased premises, and in September 2003, Big Lots began discussions with the landlord about leasing the Office Depot site. The parties exchanged several letters of intent and during the meetings, the Big Lots representatives stated that once the Big Lots Real Estate Committee gave its approval, a lease agreement would be a “done deal.” Thereafter, five working drafts of a written lease agreement to resolve open issues were exchanged between the parties between December, 2003 and July to August, 2004. A written lease was never finalized, and the landlord filed an action against Big Lots to recoup damages allegedly suffered as a result of Big Lots' refusal to lease the subject premises. Big Lots moved for summary judgment, which was granted by the trial court. The trial court held that the landlord's breach of contract claim failed for lack of a written contract demonstrating that the parties agreed on all material terms of the lease, and the landlord could not maintain a claim of promissory estoppel. The appellate court affirmed, holding that the landlord was unable to demonstrate that: 1) a clear and unambiguous promise was made; 2) upon which one would reasonably and foreseeably rely; and that 3) plaintiff actually relied on the promise; 4) to its detriment. The appellate court further considered the language contained in the letters of intent and that both parties were sophisticated business entities. Under these circumstances, the landlord's reliance could not have been reasonable.

Subrogation Waiver in Premises Liability

A subrogation waiver in a premises liability matter between an insured (landlord) and the tenant may bar an insurer's claim of subrogation. Fireman's Fund Insurance Company v. Sizzler USA Real Property, Inc. , and Aguiluz v. Sky Sushi et al , 169 Cal. App. 4th 415, 86 Cal. Rptr, 3d 715 (Cal.Ct.App. 2nd Dist. 2008).

The landlord owned a shopping center, and the defendant was a tenant in the center. As part of the lease agreement, the tenant was entitled to nonexclusive use of the parking area of the shopping center. The landlord and tenant were each successor parties to two identical leases between the prior landlord and tenant (a Sizzler corporation). The leases provided that the tenant was obligated to maintain liability insurance of $1 million and to have the landlord named as an additional insured on each policy. The lease further provided the tenant the right to assign or sublet, provided that the tenant remained liable for the performance of all the obligations under the leases. Thereafter, the tenant sublet the premises to a nightclub known as Sky Sushi. After the nightclub began operating, a patron, of the nightclub, Aguiluz, was attacked and stabbed in the premises parking area. According to Aguiluz, the nightclub guards had given the impression they would protect him. Aguiluz then commenced an action on account of his injuries, naming the landlord as one of the defendants. The landlord sought indemnification from the tenant, and the tenant directed the landlord to its insurer, Federal. The tenant's insurer, however, provided coverage only up to $750,000 after a self-insured retention of $250,000, and the insurance had failed to name the landlord as an additional insured. The landlord then turned to its own insurer, Fireman's Fund. The latter asked Federal to tender a defense. Federal initially declined and advised Fireman's Fund it would defend the landlord, under reservation of rights and that the litigation costs were excluded. Eventually, the lawsuit with Aguiluz was settled for $300,000, plus an additional $84,101 in defense costs. Thereafter, Fireman's Fund commenced this action against the tenant to recover what it had paid and also for attorney fees under certain provisions of the leases that allowed fees to the prevailing party in an action to recover damages by reason of a default under the lease. The tenant argued that subrogation was barred by the waiver in the leases. Fireman's Fund maintained that the tenant's failure to obtain proper liability insurance constituted nonperformance of a condition precedent to the subrogation waiver and a failure of consideration for it. It also argued that the tenant had violated two other lease obligations, proscribing nuisance on the premises and requiring acquisition of certain permits. Those violations had given rise to the Aguiluz litigation. Furthermore, the tenant had been responsible under the lease to indemnify the landlord. The tenant's failure to perform also excused the subrogation waiver. The trial court held in favor of the tenant, holding that the subrogation waiver remained in operation as a part of a mutual release, as long as the risk in question was covered by insurance. The appellate court affirmed. It held that the lease did not state that the waiver was premised on the tenant's procurement of full insurance. It further considered that although the the tenant may have committed a partial breach, that did not constitute a failure of consideration for the entire lease. The appellate court also rejected Fireman Fund's argument that to disallow the subrogation would defeat the parties' intent and expectations that the tenant was responsible for its own nuisance and its consequences. The appellate court rejected this argument, holding that the tenant did not, as a matter of law, breach the lease obligation because it did obtain all permits in a timely fashion.

Alleged Oral Promise To Lease Premises

Oral discussions and letters of intent are insufficient to maintain a promissory estoppel claim between two sophisticated business entities. Mansfield Square, Ltd. v. Big Lots, Inc., No. 08AP-387, Court of Appeals of Ohio, Tenth Appellate District, Franklin County, Dec. 9, 2008.

The landlord owned several shopping centers and in August, 1998 entered into a 10-year lease agreement with Office Depot. In 2003, Office Depot advised the landlord that it intended to vacate the leased premises, and in September 2003, Big Lots began discussions with the landlord about leasing the Office Depot site. The parties exchanged several letters of intent and during the meetings, the Big Lots representatives stated that once the Big Lots Real Estate Committee gave its approval, a lease agreement would be a “done deal.” Thereafter, five working drafts of a written lease agreement to resolve open issues were exchanged between the parties between December, 2003 and July to August, 2004. A written lease was never finalized, and the landlord filed an action against Big Lots to recoup damages allegedly suffered as a result of Big Lots' refusal to lease the subject premises. Big Lots moved for summary judgment, which was granted by the trial court. The trial court held that the landlord's breach of contract claim failed for lack of a written contract demonstrating that the parties agreed on all material terms of the lease, and the landlord could not maintain a claim of promissory estoppel. The appellate court affirmed, holding that the landlord was unable to demonstrate that: 1) a clear and unambiguous promise was made; 2) upon which one would reasonably and foreseeably rely; and that 3) plaintiff actually relied on the promise; 4) to its detriment. The appellate court further considered the language contained in the letters of intent and that both parties were sophisticated business entities. Under these circumstances, the landlord's reliance could not have been reasonable.