"YOU SIGN A LEASE.
THE LANDLORD SIGNS A SEPARATE LEASE WITH A COMPETITOR.
CAN YOU SUE?"
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
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.
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
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
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:
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
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
The Court of
Appeal also dispensed with plaintiff's cause of action for interference with
prospective economic advantage.
The Court notes
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:
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].
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
[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 The Journal
Myles M. Mattenson © 2006