by Andrew N. Jacobson, Esq. and Rebekah Fisher, Esq.
Editor’s Note: Legal Corner contains case summaries and analysis of recent court decisions that impact retail leasing and lease administration. These summaries focus on the leasing issues covered in each case and do not include detailed discussions or analysis of the procedural and peripheral issues in the cases.
It All Depends On The Meaning Of The Word “Rent”
Weiss-Jenkins Iv LLC v. Utrecht Mfg. Corp., No. C14-0954RSL, 2016 WL 2989859 (W.D. Wash. May 24, 2016)
In July 2013, Tenant vacated its premises early, resulting in an early termination agreement between Landlord and Tenant that stipulated that Tenant was liable for certain damages under the lease. Several months later, Landlord re-let the premises to a national coffee shop tenant. Based on that re-letting, Landlord and Tenant agreed that Tenant owed the lost rents for the period between Tenant’s vacating the premises and the coffee shop’s term commencement, plus any shortfall in the rental amount Landlord received between the commencement of the coffee shop lease and the scheduled expiration date of the Tenant’s lease. The issue before the court was the proper calculation of monthly rent paid by the coffee shop tenant, which was to offset what Tenant owed for the remainder of the term of Tenant’s lease. Landlord argued that “rent” meant the price per square foot specified in the Landlord’s lease agreement with the coffee shop tenant while Tenant, asserted that “rent” should include anything provided to Landlord by the replacement tenant in consideration for its lease. In this case, Tenant argued, “rent” should include the significant amount that the coffee shop tenant expended in improvements. The court started its analysis from the premise that the concept of “rent” is not necessarily limited to cash payments designated as rent in a lease, but may encompass anything a landlord receives in consideration for use of the premises. However, in the case at issue, the court did not include a credit for Tenant based on the significant expenditure the new tenant made for improvements, because the coffee shop tenant had voluntarily spent that amount and was not obligated under its lease to make those improvements. As a result, the tenant improvements made by the replacement tenant did not constitute consideration under the lease that could be considered “rent.” Furthermore, the court noted that the replacement tenant’s lease expired substantially after Tenant’s lease would have expired, so even if one accepted Tenant’s argument that the new tenant’s improvements brought value to Landlord, those benefits could not properly be applied to offset the deficiency that Tenant owed to Landlord.